Haier Appliances (India) Pvt.

Ltd Pune 100% Export Oriented Unit

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EOU Scheme-Overview Scheme Units undertaking to export their entire production of goods and services may be set up under the Export Oriented Unit (EOU) Scheme EOUs can get a location of their choice Customs-bonded anywhere in CustomsIndia For setting up an EOU in Karnataka, Kerala, Lakshadweep or Maharashtra apply to Development Commissioner, EOUs can import without duties, all capital goods and raw materials for running the unit. unit. EOUs can procure these items from Indian sources also without excise duties and sales taxes ( in some cases) EOUs can sell upto 50% of FOB value of exports in the Indian market at 50% concessional duties New EOUs get Corporate Income Tax concessions till 2010
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Approvals for EOUs

EOUs are given approval for manufacture of goods, including rerefurnishing, as well as for rendering of services. services. Trading by EOUs is not permitted Minimum Investment for approval as an EOU should be Rs.10 Rs. million in plant &machinery. &machinery. Software /services/ handicrafts/ agriculture/ floriculture/ aquaaquaculture/ animal husbandry/ information technology are exempted from this size restriction. restriction.

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Approvals for EOUs

 Licenses are required for  Manufacturing arms and ammunition, atomic substances, narcotics/psychotropic substances, and tobacco products  Approvals for licensable activity and services are given by the Board of Approvals in the Commerce Ministry  Applications are Commissioner

to

be

routed

through

the

Development

 Approval (called Letter of Permission (LOP)) for non-licensable nonmanufacturing activity is given locally by the Development Commissioner
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EOU Scheme Features

EOUs may export all products except prohibited items of exports EOUs may import without duty all types of goods, including capital goods required for its activities, unless they are prohibited for import  Even second hand plant & machinery can be imported. imported.  Capital Goods can be purchased, loaned, sourced from foreign/domestic leasing companies or brought free of cost. cost.  EOUs get upto 5 years for utilization of imported capital goods, and upto 3 years for other items. items.

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EOUs & FDI

 100% FDI in manufacturing EOUs is permitted under the 100% automatic route of the Reserve Bank of India  i.e. first bring in the money, and then inform Reserve Bank of Indias local office in Form FC(RBI) within 30 days of receipt  Also under the automatic route for EOUs are  External Commercial Borrowing upto USD 50 million, with maturities of 3 years or more, for funding and running the unit. unit.  Use of brand names/trademarks, if royalty is upto 2% on exports and 1% on domestic sales, without technology transfer  Foreign technology tie-ups, if lump sum payment does not tieexceed USD 2 million, and if royalty is upto 5% on domestic sales and 8% on exports, even for wholly owned subsidiaries

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EOUs and Foreign Exchange

 EOUs may freely repatriate investment & returns abroad  EOUs need to bring export proceeds to India only within 360 days of export  And even then, upto 100% may be retained in foreign currency 100% in the units EEFC Account  EOUs may invoice sales to other EOUs etc in foreign exchange  EOUs may invoice sales to Indian entities other than EOUs also in foreign exchange sourced from from their EEFC account or abroad

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Tax Concessions for EOUs

New EOUs are entitled under to Corporate Income Tax exemption on physical exports out of India till 2010 Central Sales Tax is reimbursed on purchases from local manufacturers Supplies from local manufacturers are free of Central Excise Duty  In case duties are paid, Terminal Excise Duty is reimbursed EOUs in manufacturing sector get exemption from State Sales Tax on inputs (excepting fuel)

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EOU Scheme & DTA entities

Existing Indian entities can open a new EOU under the same legal entity But the EOU division must maintain separate accounts, including separate Bank accounts DTA units can also convert to EOU scheme Units working with EPCG /Advance Licencing can also convert to EOU scheme Their pending licence obligations will be subsumed into the EOU scheme. scheme. But to be eligible for Corporate Income Tax concessions under section 10B, it has to be ensured that old assets do not 10B, exceed 20% of total assets of the EOU 20%

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EOUs & Customs Department

EOUs have to get their premises bonded by the local Customs/ Central Excise Department, and function under their supervision They can get a location of their choice so bonded. bonded. All duty-free items have to be brought here first. dutyfirst. One single multi-purpose bond with the Customs /Central Excise multiDepartment, Department, called the B 17 Bond, suffices for all operations. operations. While there is no physical control, there is record-based control record EOU has to maintain proper account of the import, consumption and utilisation of all imported/locally procured materials and exports made and submit them periodically to the Customs. Customs. Duty foregone under the EOU scheme with interest is recoverable in case of fraudulent activity (along with prosecution & penalties)

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Export Obligations of EOUs

EOUs have only to be foreign exchange positive FE Inflows> FE Outflows where FE Inflows = Export earnings (Direct Exports+ Exports through Third Parties + Inter-unit Sales + Exports to EOU/SEZ/STP/EHTPs) Inter FE Outflows = Foreign Exchange outgo on imports of Raw materials/consumables + FE payments of commission/ royalty/ fees/ dividends/ interest on ECB + share of amortised value of capital goods imported  Imported capital goods are amortized over 10 years; only years; amortized amount is included in NFE calculation  Values are included in the calculation even if the imports are not actually paid for. for.

