The Hindu Business Line : Govt considering EOUs' plea for exemption from sales tax

THE 100 per cent export-oriented units' (EOUs) plea for exemption from Central Sales Tax (CST) is being favourably considered by the Government, even as the current policy provides such exemption for sales made by units located in special economic zones (SEZs) from domestic tariff area (DTA).

Official sources told Business Line here that though the Ministry of Commerce had taken up this issue with the Revenue Department of the Ministry of Finance, the latter had not responded this to square up the benefits between units in SEZs and 100 per cent EOUs.

The sources contended that since in the regime of progressive reduction in tariffs and trade policy liberalisation the original rationale of the 100 per cent EOUs got seriously eroded, the effort was now on to balance the benefits between units in SEZs and EOUs.

They recalled that only recently the Union Cabinet approved the introduction of a comprehensive Central legislation on SEZs, which among others provided for improvement in current incentives and facilities such as exemption from customs/excise duty for development of SEZs and setting up of units, income-tax exemption and exemption from CST. The purpose was to provide a stable, transparent and non-discriminatory policy milieu for SEZ developers and units located in these zones.

Since EOUs demand analogous amenities to get even with the SEZs, the Commerce Ministry mooted the idea of getting them exemption from CST but in view of lack of positive response from the Finance Ministry, the sources said that efforts were being undertaken to move the matter to the Cabinet shortly with a view to obtaining its approval.The sources also divulged that the SEZ rules and regulations governing provision that supplies from DTAs to SEZs should be entitled for DEPB (Duty Entitlement Pass Book) benefits would be operational after a fortnight. This provision was suspended in February 2004 on technical grounds and was supposed to be restored from May 1.

But, this is now being made operational only a fortnight later when the new Government assumes office after the polls. Accordingly, any supplies from DTAs to units in SEZs would qualify for `physical' export status and hence the DEPB benefits.The EOUs scheme introduced in early 1981 is complementary to the SEZ scheme, which got off only during early part of this decade. It adopts the same production regime but offers a wide option in locations with reference to factors such as source of raw materials, ports of export, hinterland facilities, availability of technological skills, existence of an industrial base and the need for a larger area of land for the project.

According to Commerce Ministry officials, there are 1,764 units in operation under the EOU scheme as on March 31, 2004. Exports during 2003-04 from EOUs were of the order of Rs 27,364.15 crore compared to Rs 22,615.59 crore achieved during 2002-03, representing a robust growth of 21 per cent.

Meanwhile, sources in the Export Promotion Council for EOUs & SEZ units said that since the existing rules allow supplies from DTAs to SEZs free from service tax, the Council was understood to have pressed for the same benefit to 100 per cent EOUs.

The Commerce Ministry had taken this matter too with the Revenue Department, the sources said, as also the EOUs demand to be free from furnishing bank guarantee. They said that as per the "Subsidy and Countervailing Agreement of the WTO, exports are entitled for exemption on all indirect taxes. Since EOUs are operating in the bounded premises such as units in SEZs do, these units too must be exempt from service tax, they said.

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