Agenda Understanding Policy Organisation The Law Structure of Policy Important Schemes under FTP
Agenda Fundamentals of SEZ Tax Incentives SEZ Act, 2005 [important provisions] SEZ Rules, 2006 [important provisions] Concept and Procedure for Setting up of SEZ Concept and Procedure for Setting up of SEZ unit Supplies to SEZ by DTA unit Supplies from SEZ to DTA units
Understanding Policy Foreign Trade Policy : Drafted by Director General of Foreign Trade under the Ministry of Commerce. The governing Act is Foreign Trade Development Regulation Act, 1992 and Rules framed there under. Implemented with the help of various other Departments mainly Customs, Excise and RBI. In order to understand the co-relation, one must get familiar with the various laws and functions of various departments. As far as implementation is concerned, the co-relation of Foreign Trade Policy with the following Acts, Laws and Regulations must be taken into account :
Understanding Policy Customs Act, 1962 Customs Tariff Act, 1975 Foreign Exchange Management Act, 1999 Central Excise Act, 1944 Central Excise Tariff Act, 1985 Industrial Policy Resolution, 1956. Industries Development and Regulation Act, 1951 Laws of Weights and Measures All the above Laws are primarily taken into account at the time of actual implementation of export/import activities. Physical movement of goods inward and outward is monitored mainly by Customs and Excise Field Formations which work under Department of Revenue [DoR], Ministry of Finance [MoF].
Ministry of Finance CustomsExcise Coverage Validity of imports and exportsExport Assessment and valuationUnder bond – clearance of excisable goods for export under bond Determination of import / export duty applicable Rebate of excise duty post exports where exports have been effected after payment of excise duty Collection of dutyMonitoring factory stuffed containers in certain cases Inspection and supervision of cargo Import Examining co-relation and compliance with other laws Monitoring CENVAT C o n t d… Dept. of Revenue
Continued from the previous slide Governing Acts/Laws/Manual 1. Customs Act, 19621. Central Excise Act, 1944 2. Customs Tariff Act, 19752. Central Excise Tariff Act, 1985 3. Customs Law Manual3. Central Excise Law Manual Tools : i) Notifications ii) Public Notices iii) Customs Circular iv) General Exemption Notifications Tools : i) Notifications ii) Central Excise Circulars iii) General Exemption Notifications
Understanding Policy Export or import involves movement of goods as well as receipt/remittance of foreign exchange. Though foreign exchange regulations are relaxed, monitoring of forex operations is still being carried out by Reserve Bank of India.
RBI Coverage Monitoring Foreign Exchange Inflow – on account of exports of goods and services Outflow – on account of imports of goods and services Governing Acts/Laws/Manual 1) Foreign Exchange Management Act 1999 2) Foreign Exchange Manual Tools: Master Circulars FEMA Notifications A.P. (DIR. Srs.) Circulars
In order to understand full implications of Foreign Trade Policy one must get himself familiarized with all the above mentioned departments and their working
Export Performance based Scheme. The applicant has to make application depending on his total FOB/FOR export performance during the current plus the previous three years (taken together) upon exceeding limit [given in the table below].
Export and Trading Houses For Export House (EH) Status, export Performance is necessary in at least two out of four years (i.e., Current plus previous three years).” The criteria is CategoryPerformance (Rupees in Crores) Export House [EH]20 Star Export House [SHE]100 Trading House [TH]500 Star Trading House [STH]2500 Premier Trading House [PTH] 10000
Export and Trading Houses Following two new facilities are provided to Status Holders [as per Annual Supplement to FTP]: For status holders, a decision on conferring of ACP Status shall be communicated by Customs within 30 days from receipt of application with Customs; As an option, for Premier Trading House (PTH), the average level of exports under EPCG Scheme shall be the arithmetic mean of export performance in last 5 years, instead of 3 years. Contd……
Application Criteria Application can be filed by 31 st March. Application is to be filed with Jurisdictional Regional Authority [RA] or in case of EOUs, Development Commissioner [DC]. In case if export performance of EOU/SEZ is clubbed together with company/firm/group company in DTA, the application is to be made to Jurisdictional RA only. Existing status holders who have applied for recognition before the expiry of their status would get a grace period of 6 months, which are pending for finalisation of the applications for grant of recognition. In other words, status holder continue to be recognized as Status holders even after the expiry of earlier status certificate i.e. till September, during grace period of 6 months.
List of documents for obtaining Status Certificate Application in Aayaat Niryaat Form –ANF 3A Self certified copy of IEC. Self certified copy of valid RCMC. Appendix 22B (BANK CERTIFICATE OF EXPORT REALISATION/ DEEMED EXPORTS FOR STAR EXPORT HOUSE CERTIFICATE). Self certified copy of Power of Attorney if the signatory is other than Proprietor/Partner/Director. Statement of exports duly certified by C.A & Bank as per format.
Focus Market Scheme [FMS] Export of all products to the notified countries. Entitlement – 2.5% of the FOB value of exports [w.e.f. 01.04.2006]. List of Countries eligible for benefit under this scheme is given in Appendix 37C of HBPv1. In the annual supplement to FTP, 10 new countries have been notified, which are: 1. MONGOLIA, 2. DJIBOUTI, 3. SUDAN, 4. GHANA, 5. COLOMBIA, 6. HONDURAS, 7. ALBANIA, 8. MACEDONIA, 9. BOSNIA- HRZGOVIN, 10. CROATIA. Exports made by EOUs/EHTPs/BTPs who do not avail direct tax benefits/exemptions, will be eligible to get benefits under this scheme.
FMS Following exports can not be taken into account: a. (i) Export of imported goods covered under Para 2.35 of FTP; (ii) Exports through transshipment, meaning thereby that exports originating in third country but transshipped through India; b. Export turnover of SEZ units or supplies made to such units or SEZ products exported through DTA units; c. Deemed Exports; d. Service Exports; Contd…..
FMS e. Diamonds and other precious, semi precious stones; f. Gold, silver, platinum and other precious metals in any form, including plain and studded Jewellery; g. Ores and Concentrates, of all types and in all forms; h. Cereals, of all types; i. Sugar, of all types and in all forms; j. Crude / Petroleum Oil & Crude / Petroleum based Products covered under ITC HS codes 2709 to 2715, of all types and in all forms; and
FMS k. Items, which are restricted or prohibited for export under Schedule-2 of Export Policy in ITC (HS) l. Cement, all types and in all forms; and m. Primary Steel Products as listed in Public Notice No. 130 (RE2007)/2004-09 dated 27.03.2008, as amended from time to time. [Note: Sr. nos. l & m have been added by Annual Supplement to FTP]
Application Criteria An application for exports made during 2006-07, 2007-08 and 2008-09 shall be filed separately, with RA concerned in ANF 3D along with documents prescribed therein. Each application should contain not more than 50 shipping bills. For exporter with more than 50 shipping bills in one year, multiple applications can be filed and supplementary cut (Para 9.4 of HBP v1) shall not be applicable. Shipments from EDI Ports and Non-EDI Ports cannot be clubbed in one application.
Application Criteria Port of registration for EDI enabled ports shall be any one EDI port of exports, as per the choice of the applicant. In case of exports through non-EDI port, the port of registration shall be the relevant non EDI port of exports. Accordingly separate application shall be filed for each non- EDI port. Eligibility of Focus Market (as in Appendix 37C) shall be determined from date of export as per Para 9.12 of HBP v1. Last date for filing application should be considered as per Pol. Cir. No. 27 Dtd. 14.08.2008.
Application Criteria Applicants are required to submit ‘proof of landing’ of export consignment. Duty Credit scrip shall be granted on FOB value realized as per BRC / FIRC. For exports made from 1-4-2006 till 31-3-2008 that have already been realized up to 31-3-2008 30.11.2008 If the realization is after 31.3.2008 As per Para 3.23.10 of HBP Vol. 1 (RE-2008) as amended vide Public Notice No. 64 (RE-2008) dated 14.8.2008.
List of Documents Application form as per ANF 3D. Bank Receipt / Demand Draft / EFT details evidencing payment of application fee in terms of Appendix 21B. Self Certified copy of IEC. Self Certified copy of RCMC. Original EP Copy of Shipping Bill. Original Bank Realisation Certificate/FIRC Self certified copy of Bill of Entry.
Common Provisions for Schemes under Promotional Measures Cenvat/Drawback: Additional customs duty/excise duty paid in cash or through debit under Duty Credit scrip shall be adjusted as CENVAT Credit or Duty Drawback as per DoR rules, except under SFIS. Special provisions: Government reserves right in public interest, to specify export products or services or exports to such countries, which shall not be eligible for computation of entitlement. Further Government reserves right to change ceiling on Duty Credit scrip under this chapter. Similarly, Government may also notify goods (in Appendix 37B of HBP v1), which shall not be allowed for import under Duty Credit scrips.
Common Provisions for Schemes under Promotional Measures TRA Facility: Utilization of Duty Credit Scrip for imports from a port other than port of registration shall be allowed under Telegraphic Release Advice (TRA) facility as per DoR notification. Imports Allowed: Duty Credit Scrip may be used for import of inputs or goods including capital goods, provided same is freely importable under ITC (HS). However, import of items listed in Appendix 37B of HBP v1 shall not be permitted to be debited.
Common Provisions for Schemes under Promotional Measures Free Transferability: Duty Credit scrip and items imported against it would be freely transferable, except under SFIS. Exclusivity of Entitlement: For a shipment, benefit under any one of schemes covered in this Chapter can alone be claimed, at exporter’s option. Import under Lease financing: Utilization of Duty Credit scrip shall be permitted for payment of duty in case of import of capital goods under lease financing in terms of provision in Para 2.25 of FTP.
Common Provisions for Schemes under Promotional Measures Transfer of Export Performance: Transfer of export performance from one to another shall not be permitted. Thus, a shipment bill containing name of applicant shall be counted in export performance / turnover of applicant only if export proceeds from overseas are realized in applicant’s bank account and this shall be evidenced from BRC / FIRC. Jurisdictional RA / RA Concerned: Applicant shall have option to choose Jurisdictional RA on basis of Corporate Office, Registered Office, Branch Office address endorsed on IEC. However, once opted, no change would be allowed.
Common Provisions for Schemes under Promotional Measures Jurisdictional RA / RA Concerned: Provisions contained in Chapter 2, 9 of this HBP shall apply to all Promotional Schemes. Port of Registration: Duty Credit scrip (including splits) shall be issued with a single port of registration as per choice of applicant. After issue of Duty Credit Scrip, but before registration with Customs, the Applicant can change the port of registration from RA concerned. Before registration, authorities shall verify genuineness of Duty Credit scrip, from RA concerned, until EDI system of message exchange is put in place. [As amended by PN No.47 Dtd.08.07.08]
Common Provisions for Schemes under Promotional Measures Facility for Split Scrips: Split certificates of Duty Credit scrip subject to a minimum of Rs 5 lakh each and multiples thereof may also be issued, on request at the time of application with different port of registration. A fee of Rs 1000/- each shall be paid for each split certificate. After issue, request of splits shall be permitted with same port of registration as appearing on the original scrip. The above procedure shall be applicable only in respect of EDI enabled ports. In case of exports through non-EDI ports, the facility of splits shall not be allowed, after issue of scrip.
