Export Oriented Unit (EOU) Registration & Compliance

An Export Oriented Unit is a manufacturing unit that has obtained a Letter of Permission (LoP) from the Development Commissioner under the EOU Scheme (governed by Chapter 6 of the Foreign Trade Policy). Unlike a regular exporter who imports inputs on duty and later claims Duty Drawback or Advance Authorisation benefits, an EOU imports all its inputs and capital goods upfront without payment of customs duty, maintains those goods in a bonded warehouse, and is obligated to export its production. The EOU is legally a bonded warehouse under the Customs Act — goods are under Customs control until exported or until duty is paid on any domestic sale.

An EOU can import duty-free: raw materials and inputs used in export production; consumables and spares; capital goods (machinery, equipment, tools, dies, moulds) including second-hand capital goods subject to condition; office equipment; and packing materials. The duties exempted include Basic Customs Duty (BCD), IGST on imports (under the applicable Customs Exemption Notification — currently Notification No. 52/2003-Customs as amended, and relevant IGST exemption notifications), and any Special Additional Duty or Countervailing Duty that may be applicable. Anti-Dumping Duty exemption depends on specific notification coverage — not all ADD exemptions are automatically available to EOUs.

The NFE (Net Foreign Exchange Earnings) obligation is the central commitment of an EOU. The unit must demonstrate positive NFE cumulatively over each 5-year block period — meaning, the total foreign exchange earned through exports must exceed the total foreign exchange spent on imports (and other permissible forex outflows) over the block. The NFE formula is: NFE = A – B, where A = FOB value of exports + value of deemed exports + other permitted credits, and B = CIF value of all imports (inputs + capital goods) + other permissible forex debits. NFE must be positive (A > B) at the end of the 5-year block. At the end of the first 5-year block, a CA Certificate certifying positive NFE must be submitted to the DC for LoP renewal.

Yes, but with restrictions and on payment of duty. An EOU is permitted to make Domestic Tariff Area (DTA) sales up to 50% of the FOB value of its exports in the preceding year (subject to the specific LoP conditions). DTA sales require payment of applicable customs duty on the import content of the goods sold — calculated on a pro-rata basis. Additionally, GST is levied on DTA sales at the normal applicable rate. DTA sales also count as a forex outflow for NFE purposes — or rather, reduce the EO credit — so excessive DTA sales can threaten NFE compliance. Every DTA removal must be documented with an ARE-3 / equivalent removal form and cleared by the Customs Superintendent.

If the cumulative NFE over the 5-year block is negative, the EOU is in breach of its fundamental EOU obligation. The Development Commissioner can invoke the B-17 Bond/Bank Guarantee to recover the proportionate customs duty on imports that were made on the expectation of export production that was not achieved. The duty recovery is calculated on the net shortfall — the value of imports attributable to the NFE gap. In addition, the DC can impose a penalty under the FTDR Act 1992 and can decline to renew the LoP. If the situation is identified early, PNPC initiates a regularisation application to the DC explaining the shortfall, supported by evidence of genuine manufacturing activity and export efforts.

The B-17 General Bond is the standard Customs bond executed by an EOU with the Customs Commissionerate, pledging to comply with all conditions of the EOU scheme and to pay customs duty on any goods for which the conditions are not met. It can be executed with two sureties (persons of adequate net worth who co-sign) or backed by a Bank Guarantee from a scheduled commercial bank. The amount of the BG is prescribed by the Customs Commissioner and is typically linked to the estimated annual duty foregone on imports. A BG is generally required if the EOU does not have sureties of adequate net worth. For large and established EOUs with a track record, some Customs Commissionerates allow a reduced BG or a bond with reduced surety requirements.

Yes — this is one of the most significant advantages of EOU status over transaction-based schemes like Advance Authorisation (which covers only inputs). An EOU can import all capital goods required for export production — machinery, equipment, tools, dies, moulds, software, testing equipment — without payment of customs duty. If the unit later wants to de-bond (exit the EOU scheme), it must pay customs duty on the residual value of capital goods, computed after depreciation. CBIC has prescribed depreciation rates for EOU capital goods — commonly 20% per year for most plant and machinery (resulting in zero duty after 5 years) and 33.33% per year for computers and peripherals (zero duty after 3 years). The exact rates and eligible asset categories should be verified against the current CBIC notification at the time of de-bonding.

