Number of EOUs have come down due to discontinuation of duty benefits and introduction of SEZs: CAG

The EOUs have come down to 2,608 in 2013-14

Discontinuation of duty benefits and introduction of special economic zones have led to a reduction in the number export-oriented units to 2,608 in 2013-14 from 3,109 in 2009-10, CAG said in its report.

It also said that no impact assessment was done before implementing the export-oriented unit (EOU) scheme by the department of commerce and the department of revenue. No midterm evaluation was done while implementing the SEZ Act in direct competition to the EOU scheme, the report added.

The number of functional units has also come down from 2,279 in 2009-10 to 2,095 in 2013-14, it said, adding that there has been a gradual reduction in EOUs after the SEZ Act came into force in 2006-07.

"The main reason for opting out by the EOUs from the scheme are unavailability of benefits of DEPB (duty entitlement pass book), drawback, DFRC (Duty Free Replenishment Certificate) and target plus scheme; discontinuation of income tax benefits," it said.

The report suggested that the commerce ministry may initiate necessary corrective measures to arrest the decline with specific timelines and measurable outcomes so that the basic objective for export growth is achieved utilising the uniqueness of the scheme.

The foreign trade policy (FTP) did not have any special provision to utilise the "unique advantages of the 100 per cent EOU scheme," it said.

The scheme was launched in December 1980 with the objective of boosting exports by generating additional production capacity. It was primarily designed for the promotion and growth of manufacturing and export of value added products.

Government had foregone significant customs revenue amounting to Rs 32,932 crore during 2009-10 and 2013-14 on EOU/EHTP (Electronic Hardware Technology Park)/STP (Software Technology Parks) schemes, it added.

"FTP (2009-14) is being operated beyond its tenure and EOU scheme is neither able to attract entrepreneurs nor contribute to the growth as envisaged while forgoing substantial duty," it said.

Further it said that specific cases of malfunction led to short/non levy of duty of Rs 317.06 crore.

It added that cases of irregular monitoring of the performance of EOUs have been noticed.

"Cases on non-compliance and policy misinterpretation has been observed which included DTA (domestic tariff area) sales, short levy of duty at the time of exit from EOU scheme, applicability of central excise exemption notification, incorrect availing of cenvat credit, non levy of service tax," the report said.