Common Provisions for Schemes under Promotional Measures Import from private / public bonded warehouses: Entitlement can be used for import from private / public bonded warehouses subject to fulfillment of paragraph 2.28 of FTP and terms and conditions of DoR notification. Re-export of defective / unfit goods: Goods imported which are found defective or unfit for use, may be re-exported, as per DoR guidelines. Where Duty Credit scrip has been used for imports, Customs shall issue a certificate containing particulars of scrip used, date of import of re-exported goods and amount debited while importing such goods. Based on this certificate, upon application, a fresh Scrip shall be issued by concerned RA to extent of 98% of debited amount, with same port of registration and valid for a period equivalent to balance period available on date of import of the defective / unfit goods.
Common Provisions for Schemes under Promotional Measures Validity Period & Revalidation: Duty Credit scrip shall be valid for a period of 24 months. Revalidation of Duty Credit scrip shall not be allowed. Declaration of Intent on Free Shipping Bills: For export shipments filed under Free Shipping Bill category, for exports after 31.5.2008 of products / markets eligible under Chapter 3 of FTP (Appendix 37A, 37C, 37D, 37E), the exporter shall state the intention to claim benefits under chapter 3 of FTP by declaring on the Free Shipping Bills as under: ‘I/We, hereby, declare that I/We shall claim the benefits, as admissible, under Chapter 3 of FTP’.
Common Provisions for Schemes under Promotional Measures This declaration shall not be required for export shipments under any of the schemes of Chapter 4 (including drawback) or Chapter 5 of FTP. Further for products, markets notified during the year, this declaration shall be necessary for exports under Free Shipping Bills, only after a grace period of two months from the date of relevant public notice. Moreover for exports made prior to date of notification of products/ markets, such a declaration will not be required, since export shipments under Free Shipping Bills have already taken place.
Common Provisions for Schemes under Promotional Measures Utilization of Duty Credit Scrips under Chapter 3 for payment of duty under EPCG Scheme: From 1.1.2009, the duty credit scrips issued under Chapter 3 of FTP can also be utilized for payment of duty against imports under EPCG Scheme. Last date of filing of application for Duty Credit Scrips, except Para 3.8.6: Application for obtaining Duty Credit scrip shall be filed within a period of twelve months from date of exports or within six months from date of realization, or within three months from date of printing / release of shipping bill, whichever is later, in respect of shipments for which claim is being filed. For SFIS, last date shall be 31st December.
Important Amendments PN No.47 Dtd.08.07.08 - Amends Para 3.23.3 - Port of Registration Port of registration mentioned in the Duty credit scrips [issued under the relevant provisions of Chapter 3 of FTP] can be changed after issue of scrip but before registration with Customs.
Important Amendments Ntfn.No.31 Dtd.19.08.08 - FMS benefit can be claimed the supporting manufacturer as well Benefits allowed under FMS now can be claimed by supporting manufacturer or by the company who has realised the foreign exchange directly from overseas. In case supporting manufacturer is claiming benefits, he will have to obtain disclaimer from the company who has realised the foreign exchange.
Export Promotion Capital Goods Scheme EPGC scheme allows import of capital goods for pre production, production and post production (including CKD/SKD thereof as well as computer software systems) at 3% Customs duty subject to fulfillment of export obligation. Export Obligation [EO]: EO equivalent to 8 times of duty saved on capital goods imported under EPCG scheme EO is to be fulfilled over a period of 8 years reckoned from the date of issuance of Authorisation. Where duty saved amount is Rs. 100 crores or more the same EO has to be fulfilled over a period of 12 years.
Important Provisions Imports under EPCG: The capital goods, including spares (including refurbished/reconditioned spares), tools, jigs, fixtures, dies and moulds. Second hand capital goods without any restriction on age may also be imported under the EPCG scheme. Import of restricted items under EPCG Scheme allowed to be imported after approval from the Exim Facilitation Committee at Headquarters.
Important Provisions Imports under EPCG: Import of Spares: Spares (including refurbished / reconditioned spares), tools, spare refractories and catalyst for existing plant and machinery (imported earlier, under EPCG or otherwise) is allowed to be imported subject to an export obligation equivalent to 8 times of duty saved to be fulfilled in 8 years reckoned from Authorisation issue date. Contd……
Important Provisions Imports under EPCG: Import of spares: The application shall contain list of plant/ machinery installed in the factory/ premises of applicant, duly certified by Chartered Engineer or Jurisdictional Central Excise Authorities. EPCG Authorisation must indicate the following: Name of plant/machinery for which spares are required. Value of duty saved allowed under the Authorisation. Description of product to be exported with value of export obligation as per the Policy. Contd……
Important Provisions Imports under EPCG: Import of spares: The installation certificate from Jurisdictional C.Excise Authority or independent Chartered Engineer shall be submitted by the importer within a period of three years from the date of import. [PN NO. 22/2007 (RE) DTD.17.07.2007 and PN No. 54/2007 Dtd. 01.10.2007]. At the time of final redemption of export obligation Authorisation holder will have to submit certificate from the Independent Chartered Engineer confirming the use of spares, tools, spare refractories and catalysts in the installed capital goods on the basis of stock & consumption register maintained by Authorisation holder.
Important Provisions Eligibility: The scheme covers manufacturer exporters with or without supporting manufacturer(s)/ vendor(s), merchant exporters tied to supporting manufacturer(s) and service providers. Conditions for import of Capital Goods: Import of capital goods is subject to Actual User condition till the export obligation is completed.
Important Provisions Incentives for Fast Track Companies: In cases where the Authorisation holder has fulfilled 75% or more of the export obligation under the Scheme (including average level of exports) in half or less than half the original export obligation period specified in the Authorisation, the remaining export obligation is condoned and the Authorisation redeemed by the licensing authority concerned.
Important Provisions Indigenous Sourcing of Capital Goods A person holding an EPCG Authorisation may source the capital goods from a domestic manufacturer instead of importing them. The domestic manufacturer supplying capital goods to EPCG Authorisation holders are eligible for deemed export benefits Advance Authorisation for critical components or raw materials or Deemed Export Drawback. and Refund of terminal excise duty. The domestic sourcing from EOU unit is also permitted. Such supply by EOU will be counted for the purpose of fulfillment of NFE.
Important Provisions Port of Registration: Single Port of Registration. TRA Facility is also allowed. Execution of Legal Undertaking and Bank Guarantee: Same provisions will apply as in case of Advance Authorisation
Important Provisions Fulfillment of Export Obligation: Export Obligation is 8 times of duty saved amount and it is to be fulfilled over a period of 8 years as under: Period from the date of issue of Authorisation Minimum export obligation to be fulfilled Block of 1st to 6th year50% Block of 7th and 8th year50%
Important Provisions In respect of Authorisations, on which the value of duty saved is Rs.100 crore or more, the export obligation shall be fulfilled over a period of 12 years in the following proportion:- Period from the date of issue of Authorisation Minimum export obligation to be fulfilled Block of 1st to 10th year50% Block of 11th and 12th year50%
Important Provisions Conditions for Fulfillment of Export Obligation [EO]: Following exports is to be considered for fulfillment of EO Export obligation shall be fulfilled by export of goods, manufactured / services rendered by the applicant. Direct and third party exports can be counted towards export obligation. Export proceeds to be realized in freely convertible currency except for deemed exports. Export to SEZ Units / Supplies to developers / co-developers, irrespective of currency of realisation would also be counted for discharge of export obligation. Contd………
Important Provisions Maintenance of Average: Export obligation under the scheme shall be, over and above, the average level of exports achieved by him in the preceding three licensing years for the same and similar products within the overall export obligation period including extended period, if any; except for categories mentioned in paragraph 5.7.6 of HBP v1. Such average would be the arithmetic mean of export performance in the last three years for the same and similar products. Provided that Premier Trading House (PTH) shall have option of fixing average level of exports based on arithmetic mean of export performance in the last five years instead of three years. Contd………
Important Provisions Upto 50% Export Obligation can be fulfilled by exports of other good(s) manufactured or service(s) provided by the same firm / company, or group company / managed hotel, which has the EPCG authorization. However, in such cases, additional export obligation imposed shall be over and above average exports achieved by the unit / company / group company / managed hotel in preceding three years for both the original and the substitute product(s)/ service(s), despite exemption in Para 5.7.6 of HBP v1. Contd………
Important Provisions Shipments under Advance Authorisation, DFRC, DFIA, DEPB or Drawback scheme, or incentive schemes under Chapter 3 of FTP; would also count for fulfillment of EPCG export obligation. Exports made to former USSR or to such countries as notified by DGFT shall not be counted for fixing average level of exports. Contd………
Important Provisions Royalty payments received in freely convertible currency and foreign exchange received for R&D services can be counted for discharge under the EPCG scheme. Contd………
Important Provisions Maintenance of Average Export under EPCG: Example: Let us say: Average Exports – Rs. 20 crores Duty saved amount – Rs. 10 crores The EO is in addition to maintaining the annual average for the same or similar product. If your average is Rs. 20 crore and duty saved amount is Rs. 10 crore your total obligation would be as under: Contd…….
a) Average Exports X 8 (20 X 8) b) 8 times the duty saved amount (10 X 8) Total :::::: Rs. 160 crore Rs. 80 crore ------------- Rs. 240 crore ========= To be completed in 8 years Every year you will first discharge average and then the additional EO. For e.g. – please refer following Table. Contd…….
YearAverage to be maintain ed Rs. In crore Additional export obligation Rs. in crore Actual Exports say Total exports Rs. in crore Offered towards annual average Rs. in crore Offered towards additional EO Rs. in crore 12022202 2 25205 3 4021201 4 302010 520312011 620352015 Total ---------- 120 ======= -------- 44 ====== Contd…….
From this table you will understand that average has to be discharged first and whatever exports you do additionally, those exports would be counted towards discharge of additional EO. Suppose, you complete entire 240 crore in first six years, you will not be required to maintain annual average subsequently. There is also another provision where if you export 75% of your total exports in 4 years or less than 4 years (including average), you will not have to complete balance 25%. [Please refer para 5.11 of Foreign Trade Policy.] The following table shows how it can be done: Contd…….
YearTotal exports effected by you say [Rs. in crore] Calculations 130Average for 4 years (20 X 4) = Rs. 80 crore 75% of additional EO = Rs. 60 crore (75% of 80 crore) _____________ Total = Rs. 140 crore ======== 230 3 450 ----- 140 ==== If your EO is discharged as above, you can redeem your case in the 5th year itself. Contd…….
Important Provisions Extension of Export Obligation Period: 1st Extension up to 2 years – subject to payment of composition fees of 2% of the total duty saved. OR an enhancement in EO imposed to the extent of 10% of the total EO. 2nd Extension up to 2 years – subject to condition that 50% of duty payable in proportion to the unfulfilled export obligation is paid by the Authorisation holder to the Customs authorities before an endorsement of extension is made on the EPCG Authorisation by the Regional authorities.
Important Provisions In case the firm is still not able to complete the export obligation the duty already deposited will be deducted from the total duty plus interest to be paid for EO default. Waiver of EO may be considered where, because of force majeure or other unforeseen circumstances / reasons which are beyond the control of the exporters (like steep fall in international prices, technological obsolescence etc.), and the exporter is unable to fulfill export obligation. Such requests shall be considered by a committee comprising representative(s) of DoC and DoR under DGFT. Decision of this committee shall be notified by DoR for implementation.
Important Provisions Re-fixation of EO: The licences issued earlier had export obligation based on CIF value which now stands based on duty saved amount. A provision has been made to convert the unfulfilled portion of export obligation from “CIF based” to “duty saved based”. This ultimately reduces the export obligation substantially. Re-fixed EO can be computed as under: (% EO unfulfilled) X (8) X (Duty saved on the date of issuance of the authorisation)
Important Provisions Monitoring of Export Obligation : Progress report on fulfillment of EO is to be submitted by 30 th April every year. Regional authority will issue partial EO Fulfillment Certificate to the extent of EO fulfilled in a particular year.
