Where can I get the Policy of the Government of India on Export Oriented Units (EOU)?

Where can I get the the Industrial Policy of India?
Are there any restrictions on locating an EOU project?
Is any relaxation in locational policy possible?

Are there any further legal points to be considered in finalizing the location of the project?

For what sort of new ventures can the Development Commissioner approve FDI at his level?

Can the Development Commissioner approve FDI in existing EOU ventures with an expansion programme at his level?

Can the Development Commissioner approve FDI in existing EOU ventures without an expansion programme at his level?

Do EOUs in any sector require a licence from the Government of India?

What is the approval procedure for EOUs that cannot be cleared by the Development Commissioners?

What sort of legal entities may set up an EOU?

Where can I get the Application form for applying to the Commerce Department?  What other documents should accompany the application?

After filing the application form do I have to file any Legal Undertaking (LUT)?  Where do I get the form for that?

What about bonding of premises by the Customs?  Where do I apply?  What are the documents required for this purpose?  Where can I get the formats for the multi-purpose bond (B 17 Bond) and the Bank Guarantee?

What about the IE Code?  How do I get that?

What about clearances from State Government Agencies/Departments such as Commercial Taxes, Electricity, Water and Pollution Control Boards?

Are Single Window Clearance Boards operational? Where can I get the formats?
 

 

Where can I get the Policy of the Government of India on Export Oriented Units (EOU)?

The EXIM Policy and the Handbook of Procedures, Volume 1 issued by the Ministry of Industry and Commerce, Government of India gives the details of the Government of India policy on the Export Oriented Unit scheme. You can view the policy here.

 

Where can I get the the Industrial Policy of India?

The industrial policy of the Government of India is available at http://dipp.nic.in

The industrial policy reforms of the Government of India have reduced the industrial licensing requirements, removed restrictions on investment and expansion, and facilitated easy access to foreign technology and foreign direct investment. All industrial undertakings are exempt from obtaining an industrial licence to manufacture, except for

(i) industries reserved for the Public Sector (Annex I),

(ii) industries retained under compulsory licensing (Annex II),

(iii) items of manufacture reserved for the small scale sector and

(iv) if the proposal attracts locational restriction. 

      However EOUs are exempted from the restrictions at (iii).

 

          ANNEXURE-I LIST OF INDUSTRIES RESERVED FOR THE PUBLIC SECTOR

1. Arms and ammunition and allied items of defence equipment, defence aircraft and warships (Process has been initiated to de-reserve this entry.)

2. Atomic Energy

3. Railway transport.

 ANNEXURE-II LIST OF INDUSTRIES FOR WHICH INDUSTRIAL LICENSING IS COMPULSORY

1. Distillation and brewing of alcoholic drinks.

2. Cigars and cigarettes of tobacco and manufactured tobacco substitutes.

3. Electronic Aerospace and defence equipment: all types.

4. Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches.

5. Hazardous chemicals.

6. Drugs and Pharmaceuticals (according to modified Drug Policy issued in September, 1994). 

Are there any restrictions on locating an EOU project?

EOUs are free to select the location of a project.

In the case of cities with population of more than a million, (as per the 1991 census) such as Bangalore and Cochin, however, the proposed location should be at least 25 km away from the Standard Urban Area limits of that city unless, it is to be located in an area designated as an "industrial area" before the 25th July, 1991.

Electronics, Computer software and Printing (and any other industry which may be notified in future as "non polluting industry") are exempt from such locational restriction. 

 

Is any relaxation in locational policy possible?

Relaxation in the aforesaid locational restriction is possible if an industrial license is obtained as per the notified procedure.

 

Are there any further legal points to be considered in finalizing the location of the project?

The location of industrial units is further regulated by the local zoning and land use regulations as also the environmental regulations. Hence, even if the requirement of the locational policy is fulfilled, if the local zoning and land use regulations of a State Government, or the regulations of the Ministry of Environment, Government of India do not permit setting up of an industry at a location, the entrepreneur would be required to abide by that decision.

 

For what sort of new ventures can the Development Commissioner approve FDI at his level?

