The Role of EOU/STP/EHTP in GST: Definition & Benefits

The export of goods refers to the movement of goods outside India. Under GST, such transactions are classified as zero-rated supplies. However, the Central Government has the authority to notify specific categories of goods supplies that qualify as deemed exports. This implies that these supplies are treated as exports even though the goods do not leave the country.

As per CGST Notification No. 48/2017 – Central Tax, dated 18th October 2017, supplies made by a registered person to an Export Oriented Unit (EOU), Electronic Hardware Technology Park Unit (EHTP) or Software Technology Park Unit (STP) are considered deemed exports.

In this blog, we will walk you through what is EOU/EHTP/STP in GST.

What Is Export Oriented Unit (EOU)?

Export Oriented Unit (EOU) is a unique scheme that integrates provisions from the Customs Act, Central Excise Act, and Foreign Trade Policy, wherein exporters can reap the benefits. An EOU can consider imports from domestic units without paying applicable duties.

However, the EOU unit needs to earn Net Foreign Exchange and fulfil compliance procedures of the Customs Act, the Foreign Trade Policy and the Central Excise Act.

What Are EOU Benefits?

Here are the benefits of the EOU Scheme:

• Customs duty exemptions apply to the import of capital goods, raw materials, spares and consumables.
• There is also an exemption from Central Excise Duty if capital goods, raw materials, spares and consumables are procured from the domestic market.
• Reimbursement of duties paid on furnace oil procured from domestic oil companies is available for EOUs. Duty drawback rates are applicable as notified by the Directorate General of Foreign Trade and the reimbursement of duties paid can be claimed accordingly.
• The scheme allows for the realisation and repatriation of export proceeds within 12 months. The Reserve Bank of India or authorised dealers may grant extensions if required.
• Duty-free goods procured under the scheme must be used within 2 years. However, extensions may be granted based on liberalised provisions.
• A licence is not required for importing goods under this scheme.
• Foreign Direct Investment (FDI) of up to 100% is permitted.
• Access to the Exchange Earners Foreign Currency (EEFC) Account is provided.
• Reimbursement of Central Sales Tax (CST) is available for purchases of domestic goods.
• Supplies made from the Domestic Tariff Area (DTA) to Export Oriented Units are treated as deemed exports.
• An existing DTA unit may be converted into an EOU.
• Benefits include the ability to re-export defective imported goods or goods received from international suppliers on loan.
• Profits earned can be repatriated without the requirement of dividend balancing.
• Job work carried out on behalf of domestic exporters qualifies as valid for direct exports.
• In the case of EOUs engaged in horticulture or agriculture and involved in contract farming, duty-free goods listed in Appendix 14-I may be supplied to contract farmers for production purposes.

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What Is Electronics Hardware Technology Park (EHTP) Scheme?

Units intending to export their entire production of goods and services can be established under the Electronic Hardware Technology Park (EHTP) Scheme. These units need to be engaged in manufacturing and services.

What Are EHTP Benefits and Highlights?

Here are the benefits of the EHTP Scheme:

• EHTP units help import duty-free goods. It includes capital goods defined under the EXIM (Export-Import) Policy. These goods can be used for production, services, manufacturing, and processing or in relation to the mentioned import and export activities.
• These units can import goods such as capital goods on loan or free of cost.
• EHTP units can procure goods for business purposes free of duty from bonded warehouses in the DTA under the EXIM Policy.
• This scheme allows minimal 'Minimum Export Performance' norms. These norms include the US Dollar one million or three times the CIF value of goods that are imported based on the higher value, Positive Net Foreign Exchange Earnings against Export Earnings for a span of 5 years.

What Is Software Technology Parks of India Scheme (STPI)?

STPI (Software Technology Parks of India) is a Government of India initiative established in 1991. It aims to manage an export-oriented scheme to develop and export computer software.

This initiative further includes the export of professional services. The scheme can be attributed to attracting foreign investment in India and establishing the country’s reputation as a technology superpower on the global platform.

What Are the Benefits of the STPI Scheme?  

Here are some of the benefits of the STPI Scheme:

• An income tax holiday is allowed under Section 10A of the Income Tax Act.
• Upon import of capital equipment, exemptions on duty on imports are allowed.
• Permission is granted to establish an STP unit at any location in India.
• This scheme allows the import of equipment on lease or loan.
• The scheme is a single window clearance approval scheme.
• Reimbursement of Central Sales Tax (CST) is provided on items procured domestically.
• The scheme allows the import of all relevant equipment and goods, including second-hand equipment, except for items that are specifically prohibited.
• A 100% excise duty exemption is granted on the procurement of indigenous items.
• The permission is granted for 100% Foreign Direct Investment through the 'Automatic Route' of the Reserve Bank of India.
• Upon holding a green card, priority benefits for government clearance and additional services are provided.
• It considers the total depreciation of capital goods within 5 years.
• This scheme allows the use of computer systems by software units for training.
• Permission is granted to sell products or services in the Domestic Tariff Area (DTA), up to 50% of the export value.
• Under this scheme, payment of corporate income tax for a time period of 10 years (2009) is exempted.

If a foreign company plans to establish an office in India, it has to meet the statutory procedures, such as accounting procedures. Every STP needs to maintain a separate annual balance sheet and account. In addition, the companies mandatorily need to maintain sales and tax invoices, vouchers, followed by a cashbook and bankbook, contract copies from all buyers and a fixed asset register.

Conclusion

Units aiming to export their entire production of goods and services can be established under the Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme or Software Technology Park (STPI) Scheme. It is essential for these units to understand the benefits available to them and ensure compliance with GST requirements.

For instance, if a refund of tax paid is to be obtained by the supplier or recipient of EOU/STP/EHTP in GST, they must file an intimation in Form A with the Jurisdictional Central Tax Officers and submit Form B every month.

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