Export Oriented Unit (EOU) under GST Laws

Recently I have received some queries about EOU and its taxation aspects in GST. Through this article I would like to share my knowledge and understanding of Export Oriented Unit (EOU) under GST Laws.

Export Oriented Unit scheme was introduced by government to increase exports, to increase foreign exchange earnings in the country and generate additional employment.

Under EOU scheme, units registered as a EOU are required to export their entire production of goods and services. However, certain portion is allowed to be sold out in domestic tariff area (DTA).

Export Oriented Unit (EOU) under GST Laws

Is there any special exemption or status available to Export Oriented Unit (EOU) under GST Law

Under GST, there is no exemption or status available to supplier of goods to Export Oriented Unit (EOU) . IGST, CGST and SGST, as applicable, will be payable by the supplier who supplies the goods to EOU. EOU has two options to offset GST paid on goods received from suppliers, the options are narrated below:

Suggestion : It is always better to go for first option if DTA supplies against whichinput tax creditcan be used.       Option 2 should be exercised only when there is no sufficient supplies available to DTA

Supply of Goods by Export Oriented Unit (EOU)

Export of Goods by EOU or Zero Rated Supply

In case ofzero rated supplies, as defined under section 16 of the IGST Act, EOU are exempted from payment of GST. Provisions of section 16 (1) are summarized hereunder for ready reference:

Zero rated supply means any of the following supplies of goods or services or both, namely

a) export of goods or services or both; or

b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

Hence, when an EOU units undertakes physical export of goods or services or supplies goods or services to special economic zone (SEZ) developer or special economic zone unit, then, in such cases, EOU units are exempted from payment of GST.

Supply of Goods to DTA

When the goods are supplied by EOU to DTA , then such supply would be treated as normal supplies under GST law and GST would be payable on the same.

Supply from EOU to EOU

When the goods are supplied by EOU to another EOU , then such supply is also treated as normal supplies under GST law and GST would be payable on the same.

Supply of Goods by Export Oriented Unit (EOU)

Tax Benefits for EOU under GST

EOU has no special status in GST. Nor it has got any special exemption in GST. In GST EOU is like any other supplier and all the provisions of GST law are applicable on it.

This means supply to or from EOU will be like any other normal supply in GST, leviable to Tax as per GST laws.

Tax Benefits for EOU under Customs Law

The only benefit available to EOU unit is duty free import i.e. benefit of basic customs duty exemption is available to EOU.

Further, exemption from the additional duties of customs, if any, under section 3(1), section 3 (3) and section 3 (5) of the Customs Tariff Act, 1975 and exemption from central excise duty will be available for goods specified under the Fourth Schedule to the Central Excise Act.

In order to avail benefit of import duty exemption, EOU unit needs to follow the procedure under the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information.In no event shall I shall be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.