3 Agenda Understanding Policy Organisation The Law Structure of Policy Important Schemes under FTP
4 Agenda Fundamentals of SEZ Tax Incentives SEZ Act, 2005 [important provisions]SEZ Rules, 2006 [important provisions]Concept and Procedure for Setting up of SEZConcept and Procedure for Setting up of SEZ unitSupplies to SEZ by DTA unitSupplies from SEZ to DTA units
6 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 :
7 Understanding PolicyCustoms Act, 1962Customs Tariff Act, 1975Foreign Exchange Management Act, 1999Central Excise Act, 1944Central Excise Tariff Act, 1985Industrial Policy Resolution, 1956.Industries Development and Regulation Act, 1951Laws of Weights and MeasuresAll 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].
8 Ministry of Finance Dept. of Revenue Customs Excise Coverage Validity of imports and exportsExportAssessment and valuationUnder bond – clearance of excisable goods for export under bondDetermination of import /export duty applicableRebate of excise duty post exports where exports have been effected after payment of excise dutyCollection of dutyMonitoring factory stuffed containers in certain casesInspection and supervisionof cargoImportExamining co-relationand compliance with other lawsMonitoring CENVATContd…
9 Governing Acts/Laws/Manual Continued from the previous slideGoverning Acts/Laws/Manual1. Customs Act, 19621. Central Excise Act, 19442. Customs Tariff Act, 19752. Central Excise Tariff Act, 19853. Customs Law Manual3. Central Excise Law ManualTools : i) Notificationsii) Public Noticesiii) Customs Circulariv) General ExemptionNotificationsii) Central Excise Circularsiii) General Exemption
10 Understanding PolicyExport 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.
11 RBI Coverage Monitoring Foreign Exchange Inflow – on account of exports of goods and servicesOutflow – on account of imports of goods and servicesGoverning Acts/Laws/Manual1) Foreign Exchange Management Act 19992) Foreign Exchange ManualTools:Master CircularsFEMA NotificationsA.P. (DIR. Srs.) Circulars
12 In order to understand full implications of Foreign Trade Policy one must get himself familiarized with all the above mentioned departments and their working
14 Export and Trading Houses 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].
15 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 isCategoryPerformance (Rupees in Crores)Export House [EH]20Star Export House [SHE]100Trading House [TH]500Star Trading House [STH]2500Premier Trading House [PTH]10000
16 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……
17 Application Criteria Application can be filed by 31st 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.
18 List of documents for obtaining Status Certificate Application in Aayaat Niryaat Form –ANF 3ASelf 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.
19 Focus Market Scheme [FMS] Export of all products to the notified countries.Entitlement – 2.5% of the FOB value of exports [w.e.f ].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, 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.
20 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…..
21 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
22 FMSk. 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; andm. Primary Steel Products as listed in Public Notice No. 130 (RE2007)/ dated , as amended from time to time.[Note: Sr. nos. l & m have been added by Annual Supplement to FTP]
23 Application CriteriaAn application for exports made during , and 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.
24 Application CriteriaPort 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
25 Application CriteriaApplicants 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 till that have already been realized up toIf the realization is afterAs per Para of HBP Vol. 1 (RE-2008) as amended vide Public Notice No. 64 (RE-2008) dated
26 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/FIRCSelf certified copy of Bill of Entry.
28 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.
29 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.
30 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.
31 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.
32 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 ]
33 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.
34 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.
35 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 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’.
36 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.
37 Common Provisions for Schemes under Promotional Measures Utilization of Duty Credit Scrips under Chapter 3 for payment of duty under EPCG Scheme:From , 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.
38 Important AmendmentsPN No.47 Dtd Amends Para Port of RegistrationPort 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.
39 Important AmendmentsNtfn.No.31 Dtd FMS benefit can be claimed the supporting manufacturer as wellBenefits 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.
41 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 schemeEO 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.
42 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.
43 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……
44 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……
45 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 and PN No. 54/2007 Dtd ].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.
46 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.
47 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.
48 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 benefitsAdvance Authorisation for critical components or raw materials or Deemed Export Drawback.andRefund 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.
