This article is written by Saloni Surana, pursuing a Diploma Programme in Business Laws for In-House Counsels from LawSikho.
Table of Contents
Introduction
In 1981, the Export Oriented Units (EOU) scheme was introduced which intends to build trades from India, to subsequently increment foreign trade income and make work. This plan additionally supplements different plans, for example, the Free trade zone (FTZ) and Export Processing Zone (EPZ). The provisions of part 6 of the foreign trade policy and its strategies are appropriate to EOU, just as to Electronics Hardware Technology Parks (EHTPs), Software Technology Parks (STPs), and Bio-Technology Parks (BTPs). In like manner speech, EOU/ STP/ EHTP/ BTP together are called the EOU scheme. Units enrolled under the EOU scheme are needed to send out 100% of their items except if they offer a segment of it to the domestic tariff area (DTA).
A provider should charge GST on goods provided to the EOU. As far as concerns, the EOU can either apply for an information tax reduction on the GST paid while giving supplies to the DTA or guarantee a discount of the GST. EOUs are needed to pay GST on acceptable deals made to DTAs, except on the off chance that it is the offer of zero-appraised supplies that are excluded from GST. It should be noticed that GST is material even in the event of deals starting with one EOU then onto the next, as such an exchange is viewed as a normal deal with the end goal of the GST law. Outstandingly, essential customs obligation is excluded from an EOU if there should be an occurrence of imports.
Objectives of EOU
By empowering send-out arranged organizations, the plan likewise means to create extra work through the export area. EOUs were likewise expected to improve the inventory network beginning with the acquisition of crude materials to the stockpile of completed items to the DTA. Export likewise implies an inevitable overhaul in the quality and administration, so the EOU scheme was additionally expected to move innovative progressions and skill improvement in the country.
Comparison between EOU & SEZ
Both EOUs and SEZs were started to help trades, there are differences between the two. An EOU can be set up at any place in the nation if it meets the plan’s measures. Then again, an SEZ is an uncommonly outlined area that is considered to be outside the customs purview and in this way, a foreign domain. In this way, any deal produced using an SEZ to DTA is viewed as an export while any deal made by an EOU to DTA is viewed as considered exports. Deals from SEZs to DTAs are more normal, contrasted with deals from EOUs to DTAs.
Being an unmistakably divided territory, there is generous command over the actual development of goods to and from SEZs, yet the equivalent can’t be said about EOUs. Regarding taxability, an SEZ-based foundation isn’t needed to make good on assessment, while an EOU needs to pay a charge which it can guarantee as a discount later.
An SEZ is a predefined separated obligation-free region, which with the end goal of trade operations is considered to be considered external to the customs domain of India. Set up essentially to advance exports, even the GST system proceeds to boost SEZ units by stretching out due advantages for their approved tasks. An SEZ is needed to follow two separate arrangements of compliances. Initially, compliances administered by the SEZ Act, 2005, for example, accommodation of periodical advancement reports and besides, compliances needed to be attempted as far as indirect tax laws. While the previous is probably going to proceed with no significant changes, the last would now be adjusted under the GST law.
SEZ & STP
The GOI presented Special Economic Zone (“SEZ ”) and Software Technology Parks of India (“STPI”) schemes to give a globally serious and bother-free climate for acquiring foreign trade, pulling in the foreign direct venture, age of work in India. This record investigates the features and remarkable highlights of these plans. Special Economic Zone (“SEZ”) is a streamlined commerce zone endorsed by the public authority where business and exchange laws contrast from the remainder of the nation. The SEZ scheme visualizes the relationship of a private area with the improvement of SEZ.
The destinations of the zones include expanded exchange, expanded venture, work creation, and powerful organization. The monetary laws of an SEZ are more liberal than the nation’s average financial laws. Software Technology Parks of India scheme (“STPI”) is a 100% export arranged plan for the turn of events and export of PC programming, including export of expert administrations utilizing correspondence joins or physical media. This plan centres around one area, i.e., PC programming. The plan coordinates the public authority idea of 100% Export Oriented Units (EOUs) and Export Processing Zones (EPZs) and the idea of Science Parks/Technology Parks, as working somewhere else on the planet.
The striking highlights of the STPI and SEZ scheme are;
- Simplified methods for setting up units and leading business;
- Single window freedom for setting up of a unit;
- Duty let free import on the obtainment of goods for the setting of a unit;
- Exemption from customs duty on import of capital goods saves, and so on;
- Exemption from focal extract obligation on the obtainment of capital goods, crude materials, and consumable extras, and so on from the home-grown market;
- 100% foreign equity is permitted to be put resources into the units set up under this plan;
- The unit is allowed to acknowledge and localize to India the full export estimation of goods or programming inside a time of 9 months from the date of export;
- “Write-off” of unrealized export bills is allowed up to a yearly restriction of 5% of their normal yearly acknowledgement;
- External business borrowings up to $500 million a year permitted with no development limitations;
- Simplified least export performance standards i.e., “Positive Net Foreign Exchange Earner’.