The ARE-3 (Application for Removal of Excisable Goods for Export) was originally a Central Excise procedure for removing goods from a factory for export or for supply to an EOU. Under the current GST framework, Central Excise on domestic goods has been subsumed into GST for most products. However, the Customs equivalent of ARE-3 — the removal procedure for goods from the EOU bonded warehouse — continues in a modified form under CBIC circulars. The specific current procedure (whether formally called ARE-3 or an equivalent Customs removal form under the bonding procedure) must be verified with the relevant Customs Commissionerate and the DC office at the time of EOU operation. PNPC establishes the current removal procedure with the Customs Superintendent at the commencement of operations.

Domestic purchases by an EOU from Indian (DTA) suppliers are treated as deemed exports under Section 147 of the CGST Act. The supplier has two options: (a) Supply under a bond or Letter of Undertaking (LUT) without paying GST — the supply is zero-rated, the EOU pays nothing, and the supplier can claim refund of ITC accumulated on inputs used to make this zero-rated supply; or (b) Supply on payment of GST — the supplier collects GST from the EOU, files GSTR-1 with the tax, and can claim refund of the IGST/CGST+SGST paid through the refund mechanism under Section 54 of the CGST Act. For the EOU, option (a) is preferred — no cash outflow on domestic procurement, no ITC accumulation to manage, and no waiting for refunds.

No — an EOU should not concurrently use Advance Authorisation for the same category of imports. Since the EOU scheme already provides duty-free import for all approved inputs under the LoP, applying for an AA for the same inputs would create a dual-compliance situation. The DGFT policy specifically notes (in the context of the Advance Authorisation scheme) that EOUs have their own mechanism and the AA is not intended for EOU imports. However, if an EOU has a specific export product line that is outside its LoP scope or involves inputs not covered by its LoP, it may theoretically apply for a separate AA — but this is unusual and requires careful structuring to avoid overlap. PNPC reviews each such situation individually before recommending any dual-scheme arrangement.

The EOU scheme is available to manufacturing units across most industries. However, certain categories require specific approvals or are subject to restrictions: (a) EOUs in the agriculture, aquaculture, floriculture, and horticulture sectors require approvals from relevant ministries; (b) Petroleum refining EOUs are subject to special conditions; (c) EOUs for gems and jewellery have specific norm requirements under the Handbook of Procedures; (d) Some activities involving hazardous chemicals or defence-related production require security clearances. Software and IT services are handled under the STPI scheme rather than the EOU scheme. Retail trading is not eligible for EOU registration. PNPC verifies sector eligibility before initiating the LoI.

Under the current Foreign Trade Policy framework, there is no prescribed minimum investment threshold for EOU registration (unlike some earlier policy periods which had minimum investment requirements). However, the DC's UAC expects the project to be commercially viable — a project report demonstrating a credible and sustainable export business with positive NFE over the 5-year block is required. In practice, very small units may find the compliance overhead disproportionate relative to the duty savings — PNPC's feasibility analysis will flag this. There is also no minimum annual export turnover to apply, but the unit must commit to making the EOU its primary business activity and exporting substantially all of its production.

Yes, an existing manufacturing unit can apply to convert to EOU status — this is explicitly provided in the FTP. The conversion involves: filing a LoI with the DC, obtaining LoP approval, and getting the existing premises bonded by Customs. The challenge with conversion of an existing unit is that all existing stock of raw materials and capital goods in the premises must be accounted for — goods that were imported on duty and are already in the factory do not receive retrospective duty exemption. The Customs bonding process creates a clear demarcation: goods imported before bonding and goods imported after bonding (duty-free under EOU status). PNPC manages the inventory audit at the time of bonding to establish the correct opening position.

The Letter of Permission (LoP) is typically valid for 5 years from the date of issuance — corresponding to the first 5-year NFE block period. At the end of the 5-year block, the EOU must apply for renewal of the LoP from the DC office, along with a cumulative 5-year NFE statement, a CA Certificate confirming positive NFE, and updated project documents. Renewal is granted for another 5-year block. An EOU can continue indefinitely through successive LoP renewals as long as NFE remains positive and the unit is otherwise compliant. The LoP can also be amended during its validity — to add new products, new input categories, or new premises.

