Setting up of EOU, Minimum Investment Criterion and Approvals - Central Excise Practice Manual (OLD) - Central Excise

EOU Scheme it s Working Setting up of EOU [Ref: Paragraph 6.1 of FTP ] The units undertaking to export their entire production of goods and services (except permissible Sales in DTA under the FTP) are allowed to be set up under EOU Scheme for manufacture of goods including repair, re-making, re-conditioning, re-engineering or rendering of services. The trading unit/ trading activity is, however, not permitted under the scheme. Under EOU scheme, Gems Jewellery units for making plain/ studded jewellery, or for cutting/polishing of diamonds or semi-precious stones, floriculture, horticulture or other agricultural products units including agro processing, aquaculture, animal husbandry, Pisciculture, Viticulture, Poultry, Sericulture, bio-technology and quarrying of granites or cutting of marbles can also be set up. Minimum Investment Criterion Only projects with investment of ₹ 1 crore and above (except in cases of certain specified sectors such as EHTP/STP/BTP, Handicrafts/agriculture/ floriculture /aquaculture /animal husbandry /information technology, services, Brass Hardware and Handmade Jewellery sectors, and such other sectors as decided by BOA) in plant machinery are considered. All goods and services except items that are prohibited in ITC (HS) are allowed to be imported or exported by the EOUs for their authorized operations subject to the condition that the provisions of any law in force would be applicable in such cases as well. Letter of Permission (LOP) to set up EOU or for conversion of existing DTA unit into EOU is given by the jurisdictional Development Commissioner with whom LUT under the FTP is required to be executed. EOUs basically function under the administrative control of the Development Commissioner of SEZ concerned whose jurisdiction is notified by the Department of Commerce and is given at Appendix 14-I-K of HOP, Vol. I. Application for setting up an EHTP/STP unit is required to be submitted to the office designated by the Department of Information Technology. Application for setting up BTP unit is required to be submitted to the officer designated by the Department of Bio-Technology. Provisions of Customs Act, 1962 Central Excise Act, 1944 , which are applicable to EOUs are administered by the staff of jurisdictional Central Excise Commissionerate. Unit Approval Committee (UAC) For setting up a unit under EOU Scheme, approvals are given by the Unit Approval Committee, which is headed by the jurisdictional Development Commissioner and consists of SEZ officers, officers of the State Govt., and officer of jurisdictional Central Excise Commissionerate as members (please see Appendix 14-II of HOP, Vol. I for notification issued by DOC for setting up UAC). Powers of the Unit Approval Committee, in brief, are as under:- To consider application for setting up an EOU under the automatic route. To consider and permit conversion of EOU to SEZ unit. To monitor the performance of EOUs. To grant all approvals and clearances relating to the establishment, changes in constitution or activity, operation of EOU and take action for violations, if any. To perform any other function as may be delegated by the Central Govt./State Govt. or its agencies. Procedure for Approval of an EOU For setting up a manufacturing or Service sector EOU, three copies of application in the format prescribed in Appendix 14-I-A of HOP, Vol. I are required to be submitted to the jurisdictional Development Commissioner (DC) for consideration in the UAC. All the cases received for setting up of an EOU are required to be placed before the UAC under the Chairpersonship of the DC and are required to be approved or rejected by the UAC within a period of 15 days of receipt of the application. Proposals for setting up of units requiring Industrial Licence or for units in the Service Sector (except Software and IT enabled services, or any other activity as may be delegated by the BOA) is required to be placed by the DC before the BOA and approval or rejection is required to be conveyed to the unit within 45 days. On approval, a Letter of Permission (LOP), as per the format prescribed in Appendix 14-I-E of HOP Vol. I , is issued to the EOU by the DC /Designated Officer. LOP is valid for 3 years within which the EOU is required to commence commercial production. Validity of LOP can be further extended by another 3 years by the Competent Authority. However, proposal for extension of validity after six years are to be considered in case of exceptional circumstances by BOA on case to case basis. Once the unit commences commercial production, the LOP is valid for 5 years from the date of commencement of commercial production. On completion of 5 years, the EOU may continue under scheme or may opt out of scheme. Where unit exercises option to continue as EOU, concerned DC is empowered to extend approval period. If no intimation in this regard is received from unit within a period