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Brief introduction of Export Oriented Unit (EOU):

Units undertaking to export their entire production of goods and services (except permissible sales in the DTA), may be set up under the Export Oriented Unit (EOU) for manufacture of goods, including repair, re-making, reconditioning, re-engineering, and rendering of services. Trading units, however, are not covered under this scheme.

Audit point of view:

The audit of EOU is different from other audit assignments which are of routine nature, one must have the knowledge of procedural aspects and objectives of the respective EOU’s in order to have a good audit logs and trails

I am mentioning here some of key aspects that has to be looked up while an EOU is undergoing an audit-

1)      Is the EOU have separate ear marked premises for each LOP

2)      Is the EOU have separate ear marked premises for each LOP

3)      Is the EOU obtained warehousing license as required under sec.58 of customs act, 1952. Since EOU units are private bonded warehouse

4)      Is the EOU taken permission for manufacture with in the bond from assistant commissioner of customs/central excise as stipulated under sec.65

5)      If the EOU operates under “manufacture and other operations in warehouse regulations,1966” then ensure that the unit follow the regulation

6)      Is the EOU has its own permanent e-mail address and digital signature on the said e-mail id. Since duty free import and Domestic Tariff Area sale shall not be permitted to EOU not having permanent e-mail address

7)      Is procurement certificates ( for clearing duty free goods, under the relevant exemption notifications, at the Port of Import /Airport etc.,) received for the production of goods mentioned in the LUT

8)      Ensure whether pre-authenticated CT-3 booklets (for obtaining raw materials free of duty as and when required without seeking permission from Central Excise Authorities every time) be received since it cover the requirements of the unit for a maximum period of three months.

9)      Is the goods imported are utilized within stipulated period.

ü  five years in respect of capital goods

ü  three years in respect of raw materials

ü  If extended period as permitted by competent authority.

10)  Ensure that goods imported are Re-exported within one year/extended period

11)  Check whether EOU has achieved positive Net foreign exchange (Net Foreign Exchange Earnings (NFE) shall be calculated cumulatively in blocks of five years, starting from the commencement of production), since failure to achieve positive NFE, demand on proportionate basis in proportion to default as explained in notification no.22/2003-CE and 52/2003-cus , may be raised.

Note:  Items of manufacture for export specified in LOP/LOI alone are to be taken into account for calculation of NFE

12)  Ensure whether B-17 bond executed with the Asst. Commissioner of Customs with surety / security.

The B-17 bond covers the following-

ü  The B-17 bond value is 25% of the rate of duty (customs + central excise) sanctioned requirement of capital goods plus duty foregone for raw material purchase of 3 months

ü  B-17 has to be supported by a surety which is equal to the bond amount or with a security in the form of bank guarantee to a tune for 5% of the bond value

13)  Ensure timely debiting or crediting of the bond. In any case bond amount falls short, take additional bond along with surety/security

14)  Check whether DTA sale permission granted by the development commissioner is valid and is adequate to cover the DTA sales.

15)  Ensure sales in DTA are subject to the payment of applicable duties as per notification no.23/2003-CE

Note: Here check whether the rates of duty shown in the invoice(s) have been correctly indicated and the duty correctly calculated

16)  Ensure there should not be any inter unit transfer

Note: inter unit transfer of raw material is not permitted under EXIM policy except unutilized material can be transferred from one EOU to another EOU provided there are valid reasons for such transfer

17)  Ensure that EOU not avails the benefits such as DEPB, Drawback, and DEEC etc. Since EOU’s are not eligible for the benefit of exemption schemes

18)  Verify proof of exports with respect to ARE-1(application for removal of excisable goods for export) procedure.

Note: proof of exports like ex-bond shipping bill etc.

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Category Excise, Other Articles by - Manikanta Raju CA,CWA,(CS) 



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