Article on ‘Conversion of DTA Unit to EOU with pending EPCG obligations – Issues and solutions’ by CA Manoj Malpani, Director, Bizsolindia Services Pvt. Ltd. (November 2023)


There are various schemes under the Foreign Trade Policy 2023 like Advance Authorisation (for raw material & components), EPCG (for capital goods), Export Oriented Unit (for raw material, components and capital goods). By availing these schemes read with corresponding exemption notifications issued by Ministry of Finance, the exporter ensures that the goods are exported but the taxes are not exported.

The exporters can utilise these schemes in combination or independently as per their requirements. Also, the Foreign Trade Policy 2023 provides process for conversion of the unit / exporter from one scheme to another scheme. The policy also specifies the terms and conditions related to conversion from one scheme to another. One of the provisions related to conversion from EOU to DTA Unit as mentioned in para 6.17 of the FTP 2023 is reproduced below for ready reference.

6.17 Exit from the Scheme

(a) With approval of DC/Designated officer of EHTP/ STP/BTP, an EOU/EHTP/STP/BTP unit may opt out of scheme. Such exit shall be subject to payment of applicable Excise and Customs duties and on payment of applicable IGST/ CGST/ SGST/ UTGST and compensation cess, if any, and industrial policy in force.

(b) If unit has not achieved obligations, it shall also be liable to penalty at the time of exit.

(c) In the event of a gems and jewellery unit ceasing its operation, gold and other precious metals, alloys, gems and other materials available for manufacture of jewellery, shall be handed over to an agency nominated by DoC, at price to be determined by that agency.

(d) An EOU / EHTP / STP / BTP unit may also be permitted by DC to exit from the scheme at any time on payment of applicable duties and taxes and compensation cess on capital goods under the prevailing EPCG Scheme for DTA Units. This will be subject to fulfillment of positive NFE criteria under EOU scheme, eligibility criteria under EPCG scheme and standard conditions indicated in HBP.

(e) Unit proposing to exit out of the scheme shall intimate DC of EOU/Designated officer of EHTP/STP/BTP and Customs authorities in writing. Unit shall assess duty liability arising out of exit and submit details of such assessment to Customs authorities. Customs authorities shall confirm duty liabilities on priority basis, subject to the condition that the unit has achieved positive NFE, taking into consideration the depreciation allowed. After payment of duty and clearance of all dues, unit shall obtain “No Dues Certificate” from Customs authorities. On the basis of “No Dues Certificate” so issued by the Customs authorities, unit shall apply to DC/Designated officer for final exit. In case there is no proceeding pending under FT(D&R) Act, as amended, DC/Designated officer shall issue final exit order within a period of 7 working days. Between “No Dues Certificate” issued by Customs authorities and final exit order by DC/Designated officer, unit shall not be entitled to claim any exemption for procurement of capital goods or inputs. However, unit can claim Advance Authorization / DFIA/ Duty Drawback as per its eligibility. In case the duty calculations and dues

are disputed and take a long time, a BG / Bond /Installment processes backed by BG shall be provided for expediting the exit process.

(f) In cases where a unit is initially established as DTA unit with machines procured from abroad after payment of applicable import duty, or from domestic market after payment of excise duty/GST, and unit is subsequently converted to EOU, in such cases removal of such capital goods to DTA after exit would be without payment of duty. Similarly, in cases where a DTA unit imported capital goods under EPCG Scheme and after completely fulfilling export obligation gets converted

into EOU, unit would not be charged customs duty on capital goods at the time of removal of such capital goods in DTA upon exit.

(g) An EOU / EHTP / STP / BTP unit may also be permitted by DC to exit under Advance Authorisation as one time option. This will be subject to fulfillment of positive NFE criteria.

(h) A simplified procedure may be provided to fast track the De-bonding/ Exit of the STP / EHTP Unit which has not availed any duty benefit on procurement of raw material, capital goods etc.


It can be appreciated from the above that in case of conversion of EOU Unit into DTA unit, the exporter has below options,

  • For capital goods imported into EOU, it can opt for EPCG Authorisation.
  • For raw material / components which are imported duty free and are in stock, the unit can opt for advance authorisation.
  • For exports made after the “No Dues certificate” to final exit order, the unit can claim duty drawback.

One thing clearly emerges from the above provisions is that the exporters is not put at hardship in terms of taxes / duties which they intent to use for export of goods / services. The above process further appreciates the basic condition of the policy that “Goods to be exported and taxes should not be exported”.

Issues to be addressed.   

