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.
Q. Where in India SEZs are located ?
At present there eight functional Special Economic Zones located
at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat
(Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta
(West Bengal) and Nodia (Uttar Pradesh) in India. Further a Special
Economic Zone at Indore (Madhya Pradesh) is now ready for operation.
In addition 18 approvals have been given for setting up of SEZ at
Positra (Gujarat), Navi Mumbai and Kopata (Maharashtra), Nanguneri
(Tamil Nadu), Kulpi and Salt Lake (West Bengal), Paradeep and Gopalpur (Orissa),
Bhadohi, Kanpur, Moradabad and Greater Noida (U.P.), Vishakhapatnam and
Kakinada (Andhra Pradesh), Vallarpadam/Puthuvypeen (Kerala) Hassan (
Karnataka), Jaipur and Jodhpur ( Rajasthan) on the basis of proposals
received from the State Governments.
Q. Who can set up SEZs?
Any private/public/joint sector or State Government or its agencies can
set up Special Economic Zone (SEZ).
Q Can Foreign Companies set up SEZs ?
Yes
Q How can one apply for setting up of SEZs ?
15 copies of application, indicating name and address of the applicant,
status of the promoter along with a project report covering the
following particulars may be submitted to the Chief Secretary of the
State:
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Location of the proposed Zone with details of existing infrastructure
and that proposed to be established;
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Its area, distance from the nearest sea port / airport / rail / road
head etc.
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Financial details, including investment proposed, mode of financing
and viability of the project.
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Details of foreign equity and repatriation of dividends etc., if any
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Whether the Zone will allow only certain specific industries or will
be a multi-product Zone.
The State Government shall, forward it along with their commitment to
the following to the Department of Commerce, Government of India:
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That area incorporated in the proposed Special Economic Zone is free
from environmental restrictions;
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That water, electricity and other services would be provided as
required;
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That the units would be given full exemption in electricity duty and
tax on sale of electricity for self generated and purchased power;
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To allow generation, transmission and distribution of power within SEZ;
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To exempt from State sales tax, octroi, mandi tax, turnover tax and
any other duty/cess or levies on the supply of goods from Domestic
Tariff Area to SEZ units;
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That for units inside the Zone, the powers under the Industrial
Disputes Act and other related labour Acts would be delegated to the
Development Commissioner and that the units will be declared as a
Public Utility Service under Industrial Disputes Act.
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That single point clearances system and minimum inspections
requirement under State Laws/Rules would be provided.
The proposal incorporating the commitments of the State Government will
be considered by an Inter-Ministerial Committee in the Department of
Commerce. On acceptance of the proposal, a letter of permission will be
issued to the applicant
Q. Are there any terms & conditions for setting up of SEZ ?
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Only units approved under SEZ scheme would be permitted to be located
in SEZ.
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The SEZ units shall abide by local laws, rules, regulations or
bye-laws in regard to area planning, sewerage disposal, pollution
control and the like. They shall also comply with industrial and
labour laws as may be locally applicable.
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Such SEZ shall make security arrangements to fulfill all the
requirements of the laws, rules and procedures applicable to such SEZ.
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The SEZ should have a minimum area of 1000 hectares and at least 25 %
of thye area is to be earmarked for developing industrial area for
setting up of units.
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Minimum area of 1000 hectares will not be applicable to product
specific and port/airport based SEZs .
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Wherever the SEZs are landlocked, an Inland Container Depot (ICD) will
be an integral part of SEZs.
Detailed guidelines on setting up of SEZ in the Private/Joint/State
Sector is given in Appendix 14-II.N of Handbook of Procedures Volume I.
Q. What is role of State Governments?
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 (Department of Commerce), the States
must satisfy themselves that they are in a position to supply basic
inputs like water, electricity, etc.
Q What are the facilities Incentive/ Facilities to SEZ Developer ?
(a) townships with residential, educational and recreational facilities
on a case to case basis,
(b)franchise for basic telephone service in SEZ.
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Income Tax benefit under ( 80 IA ) to developers for any block of 10
years in 15 years
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Duty free import/domestic procurement of goods for development,
operation and maintenance of SEZs.
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Exemption from Service Tax /CST.
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Income of infrastructure capital fund/co. from investment in SEZ
exempt from Income Tax
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Investment made by individuals etc in a SEZ co also eligible for
exemption u/s 88 of IT Act
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Developer permitted to transfer infrastructure facility for operation
and maintenance.
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Generation, transmission and distribution of power in SEZs allowed
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Full freedom in allocation of space and built up area to approved SEZ
units on commercial basis.
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Authorised to provide and maintain service like water, electricity,
security, restaurants and recreation centres on commercial lines.
Q. How to set up a unit in SEZ ?
For setting up a manufacturing, trading or service units in SEZ, 3
copies of project proposal in the format prescribed at Appendix 14-IA of
the Handbook of Procedures, Vol.1 to be submitted to the Development
Commissioner of the SEZ.
Q. What is the approval mechanism for the units ?
All approvals to be given by the Unit 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.
Q. What is the obligation of the Unit under the Scheme?
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SEZ units have to achieve positive net foreign exchange earning as per
the formula given in paragraph Appendix 14-II (para 12.1) of Handbook
of Procedures, Vol.1. For this purpose, a Legal Undertaking is
required to be executed by the unit with the Development Commissioner.
