International trade practice and procedure


I deem it as a great pride and pleasure to express my profound sense of gratitude to MISS.IMPREET KAUR for his constant and valuable guidance throughout the project. I would also be thankful to GOD almighty that empowered me with strength to complete this project. I would also pay my concern regards to my friends and parents without whom my work would have been incomplete.

It gives us immense in expressing a deep sense of gratitude and sincere thanks to LOVELY PROFESSIONAL UNIVERSITY.


The EOU scheme introduced in early 1981.the needs for higher level of technological and industrial progress made the government devise a series of export promotional schemes. EOU scheme is one of them which provide an internationally competitive duty free environment coupled with better infrastructural facilities for export production.

Objectives of the Export oriented unit:

  • To increase exports
  • To earn foreign exchange for country
  • Transfer of latest technology
  • Stimulate direct foreign investment
  • And to generate additional employment

Major Sectors in EOUs:


EOU Activities

EOUs were mainly concentrated in Textiles and Yarn, Food Processing, Electronics, Chemicals, Plastics, Granites and Minerals. But now a day, EOU has extended it area of work which includes functions like:

  • Manufacturing, servicing, development of software, trading,
  • Repair, remarking, reconditioning, re-engineering.
  • Including making of gold/silver/platinum jewellery and articles thereof,
  • Agriculture including agro-processing, aquaculture, animal husbandry, bio-technology, floriculture, horticulture, viticulture, poultry, sericulture and granites

How to set-up an Export Oriented Unit

This information is divided into 5 parts:

  • Eligibility Criteria
  • Prior to Approval
  • How to apply
  • Approval Procedure
  • After Approval


It means, who is eligible to become an EOU?

  • An EOU can be set up for repair, reconditioning, re-making and re-engineering also. An EOU can be set up by any entrepreneur for manufacturing of goods and also for rendering service.
  • Trading activity is allowed in the EOU scheme.
  • EOU unit is required to achieve only positive net foreign exchange (NFE) over a period of 5 years.
  • EOU can also be set up in the following sectors: -


  • All applications are to be filed with the concerned Development Commissioner of Special Economic Zone
  • The unit/ promoter have to apply in the application form.
  • Project Report including a write up on the background of the promoters establishing their credentials and standing.
  • DD for Rs. 5,000/- drawn in favour of The Pay & Accounts Officer, Ministry of Commerce and Industry, Department of Commerce, payable at the Central Bank of India, Udyog Bhavan, New Delhi.
  • Registration -cum-Membership Certificate (RCMC) should be obtained from the office of the concerned Development Commissioner.
  • Import Export Code: If the unit does not have an Import Export code (IEC), it will apply in the prescribed form (Appendix 18-B) to the Zone Administration for the same.


Letter of Permission (LOP)

After submitting the application form and if every thing is in order, Letter of Permission (LOP) is issued by the Zone Administration within 2 weeks after interview of the promoter by the Approval Committee.

Legal undertaking (LUT)

A legal undertaking in the prescribed form undertaking to stand for by the terms and conditions of the LOP has to be executed by the unit in format given at Appendix 14-1F.

A Green Card will be issued to the unit by the Zone Administration on request.


After the approval from the Development Commissioner concerned, the manufacturing and other activities have to be undertaken under customs bond for which formal application is to be made to the jurisdictional Assistant Commissioner/ Deputy Commissioner of the Customs/ Central Excise for issuance of a Private Custom Bonded Warehouse License under section 58 and 65 of the Customs Act, 1962. The application shall be accompanied by the following documents/information: -

  • Copy of notification where under the place (proposed location of unit) has been declared as warehousing station under section 9 of the Customs Act. In case the approved place is not a notified warehousing station, a separate application for issuance of such notification is to be submitted to the Commissioner of Customs through the jurisdictional Assistant Commissioner/ Deputy Commissioner.
  • Copy of LOI/LOP issued by Development Commissioner concerned and LUT accepted by the Development Commissioner.
  • Details of the premises including ground plan, purchase/rent/lease deed, and allotment letter from Industrial Development Corporation/ Authority (if any)
  • Details about the constitution of the firm/company including its Proprietor/Partners/Directors etc.

