Q.What is a Special Economic Zone ?
Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs in India. (www.sezindia.com/?p=9)
Q. Who can set up SEZs ?
Any private/public/joint sector or State Government or its agencies can set up Special Economic Zone (SEZ). SEZ Act 2005, (Section-3(1))
Q. Can Foreign Companies set up SEZs ?
Yes
Q. How can one apply for setting up of SEZs ?
As per SEZ Rules -2006 (Rule 3) the proposal shall be submitted in “Form A”
The State Government shall, forward the application along with their recommendations to the Board of Approval (Deputy Secretary, Ministry of Commerce & Industry, Department of Commerce, Government of India).
Q.What is minimum land requirement for setting up IT & ITES SEZ ?
IT & ITES SEZs can be established in a minimum area of 10 Hectares and above. [SEZ Rules -2006 (Rule 5 (2b))]
Q.What is role of State Government for setting up SEZ ?
State Governments will have a very important role to play in the establishment of SEZ. Representative of the State Government, who is a member of the Inter-Ministerial Committee on private SEZ, is consulted while considering the proposal. Before recommending any proposals to the Ministry of Commerce & Industry (Deptt. of Commerce), the States must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc. (www.sezindia.com/?p=9)
Q.What are the fiscal provisions, exemptions, facilities available to SEZ Developer ?
The exemptions, facilities to SEZ Developers as per SEZ Act 2005, (Section- 7, 26 & 27) and SEZ Rules 2006 for authorized operations are detailed below
The goods imported into, or service provided in SEZ by the Developer is exempted from any duty of customs, under the Customs Act 1962. (SEZ Act, 2005 – Section (26 [1a])
Exemption from Service Tax under Chapter-V of the Finance Act, 1994 on taxable services provided to a SEZ Developer (SEZ Act, 2005 – Section 26 [1e] & SEZ Rules, 2006-Rule-31)
Exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax 1956 if such goods are meant to carry on the authorized Operation by the Developer (SEZ Unit). SEZ Act, 2005 – Section 26 [1g] & SEZ Rules, 2006-Rule-32)
Income Tax Exemption under Section 10 AA SEZ developers (As per Second Schedule of SEZ Act, 2005 [Modifications to the Income-Tax Act, 1961] (43 of 1961) (C[1]))
Exemption from Dividend Distribution Tax under Section 115-O of IT Act. (As per Second Schedule of SEZ Act, 2005 [Modifications to the Income-Tax Act, 1961] (43 of 1961) (a [C]))
The State Government has exempted SEZ Developer from payment of stamp duty and registration fees on the lease/license of plots; [SEZ Rules -2006 (Rule 5(5a)]
Exemption from Electricity Duty or taxes on sale, of self generated or purchased electrical power for use in the processing area in the SEZ; [SEZ Rules -2006 (Rule 5(5b)]
Providing Single Point Clearance system to the SEZ Developer under the State Acts and Rules. [SEZ Rules -2006 (Rule 5(5h)]
Single window clearance for approval of SEZ Developer (As per the Chapter V of SEZ Act, 2005)
Q. How to set up a unit in SEZ ?
As per SEZ Rules -2006 (Rule 17) “Form F” an application to be submitted with five copies to the Development Commissioner and one copy to the developer.
Q.What is the approval mechanism for the units ?
All approvals to be given by the Approval Committee headed by the Development Commissioner. Clearance from the Department of Policy and Promotion/Board of Approvals, wherever required will be obtained by the Development Commissioner, before the Letter of Intent is issued. [SEZ Rules -2006 (Rule 18 & 19)]
Q.What are the incentive/facilities available for SEZ units ?
Following Incentives and facilities offered to the SEZ Units as per SEZ Act 2005, (Section-7, 26 & 27) and SEZ Rules 2006:
The goods imported into, or service provided in SEZ Unit to carry authorized operations by the Entrepreneur is exempted from any duty of customs, under the Customs Act 1962. (SEZ Act, 2005 – Section (26 [1a])
100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Section for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. (As per Second Schedule of SEZ Act, 2005 [Modifications to the Income-Tax Act, 1961] (43 of 1961) (C [i & ii]))
External commercial borrowing by SEZ units up to US $ 500 million in a year without any maturity restriction through recognized banking channels. Refer RBI (F. No. 4(2)/2002-ECB, dated 15.09.2002).