49 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
50 Important ProvisionsFulfillment 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 AuthorisationMinimum export obligation to be fulfilledBlock of 1st to 6th year50%Block of 7th and 8th year
51 Important ProvisionsIn 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 AuthorisationMinimum export obligation to be fulfilledBlock of 1st to 10th year50%Block of 11th and 12th year
52 Important ProvisionsConditions for Fulfillment of Export Obligation [EO]:Following exports is to be considered for fulfillment of EOExport 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………
53 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 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………
54 Important ProvisionsUpto 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 of HBP v1.Contd………
55 Important ProvisionsShipments 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………
56 Important ProvisionsRoyalty payments received in freely convertible currency and foreign exchange received for R&D services can be counted for discharge under the EPCG scheme.Contd………
57 Important Provisions Maintenance of Average Export under EPCG: Example:Let us say:Average Exports – Rs. 20 croresDuty saved amount – Rs. 10 croresThe 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…….
58 a) Average Exports X 8 (20 X 8) Contd…….a) Average Exports X 8 (20 X 8)b) 8 times the duty saved amount (10 X 8)Total:Rs. 160 croreRs. 80 croreRs. 240 crore=========To be completed in 8 yearsEvery year you will first discharge average and then the additional EO.For e.g. – please refer following Table.
59 Contd……. Year Average to be maintained Rs. In crore Additional export obligationRs. in croreActual Exports sayTotal exportsOffered towards annual averageOffered towards additional EO1202222553402143010311163515Total120=======44======
60 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:
61 Contd…….YearTotal exports effected by you say[Rs. in crore]Calculations130Average for 4 years (20 X 4) = Rs. 80 crore75% of additional EO = Rs. 60 crore(75% of 80 crore)_____________Total = Rs. 140 crore========23450-----140====If your EO is discharged as above, you can redeem your case in the 5th year itself.
62 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.ORan 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.
63 Important ProvisionsIn 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.
64 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)
65 Important Provisions Monitoring of Export Obligation: Progress report on fulfillment of EO is to be submitted by 30th April every year.Regional authority will issue partial EO Fulfillment Certificate to the extent of EO fulfilled in a particular year.
66 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.
67 Important ProvisionsEnhancement 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.
68 Important Provisions Redemption: As evidence of fulfillment of export obligation, the Authorisation holder will have to furnish the documents as prescribed in ANF 5BPenalty 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.
69 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.
70 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.
71 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.
72 Important AmendmentsPN No. 26 Dtd Para added after Para in HBPv1 [Extension of EOP]Para further amended by PN No. 67 Dtd , 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”.
73 Important AmendmentsPN No.39 Dtd Amends Para Condition for fulfillment of export obligationWhile 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 [If average is inclusive of such exports then request should be made to RA to reduce the same as per this Public Notice.]
74 Important AmendmentsPN No.48 Dtd Corrections in para Monitoring of Export Obligation & para Consideration of ApplicationsProvision relating to online filing of Report on fulfillment of EO stands deleted.
75 Important AmendmentsPol. Cir. No. 06 Dtd Amendment in EPCG Authorization issued from toVery Important Circular. Clarification issued by DGFT that EPCG Authorisations issued between to should be deemed to be issued at 3% Customs duty as per revised FTP announced onIt is also clarified that Customs should allow clearances of 3% provided endorsement of 3% duty saved on such licences is made by Regional Authority [RA].
76 Important AmendmentsPol. Cir.No.16 Dtd Grant of benefits under Promotional Schemes of Chapter 3 and Para 5.4(v) of FTP RE2007, clarificationIt is clarified that for the period of to , 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
77 Important AmendmentsCus Ntfn No. 64 Dtd 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
78 Important AmendmentsCus Ntfn No.65 Dtd 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 , particularly related to port of registrations and conditions/maintenance of export obligation.
79 Application Formats ANF 5A - FORM FOR EPCG AUTHORISATION ANF 5B - Statement of Export/Redemption of EPCG AuthorisationANF 5C - For EO Re-fixation under EPCG SchemeANF 5D - For Clubbing of EPCG Authorisations
80 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 any8. Certificate from a Chartered Engineer in the format given in Appendix 32A certifying:
81 List of Documentsthe 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/orthe 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/orComplete 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.