The Development Commissioner can approve FDI for EOUs which are new companies where

the activity does not attract compulsory licensing (i.e. does not involve manufacture of arms and ammunition, explosives and allied items of defence equipment, defence aircraft and warships, atomic substances, narcotics and psychotropic substances and hazardous chemicals, distillation and brewing of alcoholic drinks, cigarettes/cigars and manufactured tobacco substitutes). In other words, investment in all manufacturing activity other than those areas specified above can be approved by the Development Commissioner. Investment proposals in software, IT enabled services  may also be approved by the Development Commissioner; all other services and licensable manufacturing activity may be approved only by the Board of Approvals.

the location is atleast 25 km away outside Bangalore/Cochin urban area limits, or if located within these cities, are located in a notified industrial area, or have been declared to be non-polluting industries,

EOUs undertake to achieve exports and value addition norms as prescribed in the Export and Import Policy in force.

the foreign collaborator has no previous financial/technical collaboration or trade mark agreement in India in the same or allied field, and

no acquisition of shares in an existing Indian company in favour of a foreign/NRI/OCB investor is involved.

 

Can the Development Commissioner approve FDI in existing EOU ventures with an expansion programme at his level?

The Development Commissioner can approve FDI in existing companies having an expansion programme involving induction of foreign equity if

the activity does not attract compulsory licensing (i.e. does not involve manufacture of arms and ammunition, explosives and allied items of defence equipment, defence aircraft and warships, atomic substances, narcotics and psychotropic substances and hazardous chemicals, distillation and brewing of alcoholic drinks, cigarettes/cigars and manufactured tobacco substitutes). In other words, investment in all manufacturing activity other than those areas specified above can be approved by the Development Commissioner. Investment proposals in software, IT enabled services  may also be approved by the Development Commissioner; all other services and licensable manufacturing activity may be approved only by the Board of Approvals.

the location is atleast 25 km away outside Bangalore/Cochin urban area limits, or if located within these cities, are located in a notified industrial area, or have been declared to be non-polluting industries,

the foreign collaborator has no previous financial/technical collaboration or trade mark agreement in India in the same or allied field,

the increase in equity level is from the expansion of the equity base of the existing company without acquisition of existing shares by NRI/OCB/foreign investors, and

20 per cent of the entire contribution brought in by promoter cumulatively in public or preferential issue (in case of public limited companies) shall be locked in for a period of 5 years from the date of their allotment.

 

Can the Development Commissioner approve FDI in existing EOU ventures without an expansion programme at his level?

The Development Commissioner can approve FDI in existing companies having an expansion programme involving induction of foreign equity if

the activity does not attract compulsory licensing (i.e. does not involve manufacture of arms and ammunition, explosives and allied items of defence equipment, defence aircraft and warships, atomic substances, narcotics and psychotropic substances and hazardous chemicals, distillation and brewing of alcoholic drinks, cigarettes/cigars and manufactured tobacco substitutes). In other words, investment in all manufacturing activity other than those areas specified above can be approved by the Development Commissioner. Investment proposals in software, IT enabled services may also be approved by the Development Commissioner; all other services and licensable manufacturing activity may be approved only by the Board of Approvals.

the location is atleast 25 km away outside Bangalore/Cochin urban area limits, or if located within these cities, are located in a notified industrial area, or have been declared to be non-polluting industries,

the foreign collaborator has no previous financial/technical collaboration or trade mark agreement in India in the same or allied field,

the increase in equity level is from expansion of the equity base,

the foreign equity is in foreign currency, and

20 per cent of the entire contribution brought in by promoter cumulatively in public or preferential issue (in case of public limited companies) shall be locked in for a period of 5 years from the date of their allotment.

 

Do EOUs in any sector require a licence from the Government of India?

Yes, in the following sectors: arms and ammunition, explosives and allied items of defence equipment, defence aircraft and warships, atomic substances, narcotics and psychotropic substances and hazardous chemicals, distillation and brewing of alcoholic drinks, cigarettes/cigars and manufactured tobacco substitutes. Applications in such cases are to be given to the Development Commissioner who will then put them up to the Board of Approvals (BOA).

 

What is the approval procedure for EOUs that cannot be cleared by the Development Commissioners?

Investment proposals in the EOU sector not covered by the automatic route shall be forwarded by the Development Commissioner to the Board of Approval for consideration.

The applicant should seek separate approval of the FIPB for FDI/NRI investment proposals in the EOU sector not covered under automatic route.

The company may thereafter bring in the funding from abroad.

The company is required to report to India's central banking authority, the Reserve Bank of India (RBI), within 30 days of receipt of foreign equity/allotment of shares. The RBI's website http://www.rbi.org.in  may be consulted in this regard.

 

What sort of legal entities may set up an EOU?

EOUs can be proprietary or registered partnerships, or can be started by companies.

In case of proprietary or registered partnerships applications should be signed by the proprietor or any one of the partners as the case may be.

