Page 149 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes equity participation of up to 100 per cent. For setting up a 100 per cent EOU the following
conditions are applicable:
(i) the entire production and operation of 100 per cent EOUs must be in a customs bonded
factory, unless specifically exempt from physical bonding; Goods will be imported into the

customs bonded factory;
(ii) the unit shall undertake to manufacture in the bonded area and to export its entire
production for a period of 10 years ordinarily and 5 years in case of products liable to rapid
technological change;

Did u know? Regarding the export obligations of 100 per cent EOUs, the following
conditions apply:
1. EOUs need not export their manufactured goods themselves but may use an
export house/trading house/star trading house or other EOUs subject to certain
conditions;
2. EOUs may execute export orders also through third parties given that the goods will
be directly transferred from the customs bonded factory to the port of shipment and

all export benefits will be to EOUs only.
(iii) an approved EOU will execute a bond/legal undertaking with the Development

Commissioner concerned; Failure to fulfil the obligations stipulated in the letter of approval
or intent will render the unit liable to penalty;
(iv) EOUs have to adhere to the minimum value addition conditions incorporated in the letter
of permission/letter of intent/industrial license issued to them. In general, such minimum
value addition will be 35 per cent for automatic approvals and 20 per cent for other cases;
(v) EOUs have to maintain a proper account of the imports, consumption and utilization of
all imported materials and exports made by the unit. These accounts will be submitted
periodically to the Development Commissioner. Wherever an existing industrial unit is
operating both as a domestic unit as well as an approved 100 per cent EOU, it should have
two distinct identities with separate accounts;
(vi) EOUs are permitted to sell part of the production in the domestic tariff area subject to
certain limits;
(vii) the f.o.b. value of exports of an EOU can be clubbed with the f.o.b. value of exports of its
parent company in the domestic tariff area to attain export house, trading house or star
trading house status for the parent company;
(viii) supplies produced in the domestic tariff area under global tender conditions, against
payment in foreign exchange, against advance licenses and other import licenses, and
to other EOUs with the permission of the Development Commissioner, will be counted

towards the fulfilment of export obligations.

Notes On completion of the bonding period, it shall be open to the unit to continue under
the scheme or to opt out of the scheme. Debonding will, however, be subject to the industrial
policy in force at the time the option is exercised. Where debonding is sought before the
stipulated export obligation period of 5 to 10 years, or where EOUs are unable to fulfi l
their export commitments out of various reasons, it is considered premature debonding.
This is subject to payment of all leviable duties without the benefit of depreciation, and

also subject to penalties and other conditions as decided by the Board of Approvals for 100
per cent EOUs.

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