82 List of Documents9. 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.
83 Corresponding Customs Notification 97/2004-CUSTOMS dated 17th September, related to EPCG scheme where customs duty is 5%64/2008-CUSTOMS dated 9th May, related to New EPCG scheme where customs duty is 3%
85 Export Oriented Units [EOUs] 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.
86 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.
88 ExemptionsIndustrial Licensing for manufacture of items reserved for SSI sectorDirect TaxIndirect TaxState TaxesAs per Section 10A and 10BCBDT Cir. No. 1 DtdExtended uptoCustoms duty on import of raw materials and CG, etcExcise Duty on goods procured from DTAVATStamp Duty-Subject to provisions in the state laws
89 Interest @ 6% on delayed refunds Reimbursement/RefundRefund of CSTand6% on delayed refundsDrawback by way of Brand Rate in case EOU works as Jobworker for DTA exporter
90 Other CENVAT Credit Facility Export proceeds can be realized within 12 Months100% of export earning can be retained in EEFC account100% FDI investment permitted through Automatic RouteExports made by EOUs would also get benefits under VKGUY, FMS, FPS and HTPEPS Schemes provided direct tax benefits are not availed.
91 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 ) are to be considered.When hassle free operations are desired. (Since there is no need of applying for Authorisations like Advance Authorisation etc.)
92 In order to set up EOU, the following formalities are to be carried out: Step-1: Preparation of a detailed project report andLocational clearances.Step-2: Making application for Letter of Intent (LOI) /Letter of Permission (LOP) toDevelopment Commissioner (DC).Step-3: Acceptance of LOP/LOI when granted.Step-4: Execution of Legal Undertaking and attestationof capital goods / inputs and obtaining Green Card.
93 Step-5: Making application for declaration of a place (unit) as warehousing station under Section 9 ofCustoms Act, 1962 (if required), in case the locationis not covered under various notificationsissued by customs for warehousing purpose.Step-6: Application for setting up of private bondedwarehouse for EOU purpose with customs / exciseauthorities as the case may be. (Warehousing licence underSections 58 (for issue of warehouse licence) and Section65 (for manufacture in bond) of Customs Act, 1962.Step-7: Execution of B-17 bond supported bysecurity or Bank Guarantee (BG).Step-8: Registration with the customs authoritiesat the port of import.
94 Important Appendices APPENDIX 14-I-A APPLICATION FOR SETTING UP EOU UNITSAPPENDIX 14-I-CSECTOR SPECIFIC REQUIREMENTS FOR EOU UNITSAPPENDIX 14-I-EFORMAT FOR LETTER OF PERMISSIONAPPENDIX 14-I-FFORM OF LEGAL AGREEMENT FOR EOU UNITSANNEXURE-II TO APPENDIX 14-I-FFORMAT FOR QUARTERLY PROGRESS REPORT FOR THE EOU/ UNITS WHICH ARE UNDER IMPLEMENTATION
95 Important Formats ANNEXURE-III TO APPENDIX 14-I-F FORMAT FOR QUARTERLY REPORT FOR THE WORKING UNITSANNEXURE-IV TO APPENDIX 14-I-FFORMAT FOR ANNUAL PROGRESS REPORT FOR THE WORKING UNITSAPPENDIX 14-I-GGUIDELINES FOR MONITORING THE PERFORMANCE OF EOU/STP/EHTP UNITSAPPENDIX 14-I-HGUIDELINES FOR SALE OF GOODS IN THE DOMESTIC TARIFF AREA (DTA) BY EOU/EHTP/STP/BTP UNITS
96 Important Formats APPENDIX 14-I-I PROCEDURE 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 UNITSAPPENDIX 14-I-MGUIDELINES FOR REVIVAL/EXIT OF SICK EOU UNITS
97 Important Formats APPENDIX 14-I-N PROFORMA FOR EXTENSION OF LOP FOR EXPORT ORIENTED UNITSAPPENDIX 14-I-OGUIDELINES FOR CONVERSION OF DTA UNIT INTO EOU/ EHTP/ STP/ BTP UNIT
98 Important Notifications Customs notifications/circularsNotification No. 52/2003-Cus. dtdExemption 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 servicesNotification No. 20/2006-Cus. dtdAdditional duty in lieu of Sales Tax/VAT – Exemption to specified goodsCustoms Circular No. 19/2007 dtdRe-warehousing of goods imported and/or procured indigenously by EOU/ EHTP/ STP/ BTP units
99 Important Notifications Excise NotificationsNotification No. 22/2003-CE dtdExemption to goods brought into EOU unitsNotification No. 23/2003-CE dtdExemption to DTA Clearances of specified goods produced in EOUCircular No. 851/9/2007-CX Dated 3rd May, 2007Procedure governing the movement of indigenous goods from a factory of manufacture or warehouse to a unit set up under EOU/EHTP/BTP/STP scheme.