Important Provisions Maintenance of Records Every EPCG Authorisation holder will have to maintain, for a period of 3 years from the date of redemption, a true and proper account of the exports/supplies made and services rendered towards fulfillment of export obligation under the scheme.
Important Provisions Enhancement or Reduction in the Authorisation Value: Automatic enhancement or reduction upto 10% of Authorisation Value / Duty Saved Value. Pro-rata reduction/enhancement in EO beyond 10% subject to obtaining endorsement from RA. Revalidation: No revalidation. Leasing of Capital Goods: Sourcing of Capital goods from a domestic leasing company is allowed.
Important Provisions Redemption: As evidence of fulfillment of export obligation, the Authorisation holder will have to furnish the documents as prescribed in ANF 5B Penalty for Shortfall: In case of failure to fulfill the export obligation or any other condition of the Authorisation, the Authorisation holder shall be liable for penal action under the Foreign Trade (Development & Regulation) Act, 1992, the Orders and Rules made thereunder, the provisions of FTP and the Customs Act, 1962.
Important Provisions Regularization Bonafide Default: In case EPCG authorization holder fails to fulfill prescribed export obligation, he shall pay duties of Customs plus interest as prescribed by Customs authority. Such facilities can be availed by EPCG authorisation holder to exit at his option. Clubbing: Clubbing of two or more EPCG Authorisation is allowed. An application for clubbing can be made only to RA concerned in ANF 5D. Clubbing shall not be permitted in case authorisations issued by different RAs.
Important Provisions Technological Upgradation of Capital Goods The EPCG Authorisation holders can opt for the Technological upgradation of the existing capital goods imported under the EPCG Scheme as per the provisions of Para 5.10 of the Policy. EPCG Authorisation Holder can opt for the Technological Upgradation subject to the following conditions: (i) Minimum time period for applying for Technological Upgradation of existing capital goods imported under EPCG is 5 years from Authorisation issue-date. (ii) Minimum exports made under old capital goods must be 40% of total export obligation imposed on first EPCG Authorisation.
Important Provisions Technological Upgradation of Capital Goods (iii) Export obligation would be refixed such that total export obligation mandated for both capital goods would be sum total of 6 times of duty saved on both the capital goods, to be fulfilled in 8 years from new authorisation issue-date. (vi) Facility for technological upgradation shall be available only once and the minimum imports to be made shall be at least 10% of the existing investment in plant and machinery by applicant. (v) Capital goods to be imported must be new and technologically superior to earlier CG.
Important Amendments PN No. 26 Dtd. 03.06.2008- Para 5.11.4 added after Para 5.11.3 in HBPv1 [Extension of EOP] Para 5.11.4 further amended by PN No. 67 Dtd. 20.08.2008, which reads as under: “Whenever a ban/restriction is imposed on export of any product, export obligation period in respect of EPCG authorizations already issued prior to imposition of ban/restriction of such export products, would stand automatically extended for a period equivalent to the duration of ban/restriction, without any composition fee and exporter would not be required to fulfill average E.O. as well, for the ban/restriction period”.
Important Amendments PN No.39 Dtd.04.07.08 - Amends Para 5.7.4 - Condition for fulfillment of export obligation While making application for new EPCG Authorisation, average exports should be calculated excluding the exports made against unredeemed EPCG Authorisations. This provision is applicable to all EPCG Authorisations issued on or after 01.04.2007. [If average is inclusive of such exports then request should be made to RA to reduce the same as per this Public Notice.]
Important Amendments PN No.48 Dtd.08.07.08 - Corrections in para 5.9.1 - Monitoring of Export Obligation & para 5.3.4 - Consideration of Applications Provision relating to online filing of Report on fulfillment of EO stands deleted.
Important Amendments Pol. Cir. No. 06 Dtd. 07.05.08 - Amendment in EPCG Authorization issued from 1.4.2008 to 11.4.2008. Very Important Circular. Clarification issued by DGFT that EPCG Authorisations issued between 01.04.2008 to 11.04.2008 should be deemed to be issued at 3% Customs duty as per revised FTP announced on 11.04.2008. It is also clarified that Customs should allow clearances of goods @ 3% provided endorsement of 3% duty saved on such licences is made by Regional Authority [RA].
Important Amendments Pol. Cir.No.16 Dtd.04.07.08 - Grant of benefits under Promotional Schemes of Chapter 3 and Para 5.4(v) of FTP RE2007, clarification It is clarified that for the period of 01.04.2007 to 31.03.2008, Shipping Bills which include EPCG Authorisation/EPCG File No. would not be counted for granting benefits under Chapter 3. RAs are asked to double check the entitlements under Chapter 3 are not granted together with fulfillment of EPCG obligation for exports effected during 2007-08.
Important Amendments Cus Ntfn No. 64 Dtd.09.05.08 - Customs duty on import under EPCG lowered to 3% New Customs Notification for EPCG scheme has been issued to give effect to Policy changes [3% duty instead of 5%] made on 11.04.2008.
Important Amendments Cus Ntfn No.65 Dtd.09.05.08 - Amendments in old customs notifications related to EPCG Scheme. Old Customs Notifications related to EPCG scheme have been amended to incorporate changes made in the Annual Supplement to Foreign Trade Policy 2008-09, particularly related to port of registrations and conditions/maintenance of export obligation.
Application Formats ANF 5A - FORM FOR EPCG AUTHORISATION ANF 5B - Statement of Export/Redemption of EPCG Authorisation ANF 5C - For EO Re-fixation under EPCG Scheme ANF 5D - For Clubbing of EPCG Authorisations
List of Documents 1. Application form as per ANF 5A. 2. Hard copy of the online application. 3. Bank Receipt / Demand Draft / EFT details evidencing payment of application fee in terms of Appendix 21B. 4. Self certified copy of IEC & RCMC. 5. Self certified copy of PAN. 6. Self Certified copy of SSI/IEM/SIA registration. 7. Self certified copy of Export House Status, if any 8. Certificate from a Chartered Engineer in the format given in Appendix 32A certifying:
List of Documents the end use/nexus of machinery sought for import under EPCG Scheme in the pre production/production/post production activity of the exported goods/services (explaining the end use of machinery in detail); and/or the essentiality of spare parts sought for import and its required quantity for existing machinery manufacturing the goods to be exported/ machinery sought for import; and/or Complete usage of equipments/goods sought for import under the EPCG Scheme for supply of service to overseas customers/ service consumers of any other country in India to earn free foreign exchange/supply of service in India relating to export paid in free foreign exchange.
List of Documents 9. Manufacturing process flow chart duly certified by Chartered Engineer. 10. Chartered Accountant certificate as per Appendix 26. 11. Self Certified copy of Proforma Invoice for imported capital goods. 12. Catalogue of the Capital Goods. 13. Declarations. 14. Location of the Capital Goods to be installed on letter head. 15. Address of the Jurisdictional Central Excise office. 16. Self addressed envelope for Rs. 30/- stamp addressed to Jurisdiction Central Excise. 17. Brochure/Product catalogue of export item.
Corresponding Customs Notification 97/2004-CUSTOMS dated 17th September, 2004 - related to EPCG scheme where customs duty is levied @ 5% 64/2008-CUSTOMS dated 9 th May, 2008 - related to New EPCG scheme where customs duty is levied @ 3%
Units undertaking to export their entire production of goods and services except permissible sales in Domestic Tariff Area (DTA) are known as Export Oriented Units (EOUs). Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) or Bio-Technology Parks (BTPs) are also covered under EOU scheme. These are product specific units availing the same benefits as EOUs. EOUs/EHTPs/STPs/BTPs are allowed to manufacture goods including repair, re-making, reconditioning, re-engineering, and rendering of services wherever applicable.
Export Oriented Units [EOUs] Trading activity is however, not permitted under EOU scheme. Investment Criteria: Only project having a minimum investment of Rs.1 crore and above in plant and machinery shall be considered for establishment under EOU scheme.
Exemptions Direct Tax Indirect Tax As per Section 10A and 10B CBDT Cir. No. 1 Dtd. 06.01.2005 Extended upto 31.03.2010 Customs duty on import of raw materials and CG, etc Excise Duty on goods procured from DTA Industrial Licensing for manufacture of items reserved for SSI sector State Taxes VAT Stamp Duty- Subject to provisions in the state laws
Reimbursement/ Refund Drawback by way of Brand Rate in case EOU works as Jobworker for DTA exporter Refund of CST and Interest @ 6% on delayed refunds
Other 100% of export earning can be retained in EEFC account Exports made by EOUs would also get benefits under VKGUY, FMS, FPS and HTPEPS Schemes provided direct tax benefits are not availed. Export proceeds can be realized within 12 Months 100% FDI investment permitted through Automatic Route CENVAT Credit Facility
When one should set up an EOU Raw materials/components are mainly imported. New capital goods or second hand capital goods are to be imported/purchased and installed. Where the orientation of the company is towards export and not towards DTA sale as under the new policy DTA sale permission is limited to 50% of physical exports in value terms and therefore in order to enjoy the benefits of DTA the company must export physically. IT benefits for a New unit and IT benefits for Conversion of DTA into EOU (as per CBDT Circular No. 1 Dtd. 06.01.2005) are to be considered. When hassle free operations are desired. (Since there is no need of applying for Authorisations like Advance Authorisation etc.)
In order to set up EOU, the following formalities are to be carried out: Step-1: Preparation of a detailed project report and Locational clearances. Step-2: Making application for Letter of Intent (LOI) / Letter of Permission (LOP) to Development Commissioner (DC). Step-3: Acceptance of LOP/LOI when granted. Step-4: Execution of Legal Undertaking and attestation of capital goods / inputs and obtaining Green Card.
Step-5: Making application for declaration of a place (unit) as warehousing station under Section 9 of Customs Act, 1962 (if required), in case the location is not covered under various notifications issued by customs for warehousing purpose. Step-6: Application for setting up of private bonded warehouse for EOU purpose with customs / excise authorities as the case may be. (Warehousing licence under Sections 58 (for issue of warehouse licence) and Section 65 (for manufacture in bond) of Customs Act, 1962. Step-7: Execution of B-17 bond supported by security or Bank Guarantee (BG). Step-8: Registration with the customs authorities at the port of import.
