TaxTMI 
TaxTMI 
TaxTMI 
Your Export Oriented Unit is making money. Orders are flowing, exports are on track, and the business model works. But when you open your Quarterly Performance Report, it tells a completely different story - a negative Net Foreign Exchange. If you are an EOU handling Free of Cost imports for assembly or job work, this mismatch is more common than you think. And the good news? It is almost certainly a reporting error, not a business problem.
How the FOC Import Model Works for EOUs
Under Chapter 6 of Indias Foreign Trade Policy, EOUs are permitted to receive materials from a foreign buyer at no cost, assemble or process them, and export the finished goods back. The EOU charges only job work or assembly fees for the service rendered. This is a fully legitimate and well-recognised model that thousands of units across India operate under every day.
The foreign buyer ships raw materials or components on a Free of Cost basis. The EOU adds value through assembly or processing and exports the product back. Revenue comes in the form of job work charges paid in foreign exchange. It is a clean, compliant, and profitable arrangement.
Where the QPR Goes Wrong
The problem starts with how FOC imports get recorded in the Quarterly Performance Report. When goods arrive at Indian customs, a Bill of Entry is filed with a declared value. This value exists purely for customs and duty assessment purposes. It does not represent an actual payment made by the EOU to any foreign supplier.
However, many EOUs end up reporting this BOE value as a purchase - as if foreign exchange actually left India. The QPR then treats it as an outflow. Since the only inflow is the relatively smaller job work fee, the result is a negative NFE. On paper, it looks like the unit is losing foreign exchange for the country. In reality, not a single dollar left India for those materials.
How to Report FOC Imports Correctly
The fix is straightforward once you understand the distinction between customs valuation and forex movement. Job work charges received from the foreign buyer are genuine foreign exchange inflows and should be reported as such. FOC imports, on the other hand, involved no payment and therefore represent zero outflow. When you report it this way, the NFE turns positive - which is the true picture of your operations.
Think of it this way. If your neighbour gives you free fabric and you stitch a shirt and charge them tailoring fees, your income is the tailoring charge. You did not spend anything on fabric. The QPR should reflect the same logic.
What About the IGCR Bond and Duty?
Some EOU operators worry about the duty debited under the Import of Goods at Concessional Rate of Duty (IGCR) bond. This is a separate customs compliance mechanism. The duty obligation under IGCR relates to the concessional import benefit and has its own fulfilment conditions. It does not count as a foreign exchange outflow and should not affect your NFE calculation in the QPR.
Keeping your IGCR compliance and your forex reporting in separate lanes is essential. Mixing the two is another common reason EOUs end up with distorted QPR numbers.
Do Not Let a Reporting Error Hurt Your EOU
A negative NFE can trigger scrutiny from the Development Commissioners office. It can raise questions about your units viability and compliance status. In the worst case, it could put your EOU licence at risk - all because of a bookkeeping misclassification, not an actual performance issue.
If your EOU is engaged in job work on FOC imports and your QPR shows a negative NFE, review how your imports are being categorised. Ensure that FOC materials are not recorded as foreign exchange outflows. Speak with your customs consultant or chartered accountant to align your reporting with the actual forex position.