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Radio Cabs

In: Business and Management

Submitted By chandnirabara
Words 1271
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The 100% Export Oriented Units (EOUs) are growth engine of exports and at present there are more than 1,800 EOUs in operation although the government, instead of encouraging the units to start EOUs, offered special schemes to rehabilitate or re-vitalize the existing EPZ/FTZ units by converting them into SEZ units.
The EOU sector is engaged in manufacturing of goods, located predominantly in rural or semi-urban area, offering employment opportunity to local people, develop self infrastructure without any subsidy or grant from the government, consistently showing growth in investment, export performance and Net Foreign Exchange earnings.
However, like EPZ/FTZ scheme, introduced simultaneously, to achieve quantum growth in export performance and Net Foreign Exchange earnings, the EOU scheme could not attract more entrepreneurs, due to various restrictions imposed under various regulations.
The initiatives taken by the government to undo such restrictive measures started yielding results by consistent growth in number of units operating under this scheme. When compared with the performance of government sponsored EPZ/FTZ schemes, the EOU sector did show commendable growth.
In spite of this, the government, instead of encouraging the units to start EOUs, offered special schemes to rehabilitate or re-vitalize the existing EPZ/FTZ units by converting them into SEZ units.
The new SEZs approved will take another 3-4 years to commence their full-fledged operations. The Government is giving subsidies for infrastructure development and income tax benefits and many more fiscal and tariff support for such units in the hope to achieve the objectives of Foreign Trade Policy after 4-5 years.
If the same facilities are extended to EOU sector, while keeping them under the identical restrictive business environment like SEZ units, the performance of EOU sector will show quantum jump in investment, employment generation, export performance and Net Foreign Exchange Earnings.
What the sector is now looking for is a guaranteed long-term commitment from the government in matters relating to Direct and Indirect tax relief.
There is very little difference in tax relief given to an EOU as compared to a DTA unit in view of the EPCG scheme, Duty Exemption Scheme, introduction of VAT, etc., what encourages the entrepreneurs to go in for EOU is direct tax relief. In return they accept in bond manufacturing and related controls.
In fact 100% textile and granite units are like a SEZ with a single unit. There are several products and industries, which are location specific and hence cannot be clubbed. The existing 100% EOUs have already invested huge funds for creating infrastructure and production facilities in their respective fields.
This bold and time-tested scheme requires revamping and fresh lease of life as well as need special attention for growth. It is also possible to attract further investment in this sector if proper conditions are created.
In order to analyse further a comparative study between a unit under SEZ Scheme and 100% EOU Scheme will help understanding the working of both the schemes better.
1. Location:
A SEZ unit can only be set up in the demarcated custom bonded areas notified under Section 76A of the Custom’s Act, 1962 where documentation & assessment can be done in the zone itself.
However a 100 percent EOU Scheme specially offers flexibility in location as unit can be established in any industrial or Commercial areas, except certain goods and services, for which private bonded warehouse is required to be obtained. But documentation and assessment is to be done at the port only.
2. Income Tax Exemption:
Section 10A of Income Tax Act, 1961 provides for deduction to the extent of 100% of profit and gains for 5 consecutive assessment year and thereafter to the extent of 50% of the profit and gains for a further period of 2 assessment year and for the next 3 consecutive assessment year, so much of the amount not exceeding 50% of the profits as is debited to the P/L account of the previous year.
Section 10B of Income Tax Act, 1961 allows relief from Income Tax burden for a period of 10 consecutive assessment year with a sunset clause of allowing deduction up to the assessment year 2009- 10.
3. Conversion:
In SEZ conversion of existing unit is not allowed.
Conversion of existing unit into 100% EOU is permissible with Income Tax Exemption under section 10- B of Income Tax Act.
4. Investment Criteria:
No investment criterion is prescribed under the SEZ scheme.
Minimum investment of Rs. 1 crore in plant and machinery is prescribed. However this condition shall not applicable to existing unit and units in EHTP/STP, agriculture, handicrafts and handmade jewellery etc.
5. DTA Sale:
On payment of applicable rate of duty
Concessional duty exemption extended for DTA sale by an EOU.
6. Entitlement for DTA Sale:
A SEZ unit can sell any quantum of goods in the DTA subject to the requirement of achieving positive NFE (Net Foreign Exchange Earning).
DTA entitlement is fixed at 50% of the FOB value of DTA entitlement is fixed at 50% of the FOB the physical exports on concessional rate of duty but for DTA.
7. Period of utilisation:
Duty free goods (except capital goods) to be utilised within a period of five years.
Duty free goods (except capital goods) to be utilised within a period of three years.
8. Cost recovery charges:
No cost recovery charges are payable by a SEZ unit.
Since special facility is being provided under the scheme to manufacture in Bond so cost recovery charges are recoverable from EOUs for the expenses incurred by Govt. for posting of Custom/Central Excise staff at its premises to supervise its operation.
9. Supplies from DTA: IN CASE OF SEZs | IN CASE OF 100% EOUs | Units are entitled to exemption from payment of CST on supplies from the DTA. | Units need to obtain reimbursement of CST. | Since supplies from DTA to SEZ units are treated, as exports the DTA suppliers are eligible to avail benefits of Drawback, DEPB, and DFRC on such supplies. | The supplies from DTA to 100% EOU is treated as Deemed Exports and the domestic supplier can avail benefits of Advance Licence, DFRC, Deemed Export Drawback and refund of terminal excise duty. |
10. Trading:
Trading unit can be set up under the Scheme.
It had been discontinued under EOU scheme.
11. Foreign Investment:
Cent per cent FDI investment is permitted through automatic route without approval for SEZ manufacturing unit.
Formal FIPB approval as per sectoral guidelines is required.
12. Others:
The services of telephone, couriers etc. rendered to SEZ developer or a SEZ unit are exempt from Service Tax. Similarly duty exemption has been provided in respect of services provide by one SEZ to another.
In case of EOU the service tax paid can be allowed as CENVAT.
Thus it is evident that certain procedural differences between the SEZs and EOUs exist due to the rationale behind forming the two schemes.
As compared to SEZ units, EOUs are more obliged to adhere to the rules and regulation of the Foreign Trade Policy, as it draws its strengths from the same. Whereas the SEZ scheme offers well-developed enclaves of industrial infrastructure with plots, built up space, power, water supply, transport etc.
On the other hand EOU scheme envisage the establishment of units anywhere in the country. This allows optimal cost-effective operation with reference to desired large area and outlet for exports.
Decision of operation in any of the area i.e. DTA, SEZ or EOU can be ascertained on the basis of SWOT analysis that manifests the strengths, weaknesses, opportunities and threats of the Duty tree schemes.

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