Important Appendices APPENDIX 14-I-AAPPLICATION FOR SETTING UP EOU UNITS APPENDIX 14-I-CSECTOR SPECIFIC REQUIREMENTS FOR EOU UNITS APPENDIX 14-I-EFORMAT FOR LETTER OF PERMISSION APPENDIX 14-I-FFORM OF LEGAL AGREEMENT FOR EOU UNITS ANNEXURE-II TO APPENDIX 14-I-F FORMAT FOR QUARTERLY PROGRESS REPORT FOR THE EOU/ UNITS WHICH ARE UNDER IMPLEMENTATION
Important Formats ANNEXURE-III TO APPENDIX 14-I-F FORMAT FOR QUARTERLY REPORT FOR THE WORKING UNITS ANNEXURE-IV TO APPENDIX 14-I-F FORMAT FOR ANNUAL PROGRESS REPORT FOR THE WORKING UNITS APPENDIX 14-I-GGUIDELINES FOR MONITORING THE PERFORMANCE OF EOU/STP/EHTP UNITS APPENDIX 14-I-HGUIDELINES FOR SALE OF GOODS IN THE DOMESTIC TARIFF AREA (DTA) BY EOU/EHTP/STP/BTP UNITS
Important Formats APPENDIX 14-I-IPROCEDURE TO BE FOLLOWED FOR REIMBURSEMENT OF CENTRAL SALES TAX (CST) ON SUPPLIES MADE TO EOUS AND UNITS IN EHTP AND STP. APPENDIX 14-I-LGUIDELINES FOR EXIT OF EOU/EHTP/STP UNITS APPENDIX 14-I-MGUIDELINES FOR REVIVAL/EXIT OF SICK EOU UNITS
Important Formats APPENDIX 14-I-NPROFORMA FOR EXTENSION OF LOP FOR EXPORT ORIENTED UNITS APPENDIX 14-I-OGUIDELINES FOR CONVERSION OF DTA UNIT INTO EOU/ EHTP/ STP/ BTP UNIT
Important Notifications Customs notifications/circulars Notification No. 52/2003-Cus. dtd. 31.03.2003 Exemption to specified goods imported or procure from Public/Private warehouse or from International exhibitions held in India by EOU for production or packaging or job work for export of goods and services Notification No. 20/2006-Cus. dtd. 01.03.2006 Additional duty in lieu of Sales Tax/VAT – Exemption to specified goods Customs Circular No. 19/2007 dtd. 03.05.2007 Re-warehousing of goods imported and/or procured indigenously by EOU/ EHTP/ STP/ BTP units
Important Notifications Excise Notifications Notification No. 22/2003-CE dtd. 31.03.2003 Exemption to goods brought into EOU units Notification No. 23/2003-CE dtd. 31.03.2003 Exemption to DTA Clearances of specified goods produced in EOU Circular No. 851/9/2007-CX Dated 3rd May, 2007 Procedure governing the movement of indigenous goods from a factory of manufacture or warehouse to a unit set up under EOU/EHTP/BTP/STP scheme.
This is a special facility provided for supplies of indigenous products which can be consumed ultimately in the production of goods to be exported. The conditions are that supplied goods as it is do not leave the country but get consumed in the process of manufacture, payment for which is received in Indian Rupees or in foreign exchange. The categories eligible for deemed exports benefits are given in Para 8.2 of Foreign Trade Policy which are listed here below:
Important Provisions Benefits: These benefits are covered under Para 8.3 of Foreign Trade Policy which are as under: a)Advance Authorisation/Advance Authorisation for Annual Requirement/DFIA. or b) Deemed Exports Drawback. plus c) Exemption from terminal excise duty where supplies are made against International Competitive Bidding. In other cases, refund of Terminal Excise duty will be given.
Important Provisions As far as (a) and (b) are concerned, these are mutually exclusive because if exemption from duty is claimed, refund cannot be claimed. Hence, deemed exporter will either claim Advance Authorisation for Intermediate supply / Advance Authorisation for deemed exports / DFIA or deemed exports duty drawback. Deemed exports duty drawback can be claimed on the basis of All Industry rate or on the basis of Brand rate following the procedure for fixation of brand rate. The deemed exports duty drawback is refunded by DGFT.
Important Provisions As far as claiming of refund of Terminal Excise Duty (TED) is concerned, the same principle applies. Terminal Excise Duty need not be paid by the deemed exports supplier if the supplies are given to EOU units under exemption notification no. 22 dtd. 31.03.2003 (which is commonly known as CT-3 procedure) or when supplies are made to Advance Licence holder under excise notification no. 44 dtd. 26.06.2001. In all other cases, deemed export suppliers have to pay Terminal Excise duty and claim refund, except when supplies are made against international competitive bidding. If the recipient units take CENVAT credit of terminal excise duty, then also the Govt. will not grant refund.
Important Provisions In case of deemed exports duty drawback as well as refund of terminal excise duty, both are to be claimed from licensing authorities alone. Deemed exports, per se, are monitored by DGFT and Excise and not by Customs. In case of EOU, Refund of Terminal Excise Duty and Duty Drawback must be claimed from the concerned Development Commissioner.
SEZs (special economic zones) are fundamentally different from the traditional free zones. They are much larger in size; offer broader range of activities such as a single-window management, streamlined procedures, duty-free privileges, also access to the domestic market on a duty-paid basis. The revised Kyoto Convention of the World Customs Organisation defines free zone as “outside the customs territory”.
Fundamentals of SEZs Whether the enclave is termed an EPZ, FTZ or SEZ, the cardinal factor is the provision of appropriate infrastructure and transport facilities, low factor cost, flexible labour laws, a low degree of tariff protection, convertibility of currency, stable legal and administrative regime, and a commitment to the canons of an open economy
Fundamentals of SEZs Look at Chinese SEZ-Shenzhen SEZ Total Area of Shenzhen – 1,952.84 sq. kms Area of SEZ - 395.81 square kilometers Harbouring 3.5 million people $30 billion in FDI, 3 million employment Equipped with the state-of-the-art infrastructure Effective port facilities, Simplified procedures, Fully flexible labour policy in terms of hiring and firing. Exports – 06-07 – US$ 135 bn
Ras Al Khaimah Free Trade Zone Area: 1,684 square kilometers of land (about 2.2 percent of the total UAE land area), including a coastline of 55 kilometers. Fourth largest of the UAE's seven emirates. Reasons to invest in RAK: Politically safe Free from corporate and income taxes Competitive labor, office & warehouse rates Cheaper cost of living Progressive and fast growing Free Zone Easy road, sea and air access The first port when entering the Gulf Significant growth Beautiful coastline
Ras Al Khaimah Free Trade Zone Advantages: 100% foreign ownership 100% income and corporate tax exemption 100% Capital & Profit repatriation Long term renewable lease Strategic location with access to over 1.2 billion consumers Transparent laws and regulations Promotion centers in Dubai and Abu Dhabi
Ras Al Khaimah Free Trade Zone Simple and fast application procedures State of the art communication facilities Excellent Sea port and International Air port facilities Easy international Access Abundant energy supply Marketing support services
Strategic Location It is easily accessible by land, air and sea. Practically half of the world’s container fleet passes by its doorway.
Investment Sites & Opportunities The total land area of the Subic Bay Freeport Zone (former U.S. Military Reservation) is about 13,600.80 Hectares. The SBFZ is divided into (9) Districts namely: 1. Central Business District 2. Subic Gateway District 3. Cubic Port District 4. Kalayaan Heights District 5. Binictican Heights District 6. Cubi Triboa District 7. Ilanin Forest-West District 8. Ilanin Forest-East District 9. Redondo Peninsula District
Highly Skilled Manpower Pool The Subic Bay Metropolitan Authority’s [SBMA] Labor Department maintains a large pool of qualified workforce for Freeport locators. Trained and educated with the required technical and management skills, Subic workers are proficient in english, highly motivated and observe professional ethics in the workplace. Subic’s wage rate is highly competitive compared to that of other Asian countries
Cost of Doing Business Information on following costs are available on Subic Bay Freeport’s website [http://www.sbma.com] OPERATIONAL COSTS Business Costs Industrial Land Costs Office Space Costs Factory Building Costs PRODUCTION COSTS ManPower Costs Utility Costs Electricity Costs Water Costs TELECOMMUNICATION COSTS: Telephone Charges Cellular Phone Unites Charges Internet Service Charges
Rehabilitated Marine Terminal at the NSD (Naval Supply Depot) Part of the rehabilitation is the widening of the marine terminal apron by 12 meters (each side).
The new container terminal at the Cubi Point. Around two million cu.m. of earth was moved to construct the 30-hectare container yard. Specifications: 2 berths; Depth: 13 meters; Length: 560 meters.
The Subic Bay International Airport (SBIA), the gateway to Subic Bay Freeport, is a modern, international airport with 10,000 sq. m passenger terminal, capable of handling 700 passengers at any given time and featuring the very latest technology for security and comfort.
Four goose neck-type gantry cranes recently acquired by the SBMA. The new cranes will boost the capability of the Subic into a world-class port.
Incheon Free Economic Zone [IFEZ] What is IFEZ? The Incheon Free Economic Zone [IFEZ] consists of three different Incheon City Districts with a total area of 51,739 acres: Songbo, Yeongjong and Cheongna. Its goal is to transform these areas into logistics, international business and leisure and tourism hub of the North-east Asian region.
Incheon Free Economic Zone [IFEZ] The term “Free Economic Zone” (FEZ) refers to a geographic area designated by the Government of Korea to create a globally competitive business and living environment that will attract foreign investment and international companies, IFEZ was established as Korea’s first FEZ in August 2003. The Government of Korea fully supports free international business and the standards of corporate management demanded by today’s global market.
Incheon Free Economic Zone [IFEZ] The Free Economic Zone (FEZ) is a self-contained living and business district featuring air and sea transportation, logistics complex, international business center, financial services, residences, schools and hospitals, shopping and entertainment. Songdo International City: a Mecca for international business and high-tech industry Yeongjong Island: a hub of international logistics, tourism and leisure Cheongna: global entertainment and theme park
Information available on Website of IFEZ Investment Guide: IFEZ investment and project development guidelines Principles of Investment Promotions Methods of Foreign Participation
Information available on Website of IFEZ Investment Procedure: For Citizen For Foreigners Investment Support: Tax Incentives Foreign investment companies located in the Free Economic Zone Foreign investment companies located in the Foreign Investment Zone Administrative Service
Information available on Website of IFEZ About Main Projects: Songdo Area [size, development and project cost] Yeongjong Area [size, development and project cost] Cheongna Area [size, development and project cost]
International Business Centre Location: Songdo Total Size: 13159 acres Project Cost: $12.7 bn Project Period: 2003-2015 [2008 - first phase]
International Business Centre Location: Songdo Size: 1364.18 acres Project Cost: $12.7 bn Project Period: 2003-2015 [2008 - first phase]
Leisure Area Project Size: 1739.94 acres Project Period: 2003-2015 [2003- 2008 first phase]
Main objectives of the SEZ Act generation of additional economic activity; promotion of exports of goods and services; promotion of investment from domestic and foreign sources; creation of employment opportunities; development of infrastructure facilities
Fact Sheet on Indian SEZ No. of Notified SEZs as on 11.08.2008 – 250 (out of 513) No. of valid formal approvals – 513 In-principle approvals – 138 Source: www.sezindia.nic.in
SEZs-Area Requirement SEZArea Estimates [approx] Formally approved and notified [FA] 626 In-principal approvals [IP]1156 Total Area for proposed SEZs (FA+IP) 1782
Fact Sheet on Indian SEZ Total Investment made in notified SEZs (as on 30 th June 2008) Rs. 73,348.305 Crores Employment created in notified SEZs (as on 30.06.2008) 1,00,885 persons Employment in Govt. SEZs 1,99,330 persons
Fact Sheet on Indian SEZ Exports from the functioning SEZs during the last three years are as under: YearExports (Rs. crores)Growth Rate of exports 2003-200413,85439% 2004-200518,31432% 2005-200622,84024.71% 2006-20073461552% 2007-20086663892% Export projection for 2008-09Rs. 1, 25, 950 Crore
Sec.27 of SEZ Act, 2005 – Provisions of Income Tax Act, 1961 to apply with Certain Modification in Relation to Developers and Entrepreneurs The provisions of the Income-tax Act, 1961, as in force for the time being, shall apply to, or in relation to, the Developer or entrepreneur for carrying on the authorised operations in a Special Economic Zone or Unit subject to the modifications specified in the Second Schedule.
