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GST on Export Oriented Unit (EOU)


GST on Export Oriented Unit (EOU)

Export Oriented Unit (EOU) scheme was introduced in the year 1981. 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).

The main objective of introduction of Export Oriented Unit scheme is to increase exports, to increase foreign exchange earnings in the country and generate additional employment. In this current article, we look at the impact of GST on Export Oriented Units in detail.

Supply of Goods to EOU (Purchase by EOU from DTA)

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

Option 1 – To take input tax credit of GST paid and utilize the same towards supplies made by EOU to DTA.

Option 2 – Claim refund of GST paid.

It is always advisable to go for first option and option 2 is available only when there is no enough DTA supplies against which input tax credit can be used.

Supply of Goods by EOU

When EOU units supply admissible goods to DTA units, EOU units are required to pay applicable GST on such supply. Only in case of zero 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 from EOU to EOU

When the goods are supplied by one EOU to another EOU, such supply would be treated any other supplies under GST law and hence GST would be payable on the same as payable under any other supplies.

Tax Benefits for EOU under GST

After implementation of GST, EOU units is like any other supplier under GST and all the provisions of GST law will be applicable to EOU units. 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.