After verification of the premises and relevant documents, the requisite license under section 58 and 65 of the Customs Act will be issued by the Assistant Commissioner/ Central Excise on priority basis.

B-17 Bond:

B-17 bond is a multi - purpose surety bond which the unit has to execute with the Jurisdictional Assistant/ Deputy Commissioner Customs/ Central Excise on a non-judicial stamp paper of Rs. 300/

B-17 Bond is a surety bond and in case valid surety cannot be arranged security @5% of the bond amount has to be furnished. The bond amount shall be equal to 25%of the duty foregone on the capital goods required in the next 5 years plus duty foregone on the value of raw material for a period of 3 months.

B-17- Bond covers the following activities:-

  • Duty free import/ procurement of goods as per relevant notification and warehousing/storage in the unit and their utilization.
  • Transhipment of import/ export of goods duty free between port of import/ export and units premises.
  • Movement of duty free goods for job work and return.
  • Temporary clearance for repair and display in exhibitions, testing/ approval etc.
  • However it dose not cover differential duty amount against advance DTA sale for which a separate bond is to be executed.

Approval from State GovernmentAgencies:

The unit has to secure approval for its wiring and electrical plan from the Electrical authorities. It hasalso to secure power allocation and wiring approval from the State Electricity Board. The industrial water supply is undertaken by the The unit has to take a registration under the State Government Sales Tax Act and Central Sales Tax Act. In case the unit already has a registration with the State Sale Tax Department the address of the additional premises should also be endorsed in the registration certificate. The unit has also to take Small Scale Industry (SSI) Registration from the District Industries Center to apply for State Government's Investment Subsidy.

Monitoring and Administrative Control:

  • The EOUs basically function under the administrative control of the Development Commissioner of the Export Processing Zones, whose jurisdiction has been notified by the Ministry of Commerce,
    • In all, there are seven Development Commissioners at Mumbai, Gandhidham, Chennai, Cochin, Vizag, Noida and Calcutta, who supervise the functioning of the EOUs and eight Export Processing Zones/Special Economic Zones in the country.
  • The provisions of the Customs and Central Excise law in respect of the EOUs are administered by the Commissioners of Customs and Central Excise, who work under the control of Central Board of Excise & Customs.
    • The work relating to EOUs is handled by the staff of jurisdictional Commissioner of Central Excise.
    • However, in the case of EOUs located in port cities/towns or within the municipal limits of port cities/towns, the work is handled by jurisdictional Commissioner of Customs, Seaport.
  • For setting up of an EOU, three copies of the application in the prescribed form are required to be submitted to the Development Commissioner.
    • In certain cases, approval of the Board of Approval (BOA) is required. Applications for setting up of Electronic Hardware Technology Park/Software Technology Park units are submitted to the officer designated by the Ministry of Information Technology for this purpose.
    • After approval of the application and issuance of Letter of Permission, the applicant is required to execute a legal undertaking with the Development Commissioner/Designated Officer concerned within the prescribed time period.
  • On the policy front, all decisions relating to the EOUs are taken by the Board of Approvals (BOA), set up under the Ministry of Commerce. The BOA is chaired by the Secretary, Ministry of Commerce and includes the Chairman.
    • In the case of units engaged in manufacture of electronic hardware and software, the policy decisions are taken by the Inter Ministerial Standing Committee (IMSC) set up under the Ministry of Information Technology and the same are implemented through its Designated Officers. Chairman, C.B.E.C. or his nominee is a member of the IMSC.
    • The availability of any benefit under Customs or Central Excise Acts or the notifications issued there under has, however, to be determined by the Commissioner of Customs or Central Excise having jurisdiction-guided by CBEC in areas of doubt.