Tax Incentives Direct Tax Benefit to Developers U/s 80-IAB Profit & gains derived from business of developing SEZ notified on or after 1st April 2005 [in line with existing 80-IA(4)(iii)] 100% tax holiday for 10 consecutive years out of block of 15 years Transferee Developer can claim deduction for balance period of 10 years on Operation & Maintenance income
Tax Incentives Direct Tax benefits for Developers MAT/ DDT Minimum Alternative Tax provisions not applicable Exemption from Dividend Distribution Tax
Tax Incentives Direct Tax Benefits to Units U/S. 10AA [important extracts] (1) Subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005, from his Unit, who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, a deduction of
Tax Incentives (i) hundred per cent of profits and gains derived from the export, of such articles or things or from services for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services, as the case may be, and fifty per cent of such profits and gains for further five assessment years and thereafter; (ii) for the next five consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the Special Economic Zone Re-investment Reserve Account) to be created and utilized for the purposes of the business of the assessee in the manner laid down in sub-section (2).
Tax Incentives (2) The deduction under clause (ii) of sub-section (1) shall be allowed only if the following conditions are fulfilled, namely : (a)the amount credited to the Special Economic Zone Re- investment Reserve Account is to be utilised (i)for the purposes of acquiring machinery or plant which is first put to use before the expiry of a period of three years following the previous year in which the reserve was created; and (ii)until the acquisition of the machinery or plant as aforesaid, for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India;
Tax Incentives For the removal of doubts, it is hereby declared that an undertaking, being the Unit, which had already availed, before the commencement of the Special Economic Zones Act, 2005, the deductions referred to in section 10A for ten consecutive assessment years, such Unit shall not be eligible for deduction from income under this section.
Tax Incentives (4) This section applies to any undertaking, being the Unit, which fulfils all the following conditions, namely: (i)it has begun or begins to manufacture or produce articles or things or provide services during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone; (ii)it is not formed by the splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of any undertaking, being the Unit, which is formed as a result of the re- establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B**, in the circumstances and within the period specified in that section;
Tax Incentives Section 33B deals with discontinuance of a business due to (i)flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature ; or (ii)riot or civil disturbance ; or (iii)accidental fire or explosion ; or (iv)action by an enemy or action taken in combating an enemy (whether with or without a declaration of war),
Tax Incentives (iii)it is not formed by the transfer to a new business, of machinery or plant previously used for any purpose Explanation: The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. Explanations 1 and 2 to sub-section (3) of Section 80- IA reads as under:
Tax Incentives Explanation 1.— For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :— (a)such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b)such machinery or plant is imported into India from any country outside India; and (c)no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the assessee.
Tax Incentives Explanation 2.— Where in the case of an undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.
Tax Incentives Direct Tax benefits for Units MAT/ Capital gains Minimum Alternative Tax provisions not applicable Capital gain tax exemption on relocation to SEZ TDS No deduction of tax at source by OBU on interest on deposits / borrowings from non–resident or person not ordinarily resident.
Tax Incentives Migration to SEZ Units not availed of entire tax holiday u/s 10A [proviso 1] Tax holiday for unexpired period of 10 years +5 years, subject to reinvestment Units located in any FTZ/EPZ and conversion thereof [proviso 2] Tax holiday for unexpired period of 10 years from the date the Unit was originally set up in EPZ/FTZ +5 years, subject to reinvestment
Tax Incentives Indirect Tax Exemption from payment of Import duty Exemption from payment of Excise duty Exemption from payment of CST on purchase from DTA Exemption from Service tax Exemption from Local Taxes: As per State Govt.’s SEZ Policy.
Model State SEZ Act The Central Govt. had brought out Model State SEZ Act to be followed by the State Govts. While framing their respective SEZ Acts. The salient features are as under: Application: All legislation/Acts/Rules/ Regulations in force in (Name of the State) shall apply to the Zone. This Act shall apply to the Zones set-up and /or developed under this Act.
Model State SEZ Act Functions and Powers of the Board: Co-ordination with concerned Revenue authorities for preparation and maintenance of land records of the SEZ. Oversee the compliance of the approved master plan provide guiding principles for town planning and urban development standards. Appoint or constitute committees to perform the day-to-day management functions of the SEZ. Delegate powers to the Development Commissioner of the zone if deemed appropriate and necessary.
Model State SEZ Act In respect of units, Unit Approval Committee should be empowered to grant all local and state level clearances. Zones needs to be notified as an “Industrial Township Area” an there has to be authority for carrying out development operations management and maintenance functions of the zone. Such authority should consist of Nominee of Developer, DC and Govt. The nominee of the developer shall be the Chairman and Convener of the authority.
Model State SEZ Act Functions of Authority: Erection of substantial boundary marks defining the limits of or any alteration in limits of the SEZ. Ensuring that the Units and residents have access to the following basic and essential infrastructure, namely- Public Streets, bridges, sub-ways, culverts, causeways and the like Public transportation facilities Power supply Water supply Adequate drains, drainage facilities and public latrines, water-closets, urinals and similar conveniences
Model State SEZ Act Facilities for the collection and treatment of sewerage Collection and management of municipal Solid Waste Lighting of public streets, municipal markets and other buildings vested in the Authority Maintenance of public monuments, open spaces and other property vesting in the Authority. Ensuring that the Units and residents have access to the following social infrastructure, in accordance with the growth of the SEZ and requirements of the Units and residents, namely- Public hospitals and dispensaries Ambulance service Places for the disposal of the dead and disposing of unclaimed dead bodies Public markets, slaughter houses Schools for primary, secondary and higher education
Model State SEZ Act Maternity and infant welfare houses and centers Public parks, gardens, playgrounds and recreational facilities Maintaining a fire-brigade equipped with suitable appliances for the extinction of fires and the protection of life and property against fire. Reclamation of unhealthy localities, the removal of noxious vegetation and the abatement of all nuisances. Conducting public vaccinations in accordance with the provisions of the Bombay District vaccination Act, 1892. Prevention and checking the spread of dangerous diseases. Removal of obstructions and projections in or upon streets, bridges and other public places.
Model State SEZ Act Naming or numbering of streets and of public places vesting in the Authority and the numbering of premises. Setting collecting and appropriating charges and granting these rights to the Developer or his agent or any other person. Monitoring town planning standards set by the Board. Removal of unauthorized construction and encroachments. Such other functions as may be assigned by the Board. The Authority shall work in close co-ordination with the Development Commissioner.
Model State SEZ Act Fiscal Benefits: The transaction between the Domestic Tariff Area [DTA] and the SEZ shall be treated as exports and imports as notified by the Government of India. All such exports from DTA to the SEZ shall be exempted from all such taxes, levies, duty, cess etc. as applicable to exports. All sales and transactions between SEZs and/or within the SEZ would be exempt from all taxes, cess and levies as per the following-
Model State SEZ Act Purchase Tax Specified Sales (Lease Tax) in respect of lease of goods Stamp Duty Registration Tax Sales Tax Octroi Turnover Tax Any other tax, cess, duty of levies notified by the Government The procedure for obtaining above benefits shall be as prescribed by Regulation.
Model State SEZ Act Freedom to provide services and charge tariff: Notwithstanding anything in any other Act/Agreement /License, the Developer / Agent of the Developer of the SEZ shall be free to develop, construct, install, operate, manage, and maintain any or all of the following services for the purpose of providing services to SEZ, without any license, namely- (a) Generation and supply of electricity (b) Water extraction, treatment, transmission and distribution (c) Waste water treatment and solid waste management (d) Provision of port & related services (e) Provision of roads, bridges& highways (f) Any other services as may be prescribed by Regulation
Model State SEZ Act Notwithstanding anything contained in any other Act, the provider of the facility/ services to the SEZ shall be free to set charge/levy fee for providing such services.
SEZ Act, 2005 Passed by Parliament in May 2005 Received Presidential assent on 23rd June 05 Came into effect on 10th Feb 06 supported by the SEZ Rules
SEZ Act, 2005 The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A Single Window SEZ approval mechanism has been provided through a 19 member inter-ministerial SEZ Board of Approval (BoA). The applications duly recommended by the respective State Governments are considered by this BoA periodically. All decisions of the Board of approvals are with consensus.
Important Sections of SEZ Act, 2005 SEZ ACT, 2005 contains Eight Chapters 58 Section Three schedules
Chapter I-Preliminary Sec.1 – Short title, extent and commencement It extends to the whole of India. Sec.2 – Definitions (f) "Co-Developer" means a person who, or a State Government which, has been granted by the Central Government a letter of approval under sub-section (12) of section 3; (g) “Developer” means a person who, or a State Government which, has been granted by the Central Government a letter of approval under sub-section (10) of section 3 and includes an Authority and a Co-Developer; Contd….
Chapter I-Preliminary Sec.2 – Definitions (i) “Domestic Tariff Area” means the whole of India (including the territorial waters and continental shelf) but does not include the areas of the Special Economic Zones; (n) “Free Trade and Warehousing Zone” means a Special Economic Zone wherein mainly trading and warehousing and other activities related thereto are carried on; (p) "infrastructure facilities" means industrial, commercial or social infrastructure or other facilities necessary for the development of a Special Economic Zone or such other facilities which may be prescribed; Contd….
Chapter I-Preliminary Sec.2 – Definitions (z) “services” means such tradable services which,- (i) are covered under the General Agreement on Trade in Services annexed as IB to the Agreement establishing the World Trade Organisation concluded at Marrakesh on the 15th day of April, 1994; (ii) may be prescribed by the Central Government for the purposes of this Act; and (iii) earn foreign exchange;
Chapter II-Establishment of Special Economic Zone Sec.3 – Procedure for making proposal to establish Special Economic Zone [covered under ‘Procedure for setting up of SEZ’]
Chapter II-Establishment of Special Economic Zone Sec.7 - Exemption from taxes, duties or cess Any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area by, - (i) a Unit in a Special Economic Zone; or (ii) a Developer; shall, subject to such terms, conditions and limitations, as may be prescribed, be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule. Contd….
Chapter IV – Development Commissioner Sec.11 – Development Commissioner Central Govt. may appoint Development Commissioner [DC] Assistants to DC Sec.12 – Functions of Development Commissioner Major functions of DC prescribed herein this Act are as under:
Chapter IV – Development Commissioner Guidance to Entrepreneurs for establishment of SEZ Promotion of Exports from SEZ Discharge of functions assigned by the BOA Co-ordination with C. Govt & St. Govt. Monitoring Performance of SEZ Developer/ Unit Discharge of functions assigned by the C. Govt.
Chapter V – Single Window Clearance Sec.14 – Powers and functions of Approval Committee. Approve the import or procurement of goods from the DTA, for Authorised Operations by a Developer; Approve the providing of services by a service provider, from outside India, or from the DTA, for authorised operations by the Developer, in the SEZ; Monitor the utilisation of goods or services or warehousing or trading in the SEZ; approve, modify or reject proposals for setting up Units; Contd…….
Chapter V – Single Window Clearance Sec.14 – Powers and functions of Approval Committee. allow, on receipt of approval by the BOA, foreign collaborations and foreign direct investments (including investments by a person outside India) for setting up a Unit; monitor and supervise compliance of conditions of LOA or LOP granted to the Developer or entrepreneur; and perform such other functions as may be entrusted to it by the Central Government or the State Government concerned, as the case may be.