101 Deemed ExportsThis 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:
103 Important Provisions Benefits: These benefits are covered under Para 8.3 of Foreign Trade Policy which are as under:Advance Authorisation/Advance Authorisation for Annual Requirement/DFIA.orb) Deemed Exports Drawback.plusc) Exemption from terminal excise duty where supplies are made against International Competitive Bidding. In other cases, refund of Terminal Excise duty will be given.
104 Important ProvisionsAs 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.
105 Important ProvisionsAs 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 (which is commonly known as CT-3 procedure) or when supplies are made to Advance Licence holder under excise notification no. 44 dtdIn 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.
106 Important ProvisionsIn 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.
109 Fundamentals of SEZs Fundamentals of SEZs SEZs (special economic zones) are fundamentally different from the traditional free zones.They are much larger in size; offer broader range of activities such asa 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”.
110 Fundamentals of SEZsWhether the enclave is termed an EPZ, FTZ or SEZ, the cardinal factor is the provision ofappropriate infrastructure and transport facilities,low factor cost,flexible labour laws,a low degree of tariff protection,convertibility of currency,stable legal and administrative regime, anda commitment to the canons of an open economy
111 Fundamentals of SEZs Look at Chinese SEZ-Shenzhen SEZ Total Area of Shenzhen – 1, sq. kmsArea of SEZ square kilometersHarbouring 3.5 million people$30 billion in FDI,3 million employmentEquipped with the state-of-the-art infrastructureEffective port facilities,Simplified procedures,Fully flexible labour policy in terms of hiring and firing.Exports – – US$ 135 bn
115 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 safeFree from corporate and income taxesCompetitive labor, office & warehouse ratesCheaper cost of livingProgressive and fast growing Free ZoneEasy road, sea and air accessThe first port when entering the GulfSignificant growthBeautiful coastline
116 Ras Al Khaimah Free Trade Zone Advantages:100% foreign ownership100% income and corporate tax exemption100% Capital & Profit repatriationLong term renewable leaseStrategic location with access to over 1.2 billion consumersTransparent laws and regulationsPromotion centers in Dubai and Abu Dhabi
117 Ras Al Khaimah Free Trade Zone Simple and fast application proceduresState of the art communication facilitiesExcellent Sea port and International Air port facilitiesEasy international AccessAbundant energy supplyMarketing support services
123 Strategic LocationIt is easily accessible by land, air and sea. Practically half of the world’s container fleet passes by its doorway.
124 Investment Sites & Opportunities The total land area of the Subic Bay Freeport Zone (former U.S. Military Reservation) is about 13, 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
125 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
126 Cost of Doing BusinessInformation on following costs are available on Subic Bay Freeport’s website [http://www.sbma.com]OPERATIONAL COSTSBusiness CostsIndustrial Land CostsOffice Space CostsFactory Building CostsPRODUCTION COSTSManPower CostsUtility CostsElectricity CostsWater CostsTELECOMMUNICATION COSTS:Telephone ChargesCellular Phone Unites ChargesInternet Service Charges
127 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).
128 The new container terminal at the Cubi Point. Around two million cu. m 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.
129 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.
130 Four goose neck-type gantry cranes recently acquired by the SBMA 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.
132 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.