Policy Of Government: Highlights of 2009

  • EOUs have been allowed to sell products manufactured by them in DTA up to a limit of 90% instead of existing 75%, without changing the criteria of 'similar goods', within the overall entitlement of 50% for DTA sale.
  • To provide clarity to the customs field formations, DOR shall issue a clarification to enable procurement of spares beyond 5% by granite sector EOUs.
  • EOUs will now be allowed to procure finished goods for consolidation along with their manufactured goods, subject to certain safeguards.
  • During this period of downturn, Board of Approvals(BOA) to consider, extension of block period by one year for calculation of Net Foreign Exchange earning of EOUs.

Some Incentives given to EOUs:

  • No import licenses are required by the EOU units and import of all industrial inputs exempt from customs duty.
  • Supplies from the DTA to EOUs are regarded as deemed exports and are hence exempt from payment of excise duty which means that high quality inputs are available at lower costs.
  • On fulfillment of certain conditions, EOUs are exempted from payment of corporate income tax for a block of 5 years in the first 8 years of operation. Export earnings continue to be exempt from tax even after the tax holiday is over.
  • Industrial plots and standard design factories are available to EOUs at concessional rates.
  • Single window clearance for EOU. For example, the State Government of Kerala as well of Karnataka has 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 licenses, clearances.

Attractive Policy Provisions for EOUs:

  • EOU can also import second hand capital goods without any age limit.
  • 50% of physical exports can be sold in domestic market on payment of concessional duty.
  • EOUs can process and export rice (Basmati & Non-Basmati).
  • EOUs including Gem & Jewellery units are permitted to sub-contract up to 50% of their production
  • EOUs are allowed to utilize plant and machinery for job work DTA units provided the goods are exported directly from the EOU premises.
  • EOUs in Agriculture and allied sectors and in granite sector may transfer the capital goods and the inputs to the Farms/field/quarries for usage relating to the production in the EOU.
  • In case of new EOUs, Advance DTA sale will be allowed not exceeding 50% of its estimated exports for the first year except the pharmaceutical units where this will be based on its estimated exports for the first two years.
  • Simultaneous Advance DTA sale permission is given on quarterly basis for perishable goods like mushrooms, cut flowers etc.
  • Exports through third party is permitted
  • Exports from the job workers premises is allowed

Policy of government regarding EOU which comes under 100% EOU scheme:

About 100% EOU Scheme:

Units undertaking to export their entire production of goods and service, except permissible sales in the DTA, as per the Export - Import Policy are referred to as Export Oriented Units (EOU). The Electronic Hardware Technology Park (EHTP) Scheme and the Software Technology Park (STP) Schemes are two special variants of the general EOU scheme. These units can undertake manufacture of goods including repair, remaking, reconditioning, re-engineering, rendering of services like development of software data processing & conversion, data management and call center activities. The purpose of EOU scheme is to boost exports by creating additional production capacity.

Fiscal Incentives available to 100% EOUs:

  • Exemption from Customs and Central Excise duties on import/local procurement of Capital goods, raw materials, consumables, spares, packing material etc.
  • Reimbursement of Central Sales Tax (CST) on purchases made from Domestic Tariff Area (DTA)
  • Corporate Tax Holiday up to 2010
  • CENVAT credit on Service Tax paid
  • Re-imbursement of duty paid on fuels procured from domestic oil companies as per the rate of Drawback notified by the DGFT from time to time
  • Special Package of Incentives for Star Export House EOUs (Fast Track Clearance):
    • Permissions and Customs clearances for both Imports and Exports on self declaration basis.
    • Fixation of Input-Output norms on priority within 60 days.
  • Exemption from compulsory negotiation of documents through Banks.
    • 100% retention of foreign exchange in EEFC account.
    • Enhancement of normal repatriation period from 180 days to 360 days.
    • Exemption from furnishing of Bank Guarantee in Schemes under this policy.
  • Exemption from examination of Import Cargo
  • Install one Fax machine & two computers in their Administrative/Registered Office on prior initiation only.
  • Personal carriage of samples of Gems & Jewellery without a need for prior permission
  • DTA sale of finished products on prior intimation only
  • Participation in exhibition for export promotion on prior intimation only

Government policies and procedure towards Electronics Hardware Technology Parks.