Chapter V – Single Window Clearance Sec.15 - Setting up of Unit [covered under ‘Procedure for setting up of SEZ unit’]
Chapter VI-Special Fiscal Provisions for Special Economic Zones Sec.26 – Exemptions, Drawbacks, and Concessions to Every Developers and Entrepreneur: (1) Subject to the provisions of sub-section (2), every Developer and the entrepreneur shall be entitled to the following exemptions, drawbacks and concessions, namely: - (a) exemption from any duty of customs, under the Customs Act, 1962 or the Custom Tariff Act, 1975 or any other law for the time being in force, on goods imported into, or service provided in, a Special Economic Zone or a Unit, to carry on the authorised operations by the Developer or entrepreneur; Contd…….
Chapter VI-Special Fiscal Provisions for Special Economic Zones (b) exemption from any duty of customs, under the Customs Act, 1962 or the Customs Tariff Act, 1975 or any other law for the time being in force, on goods exported from, or services provided, from a SEZ or from a Unit, to any place outside India: (c) exemption from any duty of excise, under the Central Excise Act, 1944 or the Central Excise Tariff Act, 1985 or any other law for the time being in force, on goods brought from DTA to a SEZ or Unit, to carry on the authorised operations by the Developer or entrepreneur; Contd…….
Chapter VI-Special Fiscal Provisions for Special Economic Zones (d) drawback or such other benefits as may be admissible from time to time on goods brought or services provided from the DTA into a SEZ or SEZ Unit or services provided in a SEZ or SEZ Unit by the service providers located outside India to carry on the authorised operations by the Developer or entrepreneur; (e) exemption from service tax under Chapter-V of the Finance Act, 1994 on taxable services provided to a Developer or Unit to carry on the authorised operations in a SEZ; Contd…….
Chapter VI-Special Fiscal Provisions for Special Economic Zones (f) exemption from the securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre; (g) exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 if such goods are meant to carry on the authorised operations by the Developer or entrepreneur. Contd…….
Chapter VI-Special Fiscal Provisions for Special Economic Zones (2) The Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub-section (1).
Chapter VI-Special Fiscal Provisions for Special Economic Zones Sec.27 – Provisions of Income Tax Act, 1961 to apply with Certain Modification in Relation to Developers and Entrepreneurs Already covered in the section ‘Tax Incentives’.
Chapter VI-Special Fiscal Provisions for Special Economic Zones Sec.30 – Domestic Clearance by Units (a) any goods removed from a SEZ to the DTA shall be chargeable to duties of customs under the Customs Tariff Act, 1975 [as if imported]; and (b) the rate of duty and tariff valuation, if any, applicable to goods removed from a SEZ shall be at the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty.
Chapter VIII – Miscellaneous Sec.50 – Power of State Government to Grant Exemption The State Government may, for the purposes of giving effect to the provisions of this Act, notify policies for Developers and Units and take suitable steps for enactment of any law:- (a) granting exemption from the State taxes, levies and duties to the Developer or the entrepreneur; (b) delegating the powers conferred upon any person or authority under any State Act to the Development Commissioner in relation to the Developer or the entrepreneur.
Chapter VIII – Miscellaneous Sec.53 – Special Economic Zones to be Ports, Airports, Inland Container Depots, Land Stations etc. in certain cases A SEZ shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations. A SEZ shall, with effect from such date as Central Government may notify, be deemed to be a port, inland container depot, land station and land customs stations, as the case may be, under section 7 of the Customs Act, 1962:
Schedules to the SEZ Act, 2005 THE FIRST SCHEDULE (See sections 7 and 54) Enactments 1. The Agricultural Produce Cess Act, 1940 (27 of 1940). 2. The Coffee Act, 1942 (7 of 1942). 3. The Mica Mines Labour Welfare Fund Act, 1946 (22 of 1946). 4. The Rubber Act, 1947 (24 of 1947). 5. The Tea Act, 1953 (29 of 1953). 6. The Salt Cess Act, 1953 (49 of 1953). 7.The Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1955). 8.The Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957). 9.The Sugar (Regulation of Production) Act, 1961 (55 of 1961). Contd……….
Schedules to the SEZ Act, 2005 10.The Textiles Committee Act, 1963 (41 of 1963). 11.The Produce Cess Act, 1966 (15 of 1966). 12.The Marine Products Export Development Authority Act, 1972 (13 of 1972). 13.The Coal Mines (Conservation and Development Act, 1974 (28 of 1974). 14.The Oil Industry (Development) Act, 1974 (47 of 1974). 15.The Tobacco Cess Act, 1975 (26 of 1975). 16.The Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978). 17.The Sugar Cess Act, 1982 (3 of 1982). 18.The Jute Manufactures Cess Act, 1983 (28 of 1983). 19.The Agricultural and Processed Food Products Export Cess Act, 1985 (3 of 1986). 20.The Spices Cess Act, 1986 (11 of 1986). 21.The Research and Development Cess Act, 1986 (32 of 1986).
Schedules to the SEZ Act, 2005 The Second Schedule: Incorporates modification to the Income Tax Act, 1961, as applicable to SEZs. The Third Schedule: Incorporates amendments to Insurance act, 1938, Banking Regulations Act, 1949 and Indian Stamp Act, 1899
Chapter-I-Preliminary Rule 1 - Short title and commencement Rule 2 – Definitions (s) “infrastructure” means facilities needed for development, operation and maintenance of a Special Economic Zone and includes industrial, business and social amenities like development of land, roads, buildings, sewerage and effluent treatment facilities, solid waste management facilities, port, including jetties, single point moorings, storage tanks and interconnecting pipelines for liquids and gases, Inland Container Depot or Container Freight Station, warehouses, airports, railways, transport system, generation and distribution of power, gas and other forms of energy, telecommunication, data transmission network, information technology network, hospitals, hotels, educational institutions, leisure, recreational and entertainment facilities, residential and business complex, water supply, including desalination plant, sanitation facility; Contd……….
Chapter I-Preliminary Rule 2 – Definitions (za) “Special Economic Zone for multi-product” means a Special Economic Zone where Units may be set up for manufacture of two or more goods in a sector or goods falling in two or more sectors or for trading and warehousing or rendering of two or more services in a sector or rendering of services falling in two or more sectors; (zb) “Special Economic Zone for specific sector” means a Special Economic Zone meant exclusively for one or more products in a sector or one or more services in a sector;
Chapter II–Procedure for Establishment of Special Economic Zone Rule 5 (2) – Requirements for establishment of a Special Economic Zone (a) Multi-product SEZ [as amended vide Notification No. G.S.R. 470 (E) Dtd. 10.08.2006, Notification No. S.O 393 Dtd. 16.03.2007 and Notification Dtd. 12.10.2007] i. Minimum area requirement – 1000 hectares or more but not exceeding 5000 hectares ii. For Specified states - Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttranchal, Sikkim, Jammu and Kashmir, Goa or in a Union Territory – 200 hectares or more At least 50% of the area should be earmarked for developing the processing area.
Chapter II–Procedure for Establishment of Special Economic Zone Rule 5 (2) – Requirements for establishment of a Special Economic Zone (b) Sector Specific SEZ- [as amended vide Notification No. G.S.R. 470 (E) Dtd. 10.08.2006 and Notification No. S.O 393 Dtd. 16.03.2007] Contd………. SEZ for a Specific Sector or for one or more services or in a port or airport 100 hectares or more Provided at least 50% of the area is to be earmarked for developing processing area; Except -
Chapter II–Procedure for Establishment of Special Economic Zone Contd………. Sector specific SEZ to be set up in Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal, Sikkim, Jammu and Kashmir, Goa or in a Union territory 50 hectares or more Provided at least 50% of the area is to be earmarked for developing processing area;
Chapter II–Procedure for Establishment of Special Economic Zone Rule 5 (2) – Requirements for establishment of a Special Economic Zone (c) Free Trade and Warehousing Zones - [as amended vide Notification No. G.S.R. 470 (E) Dtd. 10.08.2006] Minimum Area requirement – 40 hectares or more with a built up area of not less than 1,00,000 square meters: Provided that in a stand alone Free Trade and Warehousing Zone [FTWZ] at least fifty percent of the area shall be earmarked for developing processing area Contd……….
Chapter II–Procedure for Establishment of Special Economic Zone Provided further that a FTWZ may also be set up as part of a SEZ for multi-product Provided further that in a sector specific SEZ, FTWZ may be permitted with no minimum area requirement but subject to the condition that the maximum area of such FTWZ should not exceed 20% of the processing area.
Chapter II–Procedure for Establishment of Special Economic Zone Rule 5 (2) – Requirements for establishment of a Special Economic Zone In Rule 5, Clause (d) added vide Notification No. S.O 393 Dtd. 16.03.2007, which reads as under: “(d) If a Developer subsequent to approval or notification of a SEZ acquires more contiguous and vacant land which makes the total area available, including the area already notified as SEZ, more than the minimum area required for another class of SEZ, the Board may consider such cases on a case to case basis for allowing conversion to another class of SEZ by subsuming such already approved or notified SEZ.” Contd……….
Chapter II–Procedure for Establishment of Special Economic Zone Rule 5(4) – Developer or Co-developer shall have atleast 26% of the equity in the entity proposing to create business, residential or recreational facilities in a SEZ. Rule 5(5) - State Government, before recommending any proposal for setting up of a SEZ, must endeavor that the following are made available in the State to the proposed SEZ. Contd……….
Chapter II–Procedure for Establishment of Special Economic Zone Contd………. (a) exemption from the state or local taxes, levies and duties including stamp duty on goods required for authorized operations by a unit or developer and the goods sold by a unit in DTA. (b) exemption from electricity duty or taxes on sale, of self generated or purchased electric power for use in the processing area of a SEZ; (c) allow generation, transmission and distribution of power within a SEZ subject to the provisions of the Electricity Act, 2003 (No. 36 of 2003); (d) providing water, electricity and such other services, as may be required by the developer be provided or caused to be provided;
Chapter II–Procedure for Establishment of Special Economic Zone Contd………. (e) Delegation of power to the DC under the Industrial Disputes Act, 1947 (No. 14 of 1947) and other related Acts in relation to the Unit; (f) Delegation of power to the DC under the Industrial Disputes Act, 1947 (No. 14 of 1947) in relation to the workmen employed by the developer. (g) Declaration of the SEZ as a Public Utility Service under the Industrial Disputes Act, 1947 (No.14 of 1947); (h) Providing single point clearance system to the Developer and unit under the State Acts and rules;
Chapter II–Procedure for Establishment of Special Economic Zone Rule 5(6)- The State Government shall, while recommending a proposal for setting up of SEZ to the Board indicate whether the proposed area falls under reserved or ecologically fragile area as may be specified by the concerned authority.
Chapter II–Procedure for Establishment of Special Economic Zone Rule 5A – Infrastructure requirements relating to information technology.- In case of a SEZ relating to information technology, the following facilities shall be ensured, namely:- (a) twenty-four hours uninterrupted power supply at stable frequency in the Zone; (b) reliable connectivity for uninterrupted and secure data transmission; (c) provision for central air-conditioning system; and (d) a ready to use, furnished plug and pay facility for end users.”. [Above Rule 5A inserted vide Ntfn No. G.S.R. 470 Dtd. 10.08.06]
Chapter II–Procedure for Establishment of Special Economic Zone Contents of Rule 3, 4, 6 to 16 are covered under Procedure for setting up of SEZ Contents of Rule 17 to 19 are covered under Procedure for setting up of SEZ unit Rule 20 – Administrative Control of Special Economic Zones Every SEZ will be under the administrative control of a DC.