Exemption from Service Tax under Chapter-V of the Finance Act, 1994 on taxable services provided to a SEZ Unit to carry on Authorized Operations. (SEZ Act, 2005 – Section 26 [1e] & SEZ Rules, 2006-Rule-31)
Exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax 1956 if such goods are meant to carry on the authorized Operation by the Entrepreneur (SEZ Unit). (SEZ Act, 2005 – Section 26 [1g] & SEZ Rules, 2006-Rule-32)
Single window clearance for approval of SEZ Units (As per the Chapter V of SEZ Act, 2005)
Providing Single Point Clearance system to the SEZ Unit under the State Acts and Rules. [SEZ Rules -2006 (Rule 5(5h)]
The State Government has exempted SEZ Unit from the payment of stamp duty and registration fees on the lease/license of plots; [SEZ Rules -2006 (Rule 5(5a)]
Setting up Off-shore Banking Units (OBU) allowed in SEZs; [SEZ Act, 2005 (Sec-17)]
Q.What is the obligation of the Unit under the Scheme ?
SEZ units have to achieve positive net foreign exchange earning as per the formula given in SEZ Rules, 2006 (Rule-53). For this purpose, a Legal Undertaking is required to be executed by the unit with the Development Commissioner.
Positive Net Foreign Exchange = A – B > 0
The units have to provide periodic reports to the Development Commissioner and Zone Customs as provided in Appendix 14-I F of the Handbook of Procedures framed under the Foreign Trade Policy, Vol.1.
Q. If a SEZ Unit imports or procures from Domestic Tariff Area for the Software Development without payment of duty, taxes or cess for creating a central facility for use by Units in Special Economic Zone. Can the same Central facility may be accessed by Software Exporters of Domestic Tariff Area.
Yes. A Unit may import or procure from Domestic Tariff Area, all types of goods and services, without payment of duty, taxes or cess for creating a central facility for use by Units in Special Economic Zone and where such facility is created for software development, the same may also be accessed by software exporters of Domestic Tariff Area. [SEZ Rules, 2006 (Rule-27(5)]
Q. Can Developer / Unit import goods before the issuance of Letter of Approval ?
The goods already imported or shipped or arrived before the issue of Letter of Approval shall be eligible for duty free clearance provided customs duty has not been paid and goods have not been cleared from Customs or cleared and placed in the Bonded Warehouses. [SEZ Rules-2006-Rule 27 (7)].
Q. Goods or parts imported or procured from Domestic Tariff Area, if damaged/defective/unfit for use, the SEZ Units is required to pay the duty to send them outside the SEZ unit premises for repair or replacement and who is the authority for approval ?
No. Where goods or parts thereof, imported or procured from Domestic Tariff Area are found to be defective or otherwise unfit for use or which have been damaged or become defective after such import or procurement, may be sent outside the Special Economic Zone without payment of duty for repairs or replacement, to the supplier or his authorized dealer or be destroyed: [SEZ Rules, 2006 (Rule-27(9)]
The authority of the approval is Authorized Officer as per SEZ Rules, 2006 (Rule 50 (1e)).
Q. Can SEZ Developer or Unit procure from Domestic Tariff Area. What is procedure ?
Yes, The assessment of imports and domestic procurement by a Developer or a Unit, shall be on the basis of self-declaration and shall not be subjected to routine examination expect in case of procurement from the Domestic Tariff Area under the claim of export entitlements.
Provided that where based on a prior intelligence the examination becomes necessary the same shall be carried out by the Authorised Officer(s) after obtaining written permission from the Development Commissioner or the Specified Officer. [SEZ Rules, 2006 (Rule-27(10)]
Q. Routine examination of goods by customs in the EOU is common. Will the same practice continue at the SEZ ?
Unless otherwise specified in these rules all inward or outward movement of goods into or from the Zone by the Unit or Developer shall be based on self declaration made and no routine examination of these goods shall be made unless specific orders of the Development Commissioner or the Specified Officer are obtained. [SEZ Rules, 2006 (Rule 75)]
Q. Can SEZ Information Technology enabled services is allowed for import through data communication link, internet, e-mail or any other electronic mode ?