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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, Vol.1.
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The units are also to execute a bond with the Zone Customs for their
operation in the SEZ.
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Any company set up with FDI has to be incorporated under the Indian
Companies Act with the Registrar of Companies for undertaking Indian
operations
Q. What are the incentive/facilities available for SEZ units?
Following incentive/ facilities to SEZ enterprises:
Customs and Excise :
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SEZ units may import or procure from the domestic sources, duty free,
all their requirements of capital goods, raw materials, consumables,
spares, packing materials, office equipment, DG sets etc. for
implementation of their project in the Zone without any licence or
specific approval.
-
Duty free import/domestic procurement of goods for setting up of SEZ
units.
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Goods imported/procured locally duty free could be utilised over the
approval period of 5 years.
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Domestic sales by SEZ units will now be exempt from SAD.
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Domestic sale of finished products, by-products on payment of
applicable Custom duty.
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Domestic sale rejects and waste and scrap on payment of applicable
Custom duty on the transaction value .
Income tax
Foreign Direct Investment :
-
100% foreign direct investment is under the automatic route is allowed
in manufacturing sector in SEZ units except arms and ammunition,
explosive, atomic substance, narcotics and hazardous chemicals,
distillation and brewing of alcoholic drinks and cigarettes , cigars
and manufactured tobacco substitutes.
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No cap on foreign investments for SSI reserved items.
Banking / Insurance/External Commercial Borrowings
-
Setting up Off-shore Banking Units allowed in SEZs.
OBU's allowed 100% Income Tax exemption on profit for 3 years and 50
% for next two years.
-
External commercial borrowings by units up to $ 500 million a year
allowed without any maturity restrictions.
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Freedom to bring in export proceeds without any time limit.
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Flexibility to keep 100% of export proceeds in EEFC account. Freedom
to make overseas investment from it.
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Commodity hedging permitted.
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Exemption from interest rate surcharge on import finance.
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SEZ units allowed to 'write-off' unrealized export bills.
Central Sales Tax Act :
Service Tax:
Environment :
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SEZs permitted to have non-polluting industries in IT and facilities
like golf courses, desalination plants, hotels and non-polluting
service industries in the Coastal Regulation Zone area
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Exemption from public hearing under Environment Impact Assessment
Notification
Companies Act :
-
Enhanced limit of Rs. 2.4 crores per annum allowed for managerial
remuneration
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Agreement to opening of Regional office of Registrar of Companies in
SEZs.
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Exemption from requirement of domicile in India for 12 months prior to
appointment as Director.
Drugs and Cosmetics :
Sub-Contracting/Contract Farming
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SEZ units may sub-contract part of production or production process
through units in the Domestic Traiff Area or through other EOU/SEZ
units
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SEZ units may also sub-contract part of their production process
abroad.
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Agriculture/Horticulture processing SEZ units allowed to provide
inputs and equipments to contract farmers in DTA to promote production
of goods as per the requirement of importing countries.
Q. Whether SEZs have been exempted from Labour laws?
Normal Labour Laws are applicable to SEZs, which are enforced by the
respective state Governments. The state Government have been requested
to simplify the procedures/returns and for introduction of a single
window clearance mechanism by delegating appropriate powers to
Development Commissioners of SEZs.
Q. What are the facilities for Domestic suppliers to Special Economic
Zone ?
Supplies from Domestic Tariff Area (DTA) to SEZ to be treated as
physical export. DTA supplier would be entitled to :
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Drawback/DEPB
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CST Exemption
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Exemption from State Levies
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Discharge of EP if any on the suppliers
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Income Tax benefit as applicable to physical export under section 80
HHC of the Income Tax Act.
Q Who monitor the functioning of the units in SEZ ?
Performance of the SEZ units monitored by a Unit Approval Committee
consisting of Development Commissioner, Custom and representative of
State Govt. on annual basis.
Q. Are SEZ's controlled by Government ?
In all SEZ's , the statutory functions are controlled by the Government.
Government also controls the operation and maintenance function in the 7
Central Government controlled SEZs. In rest of the operation and
maintenance are privatised.
Q. What are the special features if we come to the zone?
The units would be entitled for a package of Incentives and a simplified
operating environment
Q. What about the Licenses for Imports?
No License is required for imports, including second hand machineries.
Q. If one buy goods from DTA should they require to pay State Sales
Tax and Excise?
NO. State has exempted the sales from DTA to SEZ from local levies and
taxes.
Q. What is the practical role of Development Commissioner?
Development Commissioner is the nodal officer for SEZs and help in
resolution of problem, if any, faced by the units / developer.
Q. Routine examination of goods by customs in the EOU is common.
Will the same practice continue at the SEZ?
Customs examination is to the bear minimum. SEZ units function on self
certification basis.
Q. What are the provisions relating to External Commercial Borrowing (ECB)
in SEZ ?
External commercial borrowings by units up to $ 500 million a year
allowed without any maturity restrictions For details please see
guidelines issued by RBI
(F.No. 4(2)/2002-ECB, dated 15.9.2002).
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.
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