Risk Elements Long gestation period - 5-7 years. Relatively high investment towards land acquisition, infrastructure and facilities building, High uncertainty about enough occupation of the Zone by entrepreneurs.
Revenue Considerations For the Developer, a SEZ is basically a profit-centre Project. Return of his initial capital investment, has to come from the lease of plots and buildings in the SEZ. He must also get extra returns matching the very high stake, long gestation period and the risk involved in the Project.
Models for setting up SEZ Multi- Product Central Govt./ State Govt./ State Govt. Agency Private Sector +
Models for setting up SEZ Multi- Product Public Sector State Govt. Agency Private Sector + +
Models for setting up SEZ Multi- Product Public Sector Alone
Models for setting up SEZ Sector Specific State Govt. Agency Private Sector Players Few players may have majority stakes +
Models for setting up SEZ Sector Specific Consortium of Major Industrial Players
Models for setting up SEZ Sector Specific One Major Industrial House Other Small Houses +
Models for setting up SEZ Sector Specific Stand Alone – One Single Industrial House
Models for setting up SEZ Free Trade & Warehousing Zones Industrial House Logistics Company +
Models for setting up SEZ Free Trade & Warehousing Zones Consortium of Logistics Companies
Models for setting up SEZ Free Trade & Warehousing Zones + ++ Consortium of
Models for setting up SEZ IT / ITES/ G&J / BT Etc. Consortium of Pvt. Sector Companies with or without Government Agencies
Models for setting up SEZ IT / ITES One or More IT / ITES companies
Models for setting up SEZ IT / ITES/ G&J / BT Etc. Stand Alone – One Single Company
Primary objectives Creation of Industrial Township which should have processing as well as non-processing areas. It should be a profit centre activity. It should be developed in consultation with State Govt. or State Govt. Agencies. The role of developer and co-developer should be well defined.
Infrastructure Needs as envisaged by GOI To achieve a new vision of growth, which is broad based and inclusive, planning commission has estimated that the total investment in infrastructure has to increase from 4.5% to around 7.5% of the GDP in the Eleventh Five Year Plan. During the Eleventh Five Year Plan (2007-12), projected investments of over US$ 320 billion at 2005-06 prices are envisaged in the infrastructure sector, which have been revised by the committee. The revised projected investment is US$ 475 Bn [Rs. 19,00,000 crore].
Infrastructure Needs as envisaged by GOI The investment requirements are enormous and are not likely to be met from the public sector alone. Attracting private capital in this critical sector, public private partnerships (PPPs) are being encouraged as a preferred mode of development of infrastructure projects.
Conclusion In order to successfully create the SEZ the developer needs assistance from State Govts. Upfront Premium, Lease Rentals, Cost of Services and Attractiveness of location will play a vital role. Social infrastructure is also badly needed otherwise commercial viability will be affected. Coupled with tax concessions both direct as well as indirect, developer and co-developers are likely to play a big and effective role if SEZs have to be successful. Infrastructure creation would automatically lead to additional economic activity.
Relevant references SEZ Act, 2005 : Section 3 to 6 SEZ Rules, 2006: Rule 3 to 16
Important points to be considered for making Application Who are eligible to establish SEZ? Central Government, State Government, Any Person Eligible Activities. Manufacture of goods or Rendering services or For both or As a Free Trade and Warehousing Zone [FTWZ]
Net worth and investment criteria Category of SEZMinimum Net worth Criteria [Rs. In crores] Minimum Investment criteria [Rs. In crores] Multi-Product SEZs 2501000 Sector-specific SEZs 50250 IT SEZs100- Source: ET, Dtd. 22.09.2006
Important points to be considered for making Application Whom to approach for making Application? Two options are available Option 1-to the State Govt. Option 2-directly to the Board of Approval. Approving Authority Board of Approval Chairperson – Secretary, Ministry of Commerce. Representatives from other relevant ministries. Development Commissioner. State Representative.
Important points to be considered for making Application In what format? Application is to be made in “Form-A” [which is annexed to the SEZ Rules, 2006]. Contents of the Application Identified Area and steps taken for acquisition Processing / Non- processing Area Financial Strength and Projections Source/ application of funds Proposed activities in both the Areas Multi-product or Single product Foreign Direct Investment (FDI)
Important points to be considered for making Application Checklist as inserted vide Notification No. S.O. 393 Dtd. 16.03.2007 (1)Name of the Developer. (2)Proposed area of the location of the SEZ. (3)Status of recommendation of the proposal by the State Government (if available). (4)Whether proposal is for formal or in principle approval? (In case land is in possession of the promoter, it is considered for formal approval). (5)Is it a multi-product SEZ? (6) If it is a sector specific SEZ, the sector is. (7) Whether it meets the area requirements? (8)Area of the SEZ (in hectares). Contd……….
Important points to be considered for making Application (9)Whether Form-A has been filed? (10) Whether undertaking and affidavit has been submitted? (11)Whether project report has been submitted? (12)Whether land is owned/leased and is in possession of the Developer? (13)Does the proposal meet the area requirements of the Rules? (14)Whether the land has existing structures or is vacant ? (15)Whether the land is contiguous? (16)Projected investment in the project. (17)Projected exports from the project. (18)Projected employment from the project. (19)Share Capital and Reserves of the Developer Company. (20)Source of funds for the project. Contd……….
Important points to be considered for making Application (21)Net worth of the Applicant (including Group companies) duly supported by Audited Accounts of the Developer for last 3 Years (for all the constituents in case the Developer is a SPV). If the company is a new company, audited accounts of Flagship Company/promoters may be provided. (22)Extent of FDI (if any) in million U.S. Dollars. (23)Source of FDI (Country and Company details may be provided). (24)Whether provisions contained in the Press Note No. 5 (2005 Series), issued by the Ministry of Commerce and Industry have been followed in respect of Telecom/IT SEZ development?"
Procedure for setting up of SEZ 1. State Government [St. Govt.] 2. Directly to the Board of Approval [BOA] On receipt of the proposal 1. St. Govt. should ensure whether all requirements as per Rule 5 are being complied with or not 2. After that it forwards the proposal, with its recommendations, to the BOA, within 45 days. Contd….. Proposal can be made to Board of Approval, after approval by the Board concurrence of the State Government to be acquired within 6 months Step-1 After identifying the area proposal can be made to
Step-2 BOA may approve, modify or reject the proposal as under: If APPROVED BOA will communicate such approval to the Central Govt. If MODIFIED 1. BOA will communicate such modifications to the applicant 2. If modifications are accepted by the applicant, the BOA shall communicate approval of proposal to the Central Govt. If REJECTED BOA will record the reasons of rejection and communicate to the Central Govt. Central Govt. will communicate to the applicant Contd…..
Step-3 Central Govt. after receiving communication from BOA, shall grant the Letter of Approval [LOA] within 30 days of the Communication received from BOA as under. Formal Approval in FORM-B In the cases where the land is in the possession of the Developer. [validity – 3 yrs for implementation of Proposal Extension- 2 yrs] Formal Approval in FORM-C For providing infrastructural facilities in the SEZ. [validity – 3 yrs for implementation of Proposal Extension- 2 yrs] In-principle approval in FORM-B1 [validity – 1 yr –within Which Developer shall submit suitable proposal for formal approval in Form-A Extension- 2 yrs]
Step-4 The Developer has to furnish to the Central Government, the particulars of the identified area, with proof of legal right and possession and a certificate from the State Government or the authorized agency that the said area is free from all encumbrances. Where the Developer has leasehold right over the identified area, the lease shall be for a period not less than twenty years. The identified area shall be contiguous and vacant and it shall have no public thoroughfare.
Step-5 Notification of SEZ by Central Govt. [Rule 8]: Central Govt. after satisfying that all the requirements are fulfilled, shall notify the identified area in the state as a SEZ Step-6 Grant of approval for Authorised Operations [Rule 9]: The Developer can submit to the Board the details of operations proposed to be undertaken in the SEZ for obtaining authorization at the time of seeking approval for setting up of SEZ or thereafter. Board may authorize the Developer to undertake such Operations in SEZ, as may be authorised by Central Govt.
Setting up of SEZ – other relevant provisions Provided further that exemptions, drawbacks and concessions on the goods and services allowed to a Developer or Co-developer, as the case may be, shall also be available to the contractors appointed by such Developer or Co-developer and all the documents in such cases shall bear the name of the Developer or Co- developer along with the contractor and these shall be filed jointly in the name of the Developer or Co- developer and the contractor Provided also that the Developer or Co-developer, as the case may be, shall be responsible and liable for proper utilization of such goods in all cases.
Setting up of SEZ – other relevant provisions Processing and non-processing area [Section 6 and Rule 11], as amended vide Notification No. G.S.R. 470 DTD. 10.08.2006 and Notification No. S.O. 393 Dtd. 16.03.2007 The areas within SEZs may be demarcated as: (a) the processing area for setting up Units and FTWZs (b) the non-processing areas for activities other than (a) above Contd……….
Setting up of SEZ – other relevant provisions The DC is the authority for demarcating the areas falling within the SEZ. The processing area and FTWZ should have specified entry and exit points and be fully secured. The authorized persons will only be allowed to enter the processing area of a SEZ. No vacant land in the non-processing area shall be leased for business and social purposes such as educational institutions, hospitals, hotels, recreation and entertainment facilities, residential and business complexes, to any person except a co- developer: Contd……….
Setting up of SEZ – other relevant provisions Provided that the developer or co-developer may lease the completed infrastructure along with the vacant land appurtenant thereto for such purposes: Provided that infrastructure for business or social purposes in the SEZ, as may be approved by the Board, shall be eligible for exemptions, concessions, drawback and any such infrastructure created in addition or in excess thereof shall not be eligible for any exemptions, concessions and drawback. Contd……….
Setting up of SEZ – other relevant provisions The SEZ shall be deemed to be a port, airport, inland container depot, land customs station under section 7 of the Customs Act from the date notified in this behalf: Provided that Specified Officer may designate any area or area(s) in the SEZ as an area for loading and unloading of import or export cargo: Provided further that in case the said port, airport, ICD, LCS area is to be used for DTA importers and exporters also, storage of cargo for DTA shall be in a separate enclosure and deliveries for such cargo shall be allowed by the Authorized Officer of the SEZ based on Bill of Entry, assessed by the Assistant or Deputy Commissioner of Customs having jurisdiction over the said Customs Station. Contd……….
Setting up of SEZ – other relevant provisions Import and procurement of goods by the Developer [Rule 12]: The Developer may import or procure goods from the Domestic Tariff Area, without payment of duty, taxes and cess for the authorized operations, as per the following provisions. Contd……….
After getting approval for authorised operations, SEZ Developer has to make an Application for import/procurement from DTA, to the DC, along with List of goods and services, including machinery, equipments and construction materials required for the authorized operations, duly certified by a Chartered Engineer for approval by the Approval Committee. Declaration of the place of storage of goods within the SEZ to the Specified Officer The goods imported or procured from the DTA by the Developer are to be kept in a clearly demarcated area for inspection by the authorized officer before such goods are brought into use.
Execution of a Bond-cum-Legal Undertaking in Form D, jointly with the Development Commissioner and Specified Officer, with regard to proper accountal and utilization of goods for the authorized operations within a period of one year. Maintenance of proper account of the import or procurement, Consumption and utilization of goods and submit quarterly and half-yearly returns to the Development Commissioner in Form E
The Developer has to submit a half-yearly certificate for the period ending 31st March and 30th September of every financial year regarding utilization of goods from an independent Chartered Engineer, to the DC and Specified Officer and every certificate under this sub-rule shall be filed within 30 days of the period specified, as the case may be. The Developer shall not remove goods from the SEZ to the DTA except with the permission of the Specified Officer and on payment of duty applicable on such goods.