Show-cause notices (SCN) from the DC office arise from: non-filing of monthly/quarterly/annual reports; negative NFE trends without explanation; DTA sales exceeding limits; discrepancies in the bonded stock register found during DC or Customs inspection; or specific alleged violations of EOU conditions. An SCN requires a written response within the prescribed period (usually 30 days), followed by a personal hearing before the DC. Non-response results in the DC passing an ex-parte order — which can include penalty, LoP suspension, or cancellation. PNPC responds to all DC SCNs, attends hearings, and manages the adjudication proceedings.

An EOU's exports are subject to FEMA 1999 and the RBI's export regulations and Master Directions on Export of Goods and Services. Key requirements: (a) Export proceeds must be realised and repatriated to India within the prescribed period — this period is actively revised by RBI (recent cycles have moved between a 9-month baseline and longer windows, with additional time sometimes allowed for rupee-invoiced or rupee-settled exports), so exporters must check the RBI notification in force on the relevant shipment date rather than relying on a fixed number; (b) Proceeds must be received through Authorised Dealer (AD) bank channels; (c) The AD bank must be provided with export documents and FIRC for each realisation; (d) An EOU with a history of consistent export performance can apply to the AD bank for longer realisation periods in specific markets. PNPC maintains an export-proceeds realisation register and tracks each shipping bill against its corresponding FIRC.

Yes, subject to prior permission from the Customs Superintendent and prescribed conditions. The FTP and Customs bonding procedures provide for temporary removal of capital goods from an EOU for: repair and maintenance at an outside facility (with a return obligation within the permitted period); demonstration at trade fairs and exhibitions; and temporary use at another location for job work purposes. Each temporary removal must be documented with a specific removal form, the Customs Superintendent must be notified, and the goods must be returned within the permitted period. Failure to return goods within the period results in duty being levied on the removed goods.

An EOU can send inputs, semi-finished goods, or components outside its bonded premises to a job worker (DTA manufacturer) for processing — subject to prior permission from the DC/Customs and prescribed conditions. The EOU retains ownership of the goods; the job worker processes them and returns them. The inputs sent to the job worker for processing are covered by the EOU's bonding — they are considered to be temporarily outside the bonded premises. The job worker is not required to be an EOU. On completion of job work, goods must be returned to the EOU with appropriate documentation. PNPC manages the job work removal and return documentation.

Yes — inter-EOU and EOU-to-SEZ supplies are specifically permitted and constitute 'deemed exports' for the purposes of the EOU scheme. An EOU supplying goods to another EOU or to an SEZ unit can count that supply toward its own export obligation (NFE credit) — provided the appropriate documentation is in place. From a GST perspective, such supplies are also zero-rated (the receiving EOU or SEZ is treated as an export destination for GST purposes). The procedure involves inter-unit transfer documentation, ARE-3 / equivalent removal forms from the supplying EOU, and acknowledgement from the receiving unit. PNPC manages inter-EOU supply documentation when the client unit is either the supplier or the recipient.

No. The income-tax exemption for EOUs under Section 10B of the Income-tax Act (a phased exemption on profits from export activity, available for up to 10 consecutive assessment years per unit) was withdrawn with the deduction ceasing to be available for any assessment year after AY 2011-12 — irrespective of when the individual unit commenced operations or where it was in its own 10-year window. For all EOUs operating today, there is no income-tax exemption tied to EOU status. Section 10AA (the SEZ-unit tax holiday) is a separate provision that applies only to units located inside a notified SEZ, not to EOUs, and is itself closed to new SEZ units that commenced operations after the last extended cut-off (30 June 2020, following successive extensions from the original 31 March 2020 sunset). The primary financial incentive for an EOU today is therefore customs duty savings on imports, not income-tax exemption.

An EOU's bonded premises must maintain physical security standards required by the Customs Commissionerate — this typically includes: controlled access to bonded storage areas; CCTV coverage of storage and production areas (required by some Commissionerates); inventory records (bonded stock register) maintained in the format prescribed by the DC/Customs; and periodic physical stock verification by Customs officers (either on request from the unit or as part of Customs inspection). Any unexplained shortage in bonded stock — goods present in the register but not physically found — is treated as unaccounted removal and attracts duty demand plus penalty.