Yes. The import of Information Technology Enabled Services, including software, shall also be allowed through data communication link, internet, e-mail or any other electronic mode. [SEZ Rules, 2006 (Rule-28(3)]
Q.What is the procedure for import of computer software or services through data communication or telecommunication links for SEZ Units ?
The import of computer software or services through data communication or telecommunication links, the SEZ Unit shall file consolidated Bill of Entry for a month within three working days of the closure of the month along with the invoice and other relevant documents and shall obtain notional ‘out of charge’ from the Authorized Officer, subject to the following conditions, namely:-
(i) import documents shall be routed through banks or advance payments for imports could be routed through Foreign Currency Account;
(ii) instructions, if any, issued by the Reserve Bank of India, from time to time, in this behalf shall be complied with. [SEZ Rules 2006, Rule 29(6)]
Q. Will it be possible to supply to other units in SEZ ?
YES. Inter Unit Sales are permitted as per the Policy. Buyer procuring from another unit pays in Foreign Exchange. Refer SEZ Rules 2006, Rule-30(15) for conditions.
Q.What is the validity period of the utilization of goods for SEZ Units or Developer ?
(1) The goods admitted to a Special Economic Zone shall be utilized, exported or disposed off in accordance with the Act and rules within the validity period of the Letter of Approval issued to the Unit.
In the case of a Developer, within a period of one year or such extended period as may be allowed by the Specific Officer under sub- rule (5) of rule 12.
(2) On failure to utilize or dispose off goods as provided, such goods shall be liable for payment of duty as if the goods have been removed to Domestic Tariff Area on the date of expiry of the said validity period under sub-rule (1). [SEZ Rules, 2006 (Rule-37(1 & 2)]
Q.What is the procedure for destruction of goods for SEZ Units ?
After advance intimation to the Specified Officer, a SEZ Unit may destroy, without payment of duty, goods including capital goods, procured from Domestic Tariff Area or goods imported or goods manufactured or produced by the Unit including rejects or waste or scrap or remnants within the Special Economic Zone.
Where it is not possible to destroy goods within the SEZ, destruction of goods under sub-rule (1) shall be carried out, outside the SEZ with the permission of Specified Officer and in the presence of the Authorized Officer. (SEZ Rules 2006-Rule 39[1&2]).
Q.Should the SEZ Unit payback the benefits in the event of destruction of goods procured through DTA ?
Yes. The SEZ Unit, on the goods procured from DTA , shall be liable to pay back the drawback and Duty exemption passbook credit availed in case of destruction of goods procured from DTA. [SEZ Rules, 2006 (Rule 39[3])].
Q.Should the SEZ Unit payback the benefits in the event of destruction of goods procured through DTA against payment of Foreign Exchange ?
NO. The SEZ Unit, on the goods procured from DTA against payment of foreign exchange, shall not be liable to pay back the drawback or any export incentive claimed. [SEZ Rules, 2006 (Rule 39[4])].
Q.Can SEZ Unit subcontract to DTA, EOU, Software Technology Park or EHTP Units ?
Yes. SEZ Unit, may subcontract a part of its production or any production process, to a unit(s) in the Domestic Tariff Area or in a Special Economic Zone or Export Oriented Unit or a unit in Electronic Hardware Technology Park unit or Software Technology Park unit with prior permission of the Specified Officer to be given on an annual basis. [SEZ Rules, 2006 (Rule-41]
Q. If a developer or a co-developer or on their behalf their contractor intend to remove temporarily goods procured or duty free imported goods, is prior permission required to be obtained ?
Yes. A developer or a co-developer or on their behalf their contractor, as the case may be may also can temporarily remove the goods, procured or imported duty free by them for their authorized operations, to a place in Domestic Tariff Area or a unit in the same or any other Special Economic Zone or a Unit in Electronic Hardware Technology Park or Software Technology Park Unit, for sub-contracting a process with a prior permission of and subject to such conditions as may be prescribed by the Approval Committee. [SEZ Rules, 2006 (Rule-41 [1](3))]
Q.What is the procedure for the value of sub-contracting ?