Concept & Procedure for setting up of SEZ Unit
Unit should be set up primarily for exports. It should be capable of achieving positive NFE. Locational choice should be carefully done to save on logistic costs. It should be commercially viable proposition. Tax benefits should be examined carefully.
Relevant references SEZ Act, 2005 : Section 15 and 16 SEZ Rules, 2006: Rule 17 to 19
Proposal for approval of Unit A consolidated application seeking permission for setting up of a Unit and other clearances, including those indicated below, shall be made to the Development Commissioner, in Form F:- (a) Setting up of unit in a Special Economic Zone; (b) Annual permission for sub-contracting; (c) Allotment of Importer-Exporter Code number; (d) Allotment of land/industrial sheds in the Special Economic Zone; (e) Water connection;
Proposal for approval of Unit (f) Registration-cum-Membership Certificate; (g) Small Scale Industries Registration; (h) Registration with Central Pollution Control Board; (i) Power connection; (j) Building approval plan; (k) Sales tax registration; (l) Approval from inspectorate of factories; (m) Pollution control clearance, wherever required; (n) Any other approval as may be required from the State Government. The application should be supported by a proper Project Report.
Procedure for setting up of SEZ Unit Application to DC in Form F, in 5 copies, with a copy to the Developer DC after scrutinizing the proposal shall submit the same to the Approval Committee The Approval Committee may approve or approve with modification or reject the proposal within 15 day of its receipt Contd…….
In case of modification or rejection, the Approval Committee should afford an opportunity of being heard to the applicant, and after recording the reasons, either modify or reject the proposal. DC by order shall communicate such modification or rejection of proposal to the applicant The Approval Committee shall approve the Proposal on following grounds: Contd…….
meeting positive Net Foreign Exchange Earnings, Developer shall entered into lease agreement and give possession of space in SEZ to the entrepreneur only after LOA is issued by DC. copy of registered lease agreement furnished to the DC within 6 months from the issuance of the Letter of Approval Undertaking to fulfill the environmental and pollution control norms, Submitting proof of residence, Submitting Income tax returns, etc. Contd…….
The proposal shall also fulfill the sector-specific criteria as laid down in Rule 17 (3) On approval of proposal, DC shall issue Letter of Approval in Form G for setting up of the SEZ Unit.
Letter of Approval to a Unit [Rule 19] The DC, after approval of the proposal, grant a letter of approval [LOA] to the applicant to set up a Unit and undertake such operations which the DC may authorise and every such operation so authorised shall be mentioned in the LOA. The LOA specifies: The particulars of manufacturing / service activity, Projected annual export for the first five years Net Foreign Exchange Earning [NFEE] for the first five years of operations and Other terms and conditions, if any, stipulated by the Board or Approval Committee. Contd…..
Letter of Approval to a Unit [Rule 19] Validity of LOA: The LOA will be valid for one year within which period the Unit shall commence production or service or trading or Free Trade and Warehousing activity and the Unit shall intimate date of commencement of production or activity to DC: DC may extend the such validity as under: First extension – 2 years Second extension – 1 year provided two-thirds of activities including construction, relating to the setting up of the Unit is complete and a chartered engineer’s certificate to this effect is submitted by the entrepreneur. Contd…..
Letter of Approval to a Unit [Rule 19] The LOA is valid for five years from the date of commencement of production or service activity. LOA should be construed as a licence for all purposes related to authorized operations, After the completion of five years from the date of commencement, the DC may, extend validity of the LOA for a further period of five years, at a time.
Letter of Approval to a Unit [Rule 19] Approval Committee may approve proposal for broad- banding, Diversification, enhancement of capacity of production, change in the items of manufacture or service activity. If an enterprise is operating both as a DTA unit as well as a SEZ Unit, it shall have two distinct identities with separate books of accounts, but it shall not be necessary for the SEZ unit to be a separate legal entity:
Other SEZ Unit [Sub-Rule 15] International Exhibition held in India [Sub-Rule 13] Procurement From EOU/ STP/EHTP/BTP [Sub-Rule 14] Procurement within India [Rule 30] Bonded Warehouse [Sub-Rule 12] From DTA unit [Sub-Rule 1 to 11] (1) (2) (3) (4) (5)
Procedure for Supplies to SEZ by DTA unit Supplies from the DTA to a Unit or Developer for their authorized operations shall be eligible for export benefits as admissible under the FTP. [Rule 23] The supplies from DTA to a SEZ unit, or to SEZ developers for their authorized operations inside a SEZ, may be treated as PHYSICAL EXPORTS. Supplies from DTA to SEZ are exempted from payment of any Central Excise duty under Rule 19 [Under Bond] or claim of rebate under Rule 18 of Central Excise Rules, 2002.
Procedure for Supplies to SEZ by DTA unit The provisions relating to exports under Central Excise Act, 1944 and rules made there under may be applied, mutatis-mutandis, in case of procurement by SEZ units & SEZ developer from DTA for their authorized operations. Step 1: Execution of Bond/LUT as applicable in case of normal exports Procedure
Step 2: DTA unit will clear the goods from its premises: Where export benefits are not availed Where export benefits are availed Clearance will be on the basis of 1. ARE-1, 2. Bill of Exports On the basis of ARE-1
Contd……… Step 3: Before arrival of goods, Authorised Officer [AO] assesses the ARE-1 and/or Bill of Exports, as per the instructions, procedures, including examination norms applicable to export goods. It is mandatory at this stage to check whether goods are required for authorised operations by the SEZ unit or SEZ Developer with reference to the Letter of Approval [LOA].
Contd……… Step 4: On arrival of goods from DTA to SEZ Gate, Authorised Officer will examine the goods in respect of particulars given in the ARE-1, invoice, Bill of Export and packing list and also as per the examination norms laid down in respect of export goods in cases where the goods are being procured under claim of an export entitlement.
Contd……… Step 5: ARE-1 and/or Bill of Exports, as endorsed by AO is treated as ‘proof of export’. After the goods are admitted in the SEZ, the copy of such ARE-1 and/or Bill of Export is to be submitted to the Juris. Central Excise Officer of DTA supplier, within 45 days.
Rule 30 - Procedure for procurements from the DTA Procedure in case where goods are procured from a DTA, who is not registered with the Central Excise authorities, or is a trader or merchant exporter: The above procedure will be applicable mutatis mutandis, except that the goods are to be brought to the SEZ under the cover of an Invoice and the ARE-1 will not be required. The SEZ Unit/Developer may also procure goods from DTA without availing exemptions, drawbacks and concessions on the basis of invoice or transport documents, issued by the supplier; In this case, invoices or transport documents are to be endorsed to the effect that no exemptions, drawbacks and concessions have been availed on the said supplies.
Rule 30 (12) - Procedure for procurement from Warehouse [WH] SEZ unit/developer files B/E with Authorised Officer [AO] SEZ unit/developer submits B/E assessed by the AO to the Customs Officer in-charge of the WH Customs Officer will allow clearance of the goods from the WH for supply to SEZ unit/developer without payment of duty on the cover of ex-bond Shipping Bill and assessed B/E. Re-warehousing certificate by way of endorsement by the AO on the copy of ex-bond Shipping Bill is to be Submitted to the Customs Officer, in-charge of WH within 45 days
Rule 30 (12) - Procedure for procurement from Warehouse [WH] Procurement from Nominated Agency located in SEZ: The procedure will be specified by the Authorised Officer. No requirement of assessment of B/E or transfer of the goods under the cover of ex-bond Shipping Bill.
Chapter IV – Terms and Conditions subject to which Entrepreneur and Developer shall be entitled to Exemptions, Drawback and Concessions Rule 30 (13) - Procurement from International Exhibition: Procedure for procurement from international exhibition held in India will be the same as in case of procurement from Warehouse. Rule 30 (14) – Procurement from an EOU/EHTP/ STP/BTP unit: Procedure will be the same as in case of procurement from Warehouse.
Rule 30 (15) - Procedure for procurement from another SEZ unit located in the same SEZ or other SEZ: Step 1: Receiving unit/developer files B/E for home consumption with AO of Customs in SEZ in Quintuplicate (with invoice and packing list) for assessment Step 2: After assessment, goods shall be allowed transfer to the receiving unit/developer under Transshipment permit. Step 3: Additional documents or Bond not required. Transshipment permission will be endorsed on B/E itself Step 4: The supplying unit shall submit the re-warehousing certificate within 45 days to the specified officer of Customs in supplying SEZ, failing of which duty shall be demanded from the Receiving unit or developer
If supplier and receiver both are situated in the same SEZ, no need of following above Steps 1 to 4 and goods will move by making entries into regular Account Books – no need of filing B/E also.
Sales in Domestic Tariff Area [Rule 47] A Unit may sell goods and services including rejects / wastes / scraps / remnants / by-products etc. arising during the manufacturing process in the DTA on payment of Customs duties under Section 30, subject to the following conditions, namely.- (a) For restricted items the DTA importer must have necessary import licence. (b) DTA sale of rejects / scrap / waste / remnants etc. will not be subject to the provisions of the ITC (HS) of Classification of Export and Import Items: However, the Central Government may notify restrictions, as it deems fit. Contd……….
Sales in Domestic Tariff Area [Rule 47] Surplus power generated in a SEZ’s Developer’s Power Plant or Unit’s Captive Power Plant may be transferred to DTA on payment of duty on consumables and raw materials used for generation of power subject to the following conditions, namely: (a) proposal for sale of surplus power will be examined in consultation with the State Electricity Board, wherever considered necessary by DC: However, consultation shall not be required for sale of power within the same SEZ; (b) norms for production of a unit to be approved by the Approval Committee; Contd……….
Sales in Domestic Tariff Area [Rule 47] (c) sale of surplus power to other Unit or Developer in the same or other SEZ or to EOU/EHTP/STP/BTP Unit, without payment of duty; (d) sale of surplus power in DTA is subject to permission from the Specified Officer and the State Government authority; Valuation and assessment of the goods cleared into DTA shall be made in accordance with Customs Act and rules made there under.
Procedure for Sale in Domestic Tariff Area [Rule 48] (1) DTA buyer will file Bill of Entry for home consumption giving therein complete details with invoice and packing list, with the Authorised Officers: The B/E can also be filed by a Unit on the basis of authorization from a DTA buyer. (2) Valuation of the goods and/or services to be done in accordance with provisions of Customs Act and Rules. Provided that where the goods are supplied in DTA by a contract manufacturing Unit on the instructions of an Overseas entity, the Bill of Entry shall be filed by the DTA buyer on the basis of transaction value recorded on the commercial invoice issued by the Overseas entity. Contd……….
Procedure for Sale in Domestic Tariff Area [Rule 48] (3) Where goods procured from DTA by a Unit are supplied back to the DTA, as it is or without substantial processing, such goods shall be treated as re-imported goods and procedure for normal re-import would apply: Provided that in the case where such goods are supplied back to the DTA, as it is, and where the import duty on such goods is ‘Nil” and while procurement of such goods no export benefits were allowed against such goods, the Unit may be allowed to supply back such goods to DTA on the basis of invoice only and filing of Bill of Entry shall not be required.
Thought for the Day… “Watch your thoughts, for they become words. Watch your words, for they become actions. Watch your actions, for they become habits. Watch your habits, for they become character. Watch your character, for it becomes your destiny.” Mahatma Gandhi