of six months of expiry of the approval period, the DC is required to cancel approval under EOU scheme. In case, the unit exercises their option to continue after expiry of six months as stipulated above, DC is empowered to grant extension after obtaining approval of BOA. Sector Specific Requirements for Approval of Unit under EOU Scheme [Specified in Appendix 14-I-C of HOP, Vol. I ] (1) Coffee: Export of imported coffee shall be subject to approval from Coffee Board under relevant Act. (2) High Grade Iron Ore : Proposals for export of high grade i.e. 64% Iron Ore and above, except Iron Ore of Goa origin and Redi origin are presently canalized through MMTC and its exports would be subject to approval of the Board of Approval. (3) Polyester Yarn:- (i) No job work with EOU/SEZ/DTA unit shall be permitted. However, this shall not be applicable to units who intend to send the fabric (made out of Polyester (or) texturised Yarn within the unit) for job work to EOU/SEZ/DTA unit for dyeing of the fabric. (ii) None of the units making polyester Yarn - existing or new - shall be permitted to export through third party and they have to export directly. These restrictions shall not apply to units in the same SEZ. (4) Sale of Surplus Power:- The following procedure is required to be followed in regard to sale of surplus power by EOU/SEZ units:- (i) Whenever the Development Commissioner receives proposal for sale of surplus power, it would be examined in consultation with the State Government including State Electricity Board. This shall, however, not apply to sale of power within the SEZ. The Development Commissioner will report the norms of raw materials and consumables required for generation of a unit of power for consideration and approval by the Board of Approval. (ii) No duty shall be required to be paid on sale of surplus power from an EOU/SEZ unit to another EOU/SEZ unit. Development Commissioner of SEZ concerned would be informed in writing of such supply and proper account of the consumption of raw material would be maintained by the supplying unit. The value of imported inputs and consumables shall be taken into account for NFE calculations of the supplying unit. (iii) The unit will obtain permission of the Assistant Commissioner of Customs/Central Excise for sale of surplus power in the DTA, after obtaining permission from the SEZs under the relevant statute. Duty on sale of power to the DTA shall be as per the notification of the Department of Revenue in this regard. (iv) Due care shall be taken by the Development Commissioner/Board of Approval while approving the power plants by EOU/SEZ units vis- -vis their actual requirement. (5) Guidelines for the existing Plastic Processing Units: The following are guidelines for the existing plastic units under EOU scheme:- (a) Extension of LOP of the existing units under EOU Scheme may be granted based on the terms conditions of earlier LOP. (b) No enhancement of the production capacity is allowed to units which are utilizing plastic waste/scrap. (c) Relocation of the existing units from one Zone to another will be approved on case-to-case basis. (d) EOU units be exempted from the purview of Public Notice No. 392 dated 1.1.1997 regarding restrictions on physical forms sizes and inspection would be done by Zone. However for any supply into DTA, all conditions of public notice will apply. (6) Non ITA-I Items that may be sold in India: Following non-ITA-I items may be sold in the DTA in terms of para 6.9(g) of the Chapter 6 and Para 7.8 (c) (vii) of the Chapter 7 of the Foreign Trade Policy: (i) Colour Display Tubes (CDT) for monitors (ii) Deflection Components for Colour Monitors (7) Textiles: Activities pertaining to reprocessing of garments/used clothing/ secondary textile materials/clipping/rags/industrial wipers/shoddy wool/yarn/blankets/shawls and other recyclable textile materials will not be allowed under EOU/SEZ Scheme. (8) Tea: In case of Tea, a minimum value addition of 50% is to be achieved. (9) Segregation Activities: Segregation Activities are not covered under the definition of manufacture with effect from 1.4.2002. This activity will, however, be allowed to continue in respect of units set up prior to 1.4.2002 for a period of 5 years from the date of commencement of commercial production. The necessary inputs would also be allowed with exemption benefits as per the existing Policy. However, the facility of DTA sale under para 6.8 or 6.9 of Foreign Trade Policy shall not be allowed. (10) Spices (Covered by Chapter 9 of the ITC (HS) Classifications of Export Import Items, 2004-09 ): Duty free imports of spices for export shall be permitted only for value addition purposes like crushing/grounding/ sterilization or for manufacture of oils and oleo-resins and not for simple cleaning, grading, re-packing etc. A minimum value addition of 15% is required to be achieved. (11) Gems and Jewellery Products: The minimum value addition on each consignment shall be in terms of Para 4A.2.1 of the Handbook of Procedures.