EOUs are generally not eligible to claim RoDTEP benefits on the same exports for which the EOU scheme is claimed — since the EOU scheme already provides duty-free import of inputs, the rationale for RoDTEP (which remits residual embedded taxes not refunded under any other mechanism) does not apply in the same way for imports. However, the exact RoDTEP eligibility for EOUs depends on the current CBIC notification and the specific product schedule — some EOU exports may be eligible for RoDTEP on the domestic embedded cost components. PNPC verifies RoDTEP eligibility for each EOU client's export product at the time of export return preparation.

An EOU availing of the duty-free import benefit under its LoP cannot simultaneously use import incentive schemes (like Duty Credit Scrips from RoDTEP, Duty Drawback, or MEIS/SEIS successor schemes) for the same imports — as that would constitute double benefit on the same goods. However, on the export side, EOU exports may be eligible for Duty Drawback on the domestic duty component (state taxes, other residual duties not covered by the EOU's duty-free import benefit), and for certain post-GST export incentive entitlements on domestic value additions. The scheme overlap rules are complex and product-specific. PNPC maps the EOU client's eligible export incentives and identifies the non-overlapping benefits that can legitimately be claimed.

An EOU that wishes to exit the scheme (surrender the LoP) must follow the de-bonding procedure: (a) File a request for surrender with the DC office; (b) Complete all pending compliance filings — monthly reports, annual review, NFE statement up to date of surrender; (c) Submit to Customs for assessment of duty on: all unexported goods held in bonded stock at the time of de-bonding (duty at full applicable rate), and all capital goods imported duty-free (duty on written-down value computed at the CBIC-prescribed depreciation rates — commonly 20% p.a. for plant and machinery and 33.33% p.a. for computers); (d) Pay the assessed duty; (e) Surrender the B-17 Bond/BG; (f) Obtain DC deregistration. After de-bonding, the unit becomes a normal DTA unit and may apply for other FTP scheme benefits on a going-forward basis.

Under the traditional EOU scheme, a Customs Superintendent was physically posted at large EOUs, present during all removal of goods and imports. Under current practice (and risk-based Customs management), many EOUs do not have a permanently posted officer — instead, the EOU has a designated Customs officer assigned to it who conducts periodic visits and must be called for specific activities (large shipment removal, physical stock verification, first import under a new LoP). The specific protocol — which activities require prior notice to and physical presence of the Customs officer — depends on the Customs Commissionerate's current circular and the specific conditions in the EOU's bonding order. PNPC establishes this protocol with the assigned Customs officer at the start of each EOU engagement.

Government fee for EOU annual compliance is generally low — there is no prescribed annual renewal fee for maintaining EOU status in most cases (the LoP renewal at the 5-year block end may involve a nominal DC processing fee — verify current DC schedule). However, operational costs include: the BG annual renewal charge from the bank (typically 0.5%–1.5% of BG value per year); any composition fee payable if the DC grants regularisation of a compliance gap; Customs escorting charges (if the Customs Commissionerate levies charges for physical supervision of specific movements, though this practice varies by Commissionerate); and the CA firm's ongoing compliance management fee for monthly reports, annual review, NFE certification, and advisory. The CA compliance cost is typically the dominant ongoing cost for an EOU and should be budgeted as a fixed annual cost.

Yes, but each premises must be separately bonded and covered under the LoP. If an EOU has production at two or more locations, each location must go through the Customs bonding process individually, and the LoP must specifically cover each premises. The DC may issue a single LoP covering multiple premises, or may require separate LoP applications for each. Additionally, inter-premises transfers of goods between the two bonded locations must be documented with removal forms to maintain the bonded status of goods in transit. PNPC manages multi-location EOU structures and coordinates the separate bonding arrangements at each premises.

For software, IT, ITES, and BPO service exporters, the STPI (Software Technology Parks of India) scheme under the STPI Act 1994 is the dedicated mechanism — not the EOU scheme. STPI provides: customs duty-free import of hardware, software, and testing equipment; 100% FDI under automatic route for software companies; simplified annual audit and reporting through the STPI Director; and single-window clearance. The STPI scheme has different compliance requirements than EOU and is administered by the Department of Electronics and IT (MeitY) through STPI offices located in technology parks. An SEZ unit (in a designated SEZ) is available for both manufacturing and services, with broader tax benefits (Section 10AA) for units that qualify under the applicable sunset dates. A software company should use STPI (or SEZ if located in an IT SEZ) — not EOU, which is structurally designed for goods manufacturing.