Units undertaking to export their entire production of goods and services , may be set up under the Export Oriented Unit (EOU) Scheme, Electronic Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park (BTP) scheme for manufacture of goods, including repair, re-making, reconditioning, re-engineering, and rendering of services. Trading units, however, are not covered under these schemes.

Export and Import of Goods

  • An EOU unit may export all kinds of goods and services except items that are prohibited in the ITC. Export of Special Chemicals, Organisms, Materials, Equipment and Technologies shall be subject to fulfillment of the conditions indicated in the ITC.
  • EOU units may import from DTA without payment of duty certain specified goods for creating a central facility which will be used by software units. These software units can be EOU/ DTA units who will use the facility for export of software.
  • An EOU engaged in agriculture, animal husbandry, aquaculture, floriculture, horticulture, Gems and jewellery EOUs may source gold/silver/platinum through the nominated agencies also. Units obtaining gold/silver/platinum from the nominated agencies shall export gold/silver/platinum jewellery within 60 days from the date of release. This shall not, however, apply to outright purchase of precious metal from the nominated agencies.
  • Procurement and supply of spares and consumables required for the goods manufactured by the units may be allowed to be exported along with goods upto 1.5% of FOB value of exports. This shall, however, not count towards NFE calculation, for concessional rate DTA sales or for Income Tax exemption.

Second Hand Capital Goods

Second hand capital goods without any age limit may also be imported duty free.

Leasing of Capital Goods

An EOU unit may, on the basis of a firm contract between the parties, source the capital goods from a domestic/foreign leasing company without payment of customs/excise duty. In such a case, the EOU unit and the domestic/foreign leasing company shall jointly file the documents to enable import/procurement of the capital goods without payment of duty.

Net Foreign Exchange Earnings

EOU unit shall be a positive net foreign exchange earner. Net Foreign Exchange Earnings shall be calculated cumulatively in blocks of five years, starting from the commencement of production.

Letter of Permission/ Letter of Intent and Legal Undertaking

  • On approval, a Letter of Permission (LOP) /Letter of Intent (LOI) shall be issued by the Development Commissioner/designated officer to EOU unit. The LOP/LOI shall have an initial validity of 3 years by which time the unit should have commenced production.
  • Its validity may be extended further up to 3 years by the competent authority. However, proposals for extension beyond six years shall be considered in exceptional circumstances, on a case-to-case basis by the BOA.
  • Once the unit commences production, LOP/LOI issued shall be valid for a period of 5 years for its activities. This period may be extended further by the Development Commissioner for a period of 5 years at a time.

Investment Criteria

Only projects having a minimum investment of Rs.1 crore in plant and machinery shall be considered for establishment as EOUs under the scheme. Handicrafts/ Agriculture/ Floriculture/Aquaculture/ Animal Husbandry/Information Technology, Services, Brass hardware , handmade Jewellery and such other sectors as may be decided by the BOA. Sector-wise investment criteria shall be fixed by BOA.

Other Entitlements

Other entitlements of EOU units are as under:

  • Exemption from payment of Income Tax.
  • Exemption from industrial licensing for manufacture of items reserved for SSI sector.
  • An Offshore Banking Unit will extend credit on the same terms and condition as extended to units to SEZ.
  • Export proceeds will be realized within 12 Months.
  • It will be allowed to retain 100% of its export earning in the EEFC account.
  • The Units will not be required to furnish bank guarantee at the time of import or going for job work in DTA, where the unit has (i) a turnover of rupees 5 crores or above, (ii) the unit is in existence for at least three years and (iii) unit having an unblemished track record.
  • 100% FDI investment permitted through Automatic Route similar to SEZ units.