133 Incheon Free Economic Zone [IFEZ] The term “Free Economic Zone” (FEZ) refers to ageographic area designated by the Government of Koreato create a globally competitive business andliving environment that will attract foreign investment andinternational companies, IFEZ was established as Korea’sfirst FEZ in August The Government of Koreafully supports free international business and thestandards of corporate management demanded bytoday’s global market.
134 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 industryYeongjong Island: a hub of international logistics, tourism and leisureCheongna: global entertainment and theme park
135 Information available on Website of IFEZ Investment Guide:IFEZ investment and project development guidelinesPrinciples of Investment PromotionsMethods of Foreign Participation
136 Information available on Website of IFEZ Investment Procedure:For CitizenFor ForeignersInvestment Support:Tax IncentivesForeign investment companies located in the Free Economic ZoneForeign investment companies located in the Foreign Investment ZoneAdministrative Service
137 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]
138 International Business Centre Location: SongdoTotal Size: acresProject Cost: $12.7 bnProject Period:[ first phase]
139 International Business Centre Location: SongdoSize: acresProject Cost: $12.7 bnProject Period:[ first phase]
140 International Financial Complex Location: CheongnaSize: 4,419 acresProject Period:
141 IT, BT and R&D ClusterSize:655 acresProject Period:
143 Leisure Area Project Size: 1739.94 acres Project Period: [ first phase]
144 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
145 Fact Sheet on Indian SEZ No. of Notified SEZs as on – 250 (out of 513)No. of valid formal approvals – 513In-principle approvals – 138Source:
146 SEZs-Area Requirement Area Estimates [approx]Formally approved and notified [FA]626In-principal approvals [IP]1156Total Area for proposed SEZs (FA+IP)1782
147 Fact Sheet on Indian SEZ Total Investment made in notified SEZs (as on 30th June 2008)Rs. 73, CroresEmployment created in notified SEZs (as on )1,00,885 personsEmployment in Govt. SEZs1,99,330 persons
148 Fact Sheet on Indian SEZ Exports from the functioning SEZs during the last three years are as under:YearExports (Rs. crores)Growth Rate of exports13,85439%18,31432%22,84024.71%3461552%6663892%Export projection forRs. 1, 25, 950 Crore
150 Tax IncentivesSec.27 of SEZ Act, 2005 – Provisions of Income Tax Act, 1961 to apply with Certain Modification in Relation to Developers and EntrepreneursThe 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.
151 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 yearsTransferee Developer can claim deduction for balance period of 10 years on Operation & Maintenance income
152 Tax Incentives Direct Tax benefits for Developers MAT/ DDT Minimum Alternative Tax provisions not applicableExemption from Dividend Distribution Tax
153 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
154 Tax Incentiveshundred 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;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).
155 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;
156 Tax IncentivesFor 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.
157 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;
158 Tax IncentivesSection 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),
159 Tax Incentives(iii) it is not formed by the transfer to a new business, of machinery or plant previously used for any purposeExplanation: 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:
160 Tax IncentivesExplanation 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.
161 Tax IncentivesExplanation 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.
162 Tax Incentives Direct Tax benefits for Units MAT/ Capital gains Minimum Alternative Tax provisions not applicableCapital gain tax exemption on relocation to SEZTDSNo deduction of tax at source by OBU on interest on deposits / borrowings from non–resident or person not ordinarily resident.
163 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 reinvestmentUnits 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
164 Tax Incentives Indirect Tax Exemption from payment of Import dutyExemption from payment of Excise dutyExemption from payment of CST on purchase from DTAExemption from Service taxExemption from Local Taxes: As per State Govt.’s SEZ Policy.
166 Model State SEZ ActThe 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.
167 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.
168 Model State SEZ ActIn 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.
169 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 likePublic transportation facilitiesPower supplyWater supplyAdequate drains, drainage facilities and public latrines, water-closets, urinals and similar conveniences
170 Model State SEZ ActFacilities for the collection and treatment of sewerageCollection and management of municipal Solid WasteLighting of public streets, municipal markets and other buildings vested in the AuthorityMaintenance 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 dispensariesAmbulance servicePlaces for the disposal of the dead and disposing of unclaimed dead bodiesPublic markets, slaughter housesSchools for primary, secondary and higher education
171 Model State SEZ Act Maternity and infant welfare houses and centers Public parks, gardens, playgrounds and recreational facilitiesMaintaining 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.