Recently Ministry of Commerce and Industries has announced revied Foreign Trade Policy 2023. There are many welcome changes done in the policy which will benefit the exporter / importer with aim to increase focus local products and production. Amongst the changes, below change in also made w.r.t conversion of DTA Unit into EOU. The relevant para 6.38 of HBOP to FTP 2023 is reproduced below,

6.38 Conversion

a) Existing DTA units, may also apply for conversion into an EOU /EHTP / STP / BTP unit, but no concession in duties and taxes would be available under scheme for plant, machinery and equipment already installed. For this purpose, DTA unit may apply to DC / Designated Officer concerned in same manner as applicable to new units. In case there is an outstanding export commitment under Advance Authorisation Scheme, it will follow the procedure laid down in Appendix 6M of Appendices & ANFs. In case DTA unit has taken EPCG authorisation, the conversion would be permitted only if either the unit has fulfilled the stipulated Export obligation and obtained EODC or has made payment of applicable duties and taxes and compensation cess on capital goods imported under the EPCG Scheme.

It can be noticed from the above condition that the DTA Unit intending to convert into EOU are required to pay the custom duties on EPCG authorisation for which the EODC (Export Obligation Discharge Certificate) is not obtained. The aforesaid amendment has been notified; however, it needs some clarifications, or it needs certain modification considering operational difficulties. The difficulties which need to be addressed on priority are mentioned below,

A. Requirement of payment of custom duties is detrimental.

The above new provision incorporated in the Handbook of Procedure is detrimental to the regular exporters who wishes to complete balance export obligation as per export obligation in respective scheme of Foreign Trade Policy. Mere shifting from one scheme to another should not mandate to complete export obligation under existing scheme or upfront payment of Customs duties. Due to such conditions of payment of custom duties, the taxes get exported which is not the intent of any provision under FTP.

It will not be out of place to draw your attention to the object clause of chapter 6 of Foreign Trade Policy.


(b) Objectives of these schemes are to promote exports, enhance foreign exchange earnings, attract investment for export production and employment generation.


In view of above object and clauses in Foreign Trade policy, Exporters who has made substantial investment in plant and machinery cannot be put to the disadvantage while converting into EOU by asking to pay customs duty.

As per the earlier provisions related to conversion of DTA Unit into EOU, the value of the capital goods imported under EPCG was added into the value of capital goods imported by the Unit for the purpose of computation of NFE. This was ensuring that the export obligation of the capital goods imported under EPCG was fulfilled by achieving positive NFE by the EOU.

Probable solution

In case, the intent of the amended provision is to stop its misuse, then necessary condition can be put in NFE computation or payment of duties on these EPCG in case the converted do not fulfil export obligation in addition to NFE imposed on them. This will ensure that it is not misused, and the exporter will not be required to pay upfront duties on open EPCG Authorizations.

B. Extent of payment of duties on Export Obligation.

It can be noticed from the amendments carried out in para 6.38 of HBOP that duties are not payable in case of authorizations for which EODC is obtained. In real life situations there will be below cases with exporter,

C. When the Unit pay these duties.

The conversion of the unit goes into different phases like,

  1. Application by the unit
  2. Verification by the Customs Department
  3. Review of the project by Unit Approval Committee / Board of Approval.
  4. Issuance of LOP & Green Card
  5. Execution of LUT and B-17 Bond by the unit.
  6. Acceptance of terms and conditions of the LOP by the unit.
  7. Declaration by the unit about commencement of operation as EOU

The provision is silent about when the exporter is required to pay these duties. Till the time, the unit declares as commencement of operation as EOU, the unit remains DTA Unit. Any exports made during this period will be exports of the DTA Unit. Hence, the clarity is required on the point at which the unit needs to the custom duties.

Probable Solution

  • The declaration cum undertaking can be obtained from the unit along with the application for conversion stating requirement of payment of customs duties on un-fulfilled portion of export obligation under EPCG. This will ensure that the unit bound to pay the custom duties and all the exports till conversion into EOU which are exports under DTA scheme are considered for fulfilment of export obligation under EPCG.
  • Legal Undertaking can be executed with the jurisdictional Regional authority of DGFT for implementation of above arrangement. 3
  • Clarification to be issued for below two situations clarifying that no duties are required to be paid,
  • EPCG Authorisation for which the exporter has applied for redemption i.e. EODC, the application is pending with DGFT authorities.
  • EPCG Authorisation for which Exports are completed but application for EODC is pending due to non realisation of export proceeds (export outstanding within the permitted period by RBI)

The above suggestion once implemented will give immense respite to the exporter who intends to convert their DTA Unit into EOU. It will also ensure that uniform practice is followed at all times by authorities while approving the conversion proposals.



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