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EOU Scheme- Duty-free Supplies from Indian Scheme- DutyMarket

Supplies from Indian manufacturers to EOUs are classified as deemed exports, and the suppliers are eligible for  Advance Licence for import of intermediate inputs  Deemed Export Duty Drawback  Discharge of export performance obligation on the supplier EOUs may obtain, on production of a suitable disclaimer from the suppliers, the duty drawback and refund of Terminal Excise Duty

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EOUs Access to Indian Market

Sales to the Indian Market  EOUs can sell duty-free to other EOU /SEZ /STP /EHTPs etc duty EOUs can sell on full duties in the DTA against foreign currency (from EEFC account or from abroad)  This also counts for NFE. NFE.  Apart from the above,  EOUs can sell upto 50% of FOB value of physical exports to 50% the DTA at concessional duties  EOUs can sell over and above that at full duties, subject to NFE being positive

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EOU Sales to other EOUs

 EOUs Sales are duty-free to Indian entities like duty SEZ /EOU /EPZ /STP /EHTP units,  Advance Licence Holders,  Bonded Warehouses &  Educational institutions, defence establishments, other agencies notified by Government of India as eligible for duty-free imports. dutyimports.  These sales count for computation of NFE. NFE.  But they do not count as physical exports. exports.  They can be invoiced in foreign currency or in Indian currency. currency.

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EOUs & Subcontracting

EOUs can subcontract up to 50% of production or part of production process to units in the EOU or Indian manufacturers. EOUs may temporarily take to the job workers premises jigs, moulds, tools, fixtures, tackles, instruments, hangers, patterns & drawings for job work EOUs can even subcontract to units abroad EOUs can import raw materials & components free of cost for jobjobworking and return. EOUs can undertake job-work for export on behalf of local jobmanufacturers.

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EOU Scheme: Who can operate

To run manufacturing activities foreign companies need to set up an Indian Company The Indian Company has to have independent legal status, distinct from the parent foreign company. company. The Company may be a wholly-owned subsidiary, or a joint whollyventure company in financial collaboration with an Indian company in India. India. A Company registered in India can start an EOU unit without starting a new legal entity: separate accounts suffice. entity: suffice.

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EOU TAX BENEFITS CALCULATION

Custom Duty
CUSTOM DUTY CALCULATION Compressor Particulars Rate $ Ex.Rate % Basic Value (CIF Rate) 23.95 48.95 Freight Insurance 1.125% Landing Rate 1% Assly ValueCustom Duty 7.50% Sub Total CVD 8% Edu Cess 2% HS Edu Cess 1% Total Duty (CD + CVD part) Sub Total Custom Duty Edu Cess 2% Custom Duty HS Edu Cess 1% Sub Total Additional Duty 4% Total Purchase Value Cenvatable Duty Non Cenvatable Duty Total Duty Amount Purchase Value Less Cenvat Net Value Add - Frt from port to factory Add - Custom Clearing Chag Add - Do Charges Add - Other Misc Chag Net Landed Add Cenvat Value Net Net Landed Landed cost for EOU short by DTA 1172.35 0.00 13.19 11.72 1197.26 89.79 1287.06 102.96 2.06 1.03 195.85 1393.11 3.92 1.96 1398.99 55.96 1430.04 162.01 95.67 257.68 1430.04 162.01 1268.02 6.14 1.14 5.45 0.91 1281.66 162.01 1443.67 EOU 1172.35 0.00 13.19 11.72 1197.26 0.00 1197.26 0.00 0.00 0.00 0.00 1197.26 0.00 0.00 1197.26 0.00 1172.35 0.00 0.00 0.00 1172.35 0.00 1172.35 6.14 1.14 5.45 0.91 1185.99 0.00 1185.99 -257.68

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EOU TAX BENEFITS CALCULATION

Excise Duty
EXCISE DUTY CALCULATION Compressor - LG Compressor Particulars DTA Basic Value 1225.00 Excise Duty 100.94 Sub Total 1325.94 CST 2% 26.52 Total Cost 1352.46 Purchase Value Less Cenvat Net Value Net Landed Add Cenvat Value Less: CST Credit Net Net Landed Landed cost for EOU short by 1352.46 100.94 1251.52 1251.52 100.94 0.00 1352.46 EOU 1225.00 0.00 1225.00 24.50 1249.50 1249.50 0.00 1249.50 1249.50 0.00 24.50 1225.00 -127.46

When any domestic vendor supply to EOU which will treat as Deemed Export for that Vendor, and can get the Duty Draw Back on the imported Raw Material Used In their final products and the Custom Duty paid on their imported item can be refunded to them, so by negotiation we can get this benefits for the amount Vendor will get. Draw back can calculate on actual custom duty paid or 1.3% of FOB value.

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Documentation Part
Purchase / Sale 1. Have to issue PO from EOU as the Excise Registration will be separate for EOU. 2. Before dispatch the goods from vendor end, we have to issue P C (Procurement Certificate) to vendor against which vendor will not charge Central Excise Duty (domestic purchase) in invoice raised to us. 3. Goods have to unload separately in EOU stores and maintain separate records for consumption, scrap, rejection etc. 4. Goods to be issued / consume against the EOU production only. 5. In case if there is no stock of any one components in EOU stores production can not confirm and dispatch can not be made in any circumstances. 6. While Sales invoice from EOU for Export there will be NO Excise Duty have to pay / debit. 7. If we have to issue raw material to any vendor for any Job Work, permission from the Development Commissioner have to obtain.
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Documentation Part -2
1. On monthly basis raw material consumption report have to submit to Development Commissioner in which item wise consumption, rejection, scrap have to declare. In case any gap we have to pay the duty to Government in cash equal to duty forgone. 2. Import and Export against Green Card The custom authorities will not inspect the container for Green Card holder.

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Final Pending
1. Require to purchase imported capital goods of $ 8,72,000 (INR 4.2 Crore. 2. MPCB Clearance 3. LUT with C.Excise Authority 4. Pollution Control clearance. 5. Excise Registration

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