The application form may be given in the name of the promoter initially. Subsequently, after the new company has been incorporated, an application for converting the LOP to the name of the new company may be given. A copy of the Certificate of Incorporation and Memorandum and Articles of Association should accompany such an application.

A company that is already registered in India can start operations in the Zone without having to incorporate a new company. Separate accounts, including sufficient Bank accounts, suffice.

Foreign Corporates/ NRIs need to incorporate a new company under the Indian Companies Act by first applying for allotment of a name as an Indian Company, and thereafter for registration to the Registrar of Companies. Visit the Department of Company Affairs site for forms and formalities pertaining to company formation.  The addresses of the Registrar of Companies for Karnataka is 2nd floor, “E” Wing, Kendriya Sadan, Bangalore –560 034 Phone: 080-5537449, and for Kerala is MG Road, Cochin, (Phone: 0484-374146, 355231).

Foreign Corporates/ NRIs may note that investment proposals in the EOU sector qualify for bringing in funds into India under the automatic route of the Reserve Bank of India. This means that no prior approval is required for bringing in the funds and that they may subscribe to the Memorandum and Articles of Association without prior approval of the RBI if the investment proposal has been cleared by the CSEZ Office. The funds should be brought through normal banking channels. However they should intimate receipt of funds from abroad within 30 days of receipt in Form FC(RBI)  to Reserve Bank of India, Exchange Control Department, Lisie Junction, Cochin (Phone: 0484-402911), or Reserve Bank of India, Nrupathunga Road, Bangalore Phone: 080-2275020. 

 

Where can I get the Application form for applying to the Commerce Department?  What other documents should accompany the application?

The EOU/promoter has to apply in Appendix 14-I-A , with

  • Project Report (including a write up on the background of the promoters establishing their credentials and standing.  Please see Appendix 14 B)

  • DD for Rs.5,000

  • A copy of the Certificate of Incorporation and Memorandum and Articles of Association in case of companies/ attested copy of registered Partnership deed.

  • Copy of lease deed of the premises valid for atleast 5 years.

New entrepreneurs are also required to furnish the following documents to establish their credentials/bonafides.

Letter Of Permission (LOP) is thereupon issued by CSEZ Office.

The EOU should issue a letter accepting terms & conditions of the LOP on its letter pad. There is no specified format for the same.

The EOU should intimate the name and designation of the official authorized to sign on behalf of the Company on all documentation with the CSEZ Office. Such authorization should be supported by an attested copy of the resolution of the Board of Directors in case of companies. Their signature should be attested by the appropriate authority in the company.

 

After filing the application form do I have to file any Legal Undertaking (LUT)?  Where do I get the form for that?

A Legal Undertaking in the prescribed form undertaking to abide by the terms and conditions of the LOP has to be executed by the EOU in the format at Appendix 14-I-F

It is better to submit a draft for vetting by the Zone Office. This may be done on e-mail.

The Legal Undertaking has to be executed on stamp paper of the value of Rs.100 bought by the EOU. The EOU has to submit the original plus two copies. The matter is to be typed on single side of the paper.

The Legal Undertaking has to be executed by the proprietor in the case of proprietary firm. In case of a partnership firm, the LUT shall be executed in the name of the partnership firm, through the partners to be specified, or the Managing Partner, if so specified in the Partnership Deed.  In case of Limited Company, the LUT shall be executed by the Managing Director or two Directors of the Company and the common seal of the company has to be affixed on the last page of LUT.

Each page of the LUT is to be signed. In case these persons cannot sign the LUT before the Development Commissioner in person, each page of the LUT is to be notarized and submitted for approval of the Development Commissioner.

After execution one copy will be returned to the EOU and one copy given to Customs/Central Excise unit having jurisdiction over the area.

The Development Commissioner will accept the LUT and communicate the acceptance in writing to the EOU.

A Green Card will be issued to the EOU by the CSEZ Office on request. There is no prescribed application form for the same. This will help the EOU to clear the import consignment from ICDs/Ports, etc.

 

What about bonding of premises by the Customs?  Where do I apply?  What are the documents required for this purpose?  Where can I get the formats for the multi-purpose bond (B 17 Bond) and the Bank Guarantee?

The EOU has to conduct its operations under the supervision of the Customs /Central Excise Department. The detailed instructions in this regard are available at the CBEC site. The Website of the Bangalore Customs Division www.kar.nic.in/blrcustoms/Index_eou.htm is also very useful.