The value of the sub-contracted production of a Unit in any financial year shall not exceed the value of goods produced by the Unit within its own premises in the immediately preceding financial year:
Provided that a Unit, sub-contracting part of the production or production process to other Unit in the same Special Economic Zone shall not require the permission of the Specified Officer provided that both the supplying and receiving Units shall maintain proper account of the goods involved in the subcontracting.
Explanation: For removal of doubts it is clarified that the expression “subcontracting” of a part of its production under this rule shall mean sub- contracting all the production processes for conversion of raw material into finished products but only for a part of the quantity of the finished products exported during the year or in the first year of production, the value of the goods subcontracted shall not exceed the value of goods produced by the unit in its own premises during the first year of production. [SEZ Rules, 2006 (Rule-41(f)]
Q. Who is the concerned Authority for approval of sub-contracting in Domestic Tariff Area or in a Unit in other Special Economic Zones or in Export Oriented Unit or in Electronic Hardware Technology Park unit or in Software Technology Park Unit or Bio-technology Park Unit ?
Specified Officer is the concerned Authority for approval of Sub-Contracting as per SEZ Rules 2006 (Rule 42(1)).
Q.What is the period for the Unit to obtain back the goods sent out for sub-contracting ?
The goods sent out for sub-contracting shall be returned to the Unit within one hundred and twenty days from the date of removal or within such period as may be extended by the Specified Officer for reasons to be recorded in writing for granting such extension. [SEZ Rules, 2006 (Rule-42(h)].
Q.What is the impact, if sub-contracting goods are not brought back within the stipulated period ?
In case of failure by the Unit to bring back the goods after sub- contracting within the period (120 days), action shall be taken by the Specified Officer to recover the duty on the goods taken out for sub- contracting. [SEZ Rules, 2006 (Rule-42(i)]
Q. Can the SEZ Unit Transfer goods, including goods imported or procured from Domestic Tariff Area, to another Unit or Export Oriented Unit or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio- technology Park Unit? What is the procedure for this and who is the Concerned Officer for giving approval ?
Yes. SEZ Unit may transfer goods, including goods imported or procured from Domestic Tariff Area, to another Unit or Export Oriented Unit or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio- technology Park Unit, subject to the following procedures, namely.-
(i)the receiving Export Oriented Unit or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio-technology Park Unit shall file Bill of Entry for warehousing, in quintuplicate along with invoice, procurement certificate issued by the Customs Officer- in-charge of the receiving Export Oriented Unit or Electronic Hardware Technology Park unit or Software Technology Park unit or Bio-technology Park unit and packing list with the Authorised Officer along with copy of the Letter of Approval and bonding licence:
Provided that, in case the receiving Unit is a Special Economic Zone unit, Bill of Entry for home consumption shall be filed in place of Bill of Entry for warehousing
(ii)on the basis of such Bill of Entry assessed by the Authorised Officer, goods shall be allowed to be cleared to receiving Export Oriented Unit or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio-technology Park Unit or to a Unit in another Special Economic Zone ;
(iii)the receiving Export Oriented Unit or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio-technology Park Unit or Special Economic Zone Unit shall submit the re-warehousing certificate to the Authorised Officer having jurisdiction over the supplying Unit within forty-five days, failing which the Authorised Officer shall communicate this fact to the Officer of Customs or Excise having jurisdiction over the Export Oriented Unit or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio- technology Park Unit or to the Specified Officer for demand of applicable duty from the receiving Export Oriented Unit or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio- technology Park Unit or Unit in another Special Economic Zone , as the case may be;
(iv) where supplying and receiving Units are located in the same Special Economic Zone, movement of goods including raw materials shall be allowed subject to maintenance of accounts by both receiving and supplying Units and no Bill of Entry shall be required to be filed. [SEZ Rules, 2006 (46(12))]
The Concerned Officer for approval is Authroized Officer. [SEZ Rules, 2006 (Rule-46 (12))]
Q. Can SEZ Unit sale in DTA ?
Yes. A SEZ Unit may sell goods and services including rejects or wastes or scraps or remnants in the Domestic Tariff Area on payment of Customs duties. [SEZ Rules, 2006 (Rule-47 (1))]
Q.Who is the concerned Authority for approval of Donation of Capital Goods ?