  • EOU units, including gem and jewellery units, may on the basis of annual permission from the Customs authorities, subcontract production processes to DTA through job work which may also involve change of form or nature of goods, through job work by units in the DTA.
  • These units may also subcontract upto 50% of the overall production of the previous year in value terms for job work in DTA with the permission of the Customs Authorities.
  • EOU may, on the basis of annual permission from the Customs authorities, undertake job work for export, on behalf of DTA exporter, provided that the goods are exported directly from EOU
  • Duty free import of goods for execution of export order placed on EOU by Foreign Supplier on job work basis would be allowed subject to the condition that no DTA clearance shall be allowed.
  • Subcontracting of both production and production processes may also be undertaken without any limit through other EOU units on the basis of records maintained in the unit.
  • Subcontracting of part of production process may also be permitted abroad with the approval of the Development Commissioner.
  • Scrap/waste/remnants generated through job work may either be cleared from the job worker's premises on payment of applicable duty on transaction value or destroyed in the presence of Customs/ Excise authorities or returned to the unit. Destruction shall not apply to gold, silver, platinum, diamond, precious and semi precious stones.
  • Sub-contracting/exchange by gems and jewellery EOUs through other EOUs.

Exit from EOU Scheme

  • With the approval of the Development Commissioner, EOU units may opt out of the scheme. Such exit from the scheme shall be subject to payment of Excise and customs duties and the industrial policy in force at the time of exit.
  • If the unit has not achieved the obligations under the scheme, it shall also be liable to penalty at the time of exit.
  • In the event of a gem and jewellery unit ceasing its operation, gold and other precious metals, alloys, gem and other materials available for manufacture of jewellery, shall be handed over to an agency nominated by the Ministry of Commerce
  • An EOU unit may also be permitted by the Development Commissioner, to exit from the scheme on payment of duty on capital goods under the prevailing EPCG Scheme as a one time option.
  • Units proposing to exit from EOU scheme should obtain permission for in principle approval and submit details of imports and exports made to the Central Excise/Customs Authority. After such verification, the said authority will assess the duty payment and the unit will pay the duty so assessed and obtain 'no dues certificate' from the excise authority.

Recant behavior of government towards EOU:

Special facilities for export oriented units

State Governments provide special package of incentives and better infrastructural facilities for export oriented units. State Governments reimburse costs incurred by SSI units for shipment of export samples from the nearest port/container depot to the port of destination. The facilities are available in Uttar Pradesh, Karnataka, Himachal Pradesh, Punjab, Rajasthan and Tripura.

Recent policy changes in the EOU scheme

  • Duty free spares up to 5% of the value of Capital Goods imported for excavation purposes in the Granite sector will be allowed to be removed to the quarries
  • The de-bonding procedure for EOUs has been simplified.
  • Capital Goods will be allowed to be transferred or given on loan basis to other units under intimation to both Excise Department and Development Commissioner.
  • Transfer of samples to other EOUs on returnable basis within a period of 30 days to be allowed.

Extend tax benefits to export-oriented units

The export industry, hard hit by the appreciating rupee against the US dollar and growing costs, is looking forward to extension of the tax benefits available to software technology parks (STPs) and export-oriented units (EOUs) beyond the sunset financial year 2008-09. As the special economic zones will continue to enjoy a tax break for 15 years, carrying out operations from non-SEZ locations will become highly uncompetitive. A continuation of the tax benefit beyond Marc h 31, 2009, at least to the extent of 50 per cent, will provide a breather to the export-oriented units and the units located in STPs.

Commerce ministry mulls 3-yr extension of EOU tax breaks

The commerce ministry has proposed a three-year extension of tax benefits given to Export-oriented Units (EOUs) in an attempt to encourage export industries at a time when global demand is expected to slump further.

The move will benefit more than 2,700 companies operating within the EOUs, like the Reliance Industries Ltd's (RIL's) 33-million-tonne-per-year petroleum refinery in Jamnagar, Gujarat.