What are the commitments of an STPI/SEZ unit?
A unit set up under the STPI/SEZ scheme conveys the accompanying commitment
- They must be a positive net foreign trade worker;
- They need to execute a legal endeavour with the significant jurisdictional position;
- They need to submit periodic reports to the jurisdictional power – improvement magistrate or chief separately;
- The units should keep up proper accounting records to account represent the financial advantages profited by them;
- They can sell the goods in home-grown tax territory subject to the instalment of relevant duties & taxes subsequently.
Comparison between SEZ & STP
|
SEZ |
STP |
|
|
1. |
An SEZ unit can be set up just in assigned SEZ parks as it were. |
STP units can be set up anywhere in India. |
|
2. |
Lead chance to set up SEZ is longer. |
Lead chance to set up an STP unit is nearly less. |
|
3. |
An SEZ unit can’t sub-rent the excess except if it is likewise the “developer” of the SEZ park. |
Subject to eliminating all bonded capital goods, the STPI unit can sublease the excess office space. |
|
4. |
Goods for foundation advancement i.e., development material can be secured without installment of duties. |
Goods for foundation improvement can’t be acquired without the installment of relevant obligations. |
|
5. |
100% annual duty exclusion for the initial five years and from that point half except for the next 5 years and from there on the half exclusion for a very long time if or re-venture of benefits regarding area 10AA of the Income Tax Act. |
The income tax exclusion has been removed with impact from April 2011. |
|
6. |
SEZ units are excluded from the instalment of service tax concerning administrations, which are only utilized for approved activities. The specialist co-op names should be enlisted forthright with the service tax authorities to guarantee exception. |
STPI Unit isn’t qualified for forthright exclusion from the instalment of service tax. Nonetheless, they are qualified to assume praise of service tax paid on information administrations and guarantee discount of duty so paid. In light of related knowledge, the delay to get a discount of service tax paid is high and in the vast majority of the cases, authorities at lower level dispute them. |
|
7. |
SEZ unit is excluded from the instalment of CST on products obtained natively. |
STPI unit isn’t qualified for forthright exclusion from the instalment of service tax. They need to make good on the relevant expenses and guarantee repayment of the duties so paid from the Government. |
|
8. |
DTA deals are permitted depending upon the instalment of applicable duties. |
An STPI unit is qualified to sell locally, subject to accomplishing positive foreign trade and instalment of full excise duty equivalent to import duty. |
|
9. |
An SEZ unit isn’t subject to the instalment of customs management charges by staff deputed in the SEZ park. The customs oversight charges will be paid by the developer. |
An STPI unit is at risk to repay customs supervision charges for staff deputed at the unit. |
|
10. |
No routine assessment of exported/imported goods by customs authorities. |
All goods imported by the STPI unit ought to be truly analysed by the customs authorities except if they are given specific permission for self-affirmation. |
|
11. |
The state government is approved to regard the units in SEZ as open utilities and to appropriately delegate the powers of labour commissioner to the development commissioner of the SEZ unit. |
The state government isn’t empowered to designate the forces of work chief to anybody. |
|
12. |
The SEZ unit is allowed to hold 100% of the export proceeds in convertible foreign trade in the EEFC account. |
STPI units should change over 100% of the export continues in convertible foreign trade to INR within 30 days from the date of receipt. |
Conclusion
The EOU scheme gives units a surrounding that is favourable for them. They are given different waivers and inclinations, consistency and tax collection matters, making it simpler for them to direct business. Exports lead to an inflow of foreign trade, which encourages the country to improve its financial position.
References
- https://www.caclubindia.com/experts/stp-vs-sez-24826.asp#:~:text=05%20March%202008%20WHAT%20IS%20THE%20DIFFERENCE%20BETWEEN%20STP%20%26%20SEZ%3F&text=05%20March%202008%20SOFTWARE%20TECHNOLOGY,ON%20SOFTWARE%20 UNITS%20AND%20DEV.&text=SPECIAL%20ECONOMIC%20 ZONE%20IS%20NOT,OR%20UNIT%20.
- https://www.dripcapital.com/en-in/resources/blog/export-oriented-units
- https://www.quora.com/What-is-the-difference-between-a-SEZ-Special-Economic-Zone-and-a-STP-Software-Technology-Park
- https://economictimes.indiatimes.com/small-biz/policy-trends/gsts-impact-on-special-economic-zones-export-oriented-units-to-be-a-mixed-bag/articleshow/59540067.cms?from=mdr#:~:text=Special%20Economic%20Zones%20(SEZ)%20and,the%20customs%20territory%20of%20India.
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