Specified Officer is the concerned Authority for approval of Donation of Capital Goods as per SEZ Rules 2006 (Rule 49(4c).
Q.What types of goods can SEZ Unit temporarily remove to DTA without payment of Duty ?
The SEZ Unit may temporarily remove following goods to Domestic Tariff Area without payment of duty, namely: -
(a) capital goods and parts thereof for repairs and return thereof;
(b) goods for display, export promotion, exhibition and return thereof;
(c) goods for job work, test, repair, refining and calibration and return thereof;
(d) laptop or notebook computers or video projection systems for use by authorized employees
of a Unit or developer;
(e) any other goods with the prior approval of the Authorized Officer.
[SEZ Rules, 2006 (Rule-50 (1))]
Q.What is procedure for temporary removal of laptop computers and video projection system(s) by the authorized employees of SEZ Units ?
A SEZ Unit may take out laptop computers and video projection system(s) out of the Special Economic Zone temporarily for use by the authorized employees of such unit subject to following procedure, namely: -
(a) SEZ Unit shall account for the laptop computers or video projection system(s);
(b)SEZ Unit shall issue a certificate authorizing the employee by name and giving the full specification, namely, serial number and model number and make of the laptop computers and video projection system intended to be taken outside the processing area temporarily and a copy of the certificate shall be endorsed to Specified Officer and acknowledgement received by the Unit;
(c) SEZ Unit shall maintain a record of such certificate of authorization issued under clause (b) for temporary removal of laptop computer or video projection system.
[SEZ Rules, 2006 (Rule-51 (7))]
Q.Who monitors the functioning of the units in SEZ ?
Performance of the SEZ units would be monitored by a Approval Committee consisting of Development Commissioner, Customs and representative of State Govt. on annual basis. [SEZ Rules, 2006 (Rule 54)].
Q. Can the Unit retain 100% of their export process in their Foreign Currency Account ?
Yes. (As per the SEZ Rules 2006 - Rule 52 (3))
Q.Whether SEZ Software Units are allowed to use computers for training purpose including commercial training ?
Yes, SEZ Software units can be allowed to use the computer system for training purpose (including commercial training) subject to the condition that no computer terminal shall be installed outside the Special Economic Zone premises for this purpose. [SEZ Rules, 2006 (Rule 52 [4])]
Q.A duty free fax machine can be installed outside the Unit, SEZ Zone ?
Yes. A Unit may install one fax machine imported or procured duty free at a place of its choice, outside the Special Economic Zone, subject to intimation of its location to the Specified Officer. [SEZ Rules, 2006 (Rule 52 [5])].
Q. Can SEZ Unit install Computers in their Registered Office, Administrative Office etc?
The Unit may install personal computers not exceeding two in number imported or procured duty free in the registered or administrative office and the Unit may also install equipments like modem etc., required for the purpose of electronic connectivity [SEZ Rules, 2006 (Rule 52 (6)].
Q. Can the persons authorized by the SEZ IT & ITES units access the facility installed in the unit ?
For information technology and information technology enabled services, persons authorized by the software units may access the facility installed in the Unit through communication links. [SEZ Rules, 2006 (Rule 52 (7)]
Q. Can the income generated by the SEZ unit permitted for repatriation ?
YES. Export value of goods, software and services may be realized and repatriated as per instructions of the Reserve Bank of India issued from time to time. [SEZ Rules, 2006 (Rule 71)]
Q.When the Specified Officer is not posted in a Special Economic Zone who is the Authorized person to discharge his duties and functions ?
An officer of Customs, not below the rank of a Gazetted Officer of Customs, authorized by the Development Commissioner shall discharge duties and functions of the Specified Officer.
[SEZ Rules, 2006 (Rule 73)].