Wastage and scrap are an inherent part of manufacturing, and the EOU scheme provides for their treatment. Standard wastage norms may be specified in the LoP for the manufacturing activity — any wastage within those norms is treated as consumed in the production process and accounted for in the NFE calculation. Wastage beyond the permitted norms requires explanation to the DC and may attract duty demand on the excess wastage (treated as unaccounted consumption of duty-free inputs). Scrap generated from duty-free inputs can be: (a) exported; (b) destroyed in the presence of Customs officers; or (c) cleared to the DTA on payment of customs duty on the scrap's CIF equivalent value. PNPC advises on wastage norm documentation and manages scrap disposal compliance.

An EOU can export to any country in the world — there are no geographic restrictions on export markets under the EOU scheme, subject to India's general export control and sanctions framework (no exports to OFAC-sanctioned entities, no export of controlled items without the requisite licences under the SCOMET list and Weapons of Mass Destruction and Their Delivery Systems (Prohibition of Unlawful Activities) Act). Export proceeds can be received in any freely convertible foreign currency — USD, EUR, GBP, JPY, AUD, SGD, and other fully convertible currencies. Proceeds can also be received in INR from accounts held by foreign buyers in ACU (Asian Clearing Union) designated banks in certain cases. FEMA regulations govern the specific account types and currency routes.

An EOU's compliance spans four distinct domains: (a) Customs bonding and import/removal procedure — the CHA handles Customs port operations but not the bonded warehouse management or the bonding procedure setup; (b) DC compliance — monthly/quarterly/annual reports, UAC appearances, LoP renewal — this is outside the CHA's scope entirely; (c) GST — deemed export treatment for domestic purchases, EOU status on the GST registration, supplier LUT/refund coordination — requires CA expertise; and (d) FEMA — export proceeds realisation tracking and RBI compliance — requires knowledge of FEMA and RBI Master Directions. A general export consultant handles documentation but does not carry the CA qualification needed for the NFE Certificate, the statutory filings, or the FEMA advisory. PNPC is a practising CA firm that covers all four domains — we manage the EOU lifecycle from LoP to LoP renewal as a single engagement, with no gaps between domain specialists.

The timeline from initial application to first duty-free import under EOU status is typically 10–16 weeks, broken down as: LoI preparation and filing: 1–2 weeks; DC office scheduling of UAC meeting: 2–4 weeks; UAC meeting and LoP issuance: 1–2 weeks after UAC; Customs bonding procedure (premises survey, bond/BG execution, bonding order): 2–4 weeks after LoP. The variable is the DC office's UAC scheduling — offices with higher EOU density in Chennai, Bangalore, Hyderabad, and Mumbai typically have more established workflows and faster turnaround. PNPC initiates the process with the first meeting at the DC office before filing the LoI, to understand the current local requirements and expected timelines.

An EOU's Letter of Permission is granted to the specific entity at a specific location. If the business is acquired (share acquisition — same entity), the LoP remains valid without change; however, the DC should be notified of the change in promoter / management and any change in the AoA or shareholding. If the acquisition is an asset acquisition (business transferred to a new entity), the new entity must apply for a fresh LoP — the old entity's LoP cannot be transferred. Similarly, if the EOU changes its legal form (conversion from private limited to LLP, or vice versa), a fresh LoP application may be required. In all restructuring scenarios, PNPC advises on the EOU compliance implications before the restructuring is executed — not after.

An EOU's LoP can be amended during its validity period — this is a normal part of the EOU lifecycle as businesses evolve. Common amendments: adding new export products; adding new input materials or capital goods not originally listed; expanding the bonded premises to include a new building or location; revising the projected NFE figures; or changing the nature of activity (e.g., adding a new process). LoP amendments are filed with the DC office, reviewed by the UAC (for major amendments) or approved at the officer level (for minor amendments such as adding input materials within the same product category). PNPC prepares the amendment application and attends the UAC if required.