Export Oriented Units: Are they really 100% Oriented towards Exports ?

With the advent of the liberalisation and make in India initiative, the boost given to the domestic industries also attracts the Export Oriented Units, not to lose the opportunities available for the domestic markets, even when they have the extra capacity to produce and better utilisation of their resources, readily available to be used for manufacturing and selling into the Domestic Tariff Area, in addition to the normal Exports they undertake.

Talking about the GST and exports, it is important to understand the GST Laws and Rules applicable to the import and export of both services and goods.

Meaning of Import and Export of Goods under GST

Import of the goods : Means bringing goods into India from a place outside India (Section 2 (10) of IGST Act, 2017)

Export of Goods : Means taking out of India to a place outside India (Section 2 (5) of section 2 of IGST Act, 2017).

Meaning of Import and Export of Services under GST

Import of Services: In terms of Section 2 (11) of IGST Act, 2017, means the supply of any service, when –

• The place of supply of service is in India;
• The supplier of service is located outside India; and
• The recipient of service is located in India
• But excludes services imported from a foreign branch.

Export of Services : In terms of Section 2(6) of IGST Act, 2017, means the supply of any service when,

(i) the supplier of service is located in India;

(ii) the recipient of service is located outside India;

(iii) the place of supply of service is outside India;

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India; and

(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with explanation 1 in section 8.

Supplies which do not form part of export of services

• Where the place of supply of service is within India but to a person located outside India.
• Where the consideration for the supply of services is received in Indian currency or in such a currency other than convertible currency.
• Supply of services to the foreign branch.

Deemed Exports under GST

Export Oriented Units are mainly designed and designated to undertake exports only and various facilities and concessions are given to such export oriented unit. This concessions are given so that such units concentrate on their export market, and since the export bidding is done in competition with foreign suppliers of goods and services, and such bids evaluation is also done without considering taxes, Governments of the respective countries give incentives and concessions to the export oriented units so as to enable them to outstand the competition. Since such supply of goods and services are financed for specific projects with the free foreign exchange, these supplies are considered as ‘deemed exports’. It is called deemed exports, because the supplies made to Export Oriented Units do not leave the country. Suppliers get their payment in Indian currency and not in foreign exchange.  Foreign Trade Policy 2023, considers only the following supplies as ‘Deemed Exports’:

• Supplies to EOU / STP / EHTP / BTP
• Supplies against Advance Authorisation/ DFIA
• Supply of goods to mega power projects against International Competitive Bidding
• Supplies to United Nation Agencies
• Supply of goods to nuclear projects through competitive bidding
• Supply of marine freight containers
• Supplies against EPCG authorization
• Supplies to projects against international competitive bidding
• Supplies to projects with zero customs duty

Treatment of Exports under GST

As per Notification 52/2003-Cus, goods manufactured by the EOU upto 50% of the Total Exports turnover, is allowed to be cleared into DTA on payment of Customs duties and GST. So there is no compulsion to export all 100% of the manufactured goods.

Under IGST law, export of goods or services or both are to be regarded as “zero-rated supplies” because the taxes cannot be exported. Exports of goods / Services makes the exporter eligible for refund of taxes paid on the raw materials/inputs /input services, and shall be allowed to claim the refund of the GST paid under one of the following two options:

(i) Refund of unutilized input credit : Export of goods or services or both under bond or letter of undertaking (LUT) without paying any Integrated Tax. The refund can be claimed by making an application through GST Portal.

(ii) Refund of the IGST paid on such goods and services : Export of goods and service or both on the payment of Integrated Tax and the exporter can claim the so exported. No need to file a separate application as the Shipping Bill itself will be treated as deemed refund application, and the refund will be automatically processed, and refund will be sanctioned which will be directly credited to the exporters bank account.

Conclusion: The EOUs today are only Customs Bonded Warehouses, where the permission to manufacture export goods is given, with an option to sell the manufactured goods into DTA also, to some extent. Therefore, the concept of 100% Export Oriented Unit is not at all a reality, because 100% EOUs no more exist, with the domestic industries growing and interdependency of the industries have increased with sharing of the common facility of one or more manufacturing processes, and also with the liberal policies of the Government, the industries are looking into domestic market with the Make in India vision, while manufacturing for both domestic as well as the global markets.