Under Section 10(B) of the Income Tax Act, EOUs do not need to pay tax on profits provided they fulfill some conditions, including exporting not less than 50 per cent of their total production. This benefit is to expire at the end of next fiscal 2009-10.


Government policy towards EOU in different sectors

Marine sector

  • Fisheries have been included in the sectors which are exempted from maintenance of average EO under EPCG Scheme, subject to the condition that Fishing Trawlers, boats, ships and other similar items shall not be allowed to be imported under this provision. This would provide a fillip to the marine sector which has been affected by the present downturn in exports.
  • Additional flexibility under Target plus Scheme (TPS) / Duty Free Certificate of Entitlement (DFCE) Scheme for Status Holders has been given to Marine sector.

Gems & Jewellery Sector

  • To neutralize duty incidence on gold Jewellery exports, it has now been decided to allow Duty Drawback on such exports.
  • In an Endeavour to make India a diamond international trading hub, it is planned to establish "Diamond Bourse".
  • A new facility to allow import on consignment basis of cut & polished diamonds for the purpose of grading/ certification purposes has been introduced.
  • To promote export of Gems & Jewellery products, the value limits of personal carriage have been increased from US$ 2 million to US$ 5 million in case of participation in overseas exhibitions. The limit in case of personal carriage, as sample, for export promotion tours, has also been increased from US$ 0.1 million to US$ 1 million.


  • Minimum value addition under advance authorization scheme for export of tea has been reduced from the existing 100% to 50%.
  • DTA sale limit of instant tea by EOU units has been increased from the existing 30% to 50%.
  • Export of tea has been covered under VKGUY Scheme benefits.

Agriculture Sector

To reduce transaction and handling costs, a single window system to facilitate export of perishable agricultural produce has been introduced. The system will involve creation of multi-functional nodal agencies to be accredited by APEDA.

Food processing industries

Export promotion:

  • Food processing industry is one of the growing areas identified for exports. Free Trade Zones (FTZ) and Export Processing Zones (EPZ) have been set up with all infrastructures. Also, setting up of 100% Export oriented units (EOU) is encouraged in other areas. They may import free of duty all types of goods, including capital foods.
  • Capital goods, including spares upto 20% of the CIF value of the Capital goods may be imported at a concessional rate of Customs duty subject to certain export obligations under the EPCG scheme, Export Promotion Capital Goods. Export linked duty free imports are also allowed.
  • Units in EPZ/FTZ and 100% Export oriented units can retain 50% of foreign exchange receipts in foreign currency accounts.
  • All profits from export sales are completely free from corporate taxes. Profits from such exports are also exempt from Minimum Alternate Tax (MAT).
  • 50% of the production of EPZ/FTZ and 100% EOU units is saleable in domestic tariff area.

Pharmaceutical Sector

  • Export Obligation Period for advance authorizations issued with 6-APA as input has been increased from the existing 6 months to 36 months, as is available for other products.
  • Pharma sector extensively covered under MLFPS for countries in Africa and Latin America; some countries in Oceania and Far East.

Textile Industry

  • Indian textile industry was expecting a lot for value added textile sector such as Cotton fabrics and Cotton Made-up. "The ambitious targets set up by the government in the New Policy such as achieving an annual export growth of 15% with an export target of US$ 200 billion by March 2011 and the long term goal of doubling India's share in global trade by 2020 are possible to achieve only when due importance is given to the Textile export sector" he said.
  • The government did not have linked the additional duty credit scrip of 1% given to the "status holders" with the Technological Up gradation Fund Schemes (TUFS), as this will impact much needed modernization of manufacturing facilities.
  • Some of the benefits announced such as 1% additional duty scrip for status holders, zero duty for imports under EPCG Scheme, etc. have been provided only to units which are not taking the benefits under TUFS. Since most textile companies take TUFS, these benefits will be denied to all of them.



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