The EOU has to get its premises where it proposes to the manufacturing /servicing activity bonded by the Customs / Central Excise authorities having jurisdiction over the area in which the premises is located. In some areas it may be Customs Department which exercises jurisdiction, while in others it is the Central Excise Department.

The village in which the EOU is located has first to be declare a warehousing station under section 9 of the Customs Act. In case this has already been done the EOU can proceed to execute the bond and to get the premises Customs-bonded.

B-17 Bond: The EOU has to execute a multi-purpose bond with the jurisdictional Dy. Commissioner of Customs / Central Excise. For this purpose the EOU has to submit a draft B-17 Bond in the prescribed format for vetting along with a copy of its project report and LOP to the Deputy Commissioner’s Office in the Zone. The EOU has also to submit a worksheet authenticated by the authorized signatory showing the details of imported/indigenous material covered by the Bond.

The EOU has to apply to with the following documents for executing B-17 bond.

1. Notification declaring the area in which EOU is located as a warehousing station.

2. LOP

3. Lease Agreement of the premises

4. Copy of LUT executed with Development Commissioner

5. Project report

6. Calculation sheet authenticated by the authorized signatory showing the details of imported/indigenous material covered by the Bond.

7. List of CG attested by Development Commissioner

8. IE Code

(In the case of EOUs in Karnataka PN 104 of Bangalore Customs also requires an undertaking to pay supervision charges to Customs and three photographs of the Head of the Organisation.)

The Bond value is fixed at 25% of the duty amount foregone on both domestic procurement as well as imported capital goods and duty foregone on three months projected requirements of raw materials and consumables (both imported and domestically procured).

A surety equivalent to the value of the Bond or a bank guarantee equivalent to 5% of the bond value has to be submitted along with the B-17 Bond. The Bond has to be executed in person by the person authorized by a Resolution of the Board of Directors in the case of a company, by the Proprietor or by any one of the Partners in other cases. Common seal of company to be affixed.

The Bond may be executed by the authorized signatory of the EOU on stamp paper of the value of Rs.300 bought by EOU. The matter is to be typed on single side of the paper. In case the authorized signatory is unable to be present in person at the Dy. Commissioner’s Office, the signature should be notarized.

The EOU has also to take a Central Excise Manufacture Code No. from the Superintendent, Central Excise, having jurisdiction over the bonded premises to enable it to sell in the domestic market.

 

What about the IE Code?  How do I get that?

Import Export Code: If the EOU does not have an Import Export Code (IEC), it will apply in the prescribed form to the CSEZ Office for the same. The application form has to be accompanied by the following documents:

Application fee of Rs.1000/- in the form of demand draft favouring the Development Commissioner, CSEZ payable at Cochin.

Certificate from the Banker of the EOU as per Annexure 1 of the application form.

Two copies of the passport size photograph of the applicant attested by the Banker of the EOU.

A copy of the Permanent Account Number (PAN) issued by the Income Tax Authorities, attested by the applicant.

The IE Code is incorporated in the DGFT Web-site by the CSEZ Office whereupon a Business Index Number (BIN) is generated. This is required for all imports and exports by the EOU.

In case the EOU has already got an IE Code the premises of the Zone has also have to be endorsed by the authority who issued the IE Code in the first place.

 

What about clearances from State Government Agencies/Departments such as Commercial Taxes, Electricity, Water and Pollution Control Boards?

The EOU has to secure approval for its wiring plan and electricals from the Electrical Inspectorate.

It has also to secure power allocation and wiring approval from the State Electricity Board.

The EOU has to take a registration under the Karnataka or Kerala Government Sales Tax Act (as the case may be) and Central Sales Tax Act from the Sales Tax Officer having jurisdiction over the area.

In case the EOU already has a registration with the State Sale Tax Department the address of the additional premises should also be got endorsed in the registration certificate.

The EOU has also to take Small Scale Industry (SSI) Registration from the District Industries Centre to apply for State Government’s Investment Subsidy from the General Manager, District Industries Centre having jurisdiction over the area in which the EOU’s bonded premises is located.

The EOU has also to secure approval under the Factories Act.

In case there are effluents or emissions the EOU has to secure approval from the State Pollution Control Board.

 

Are Single Window Clearance Boards operational? Where can I get the formats?

The State Government of Kerala as well of Karnataka have constituted single window clearance mechanisms such as District Single Window Clearance Board (in Kerala) and Karnataka Udyog Mitra (in Karnataka) for the purpose of speedy issue of various licences, clearances. The application form for Kerala and Karnataka can be downloaded from here.