172 Model State SEZ ActNaming 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.
173 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-
174 Model State SEZ Act Purchase Tax Specified Sales (Lease Tax) in respect of lease of goodsStamp DutyRegistration TaxSales TaxOctroiTurnover TaxAny other tax, cess, duty of levies notified by the GovernmentThe procedure for obtaining above benefits shall be as prescribed by Regulation.
175 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
176 Model State SEZ ActNotwithstanding 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.
178 SEZ Act, 2005 Passed by Parliament in May 2005 Received Presidential assent on 23rd June 05Came into effect on 10th Feb 06 supported by the SEZ Rules
179 SEZ Act, 2005The 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.
180 Important Sections of SEZ Act, 2005 SEZ ACT, 2005 containsEight Chapters58 SectionThree schedules
181 Chapter I-Preliminary Sec.1 – Short title, extent and commencementIt 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….
182 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….
183 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;
184 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’]
185 Chapter II-Establishment of Special Economic Zone Sec.7 - Exemption from taxes, duties or cessAny 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….
186 Chapter IV – Development Commissioner Sec.11 – Development CommissionerCentral Govt. may appointDevelopment Commissioner [DC]Assistants to DCSec.12 – Functions of Development CommissionerMajor functions of DC prescribed herein this Act are as under:
187 Chapter IV – Development Commissioner Guidance toEntrepreneursforestablishmentof SEZPromotionof Exportsfrom SEZDischarge offunctionsassigned bythe BOACo-ordinationwith C. Govt &St. Govt.Discharge offunctionsassigned bythe C. Govt.MonitoringPerformance ofSEZDeveloper/Unit
188 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…….
189 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; andperform such other functions as may be entrusted to it by the Central Government or the State Government concerned, as the case may be.
190 Chapter V – Single Window Clearance Sec.15 - Setting up of Unit[covered under ‘Procedure for setting up of SEZ unit’]
191 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…….
192 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…….
193 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…….
194 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…….
195 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).
196 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 EntrepreneursAlready covered in the section ‘Tax Incentives’.
197 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.
198 Chapter VIII – Miscellaneous Sec.50 – Power of State Government to Grant ExemptionThe 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.
199 Chapter VIII – Miscellaneous Sec.53 – Special Economic Zones to be Ports, Airports, Inland Container Depots, Land Stations etc. in certain casesA 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:
200 Schedules to the SEZ Act, 2005 THE FIRST SCHEDULE(See sections 7 and 54)Enactments1. 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……….
201 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).
202 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
204 Chapter-I-Preliminary Rule 1 - Short title and commencementRule 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……….
205 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;
206 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 , Notification No. S.O 393 Dtd and Notification Dtd ]i. Minimum area requirement – 1000 hectares or more but not exceeding 5000 hectaresii. 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 moreAt least 50% of the area should be earmarked for developing the processing area.
207 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 and Notification No. S.O 393 Dtd ]SEZ for a Specific Sector or for one or more services or in a port or airport100 hectares or moreProvided at least 50% of the area is to be earmarked for developing processing area;Except -Contd……….
208 Chapter II–Procedure for Establishment of Special Economic Zone 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 territory50 hectares or moreProvided at least 50% of the area is to be earmarked for developing processing area;Contd……….
209 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 ]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 areaContd……….
210 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-productProvided 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.
211 Chapter II–Procedure for Establishment of Special Economic Zone Rule 5 (2) – Requirements for establishment of a Special Economic ZoneIn Rule 5, Clause (d) added vide Notification No. S.O 393 Dtd , 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……….
212 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……….
213 Chapter II–Procedure for Establishment of Special Economic Zone (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;Contd……….
214 Chapter II–Procedure for Establishment of Special Economic Zone (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;Contd……….
215 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.
216 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 ]
217 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 SEZContents of Rule 17 to 19 are covered under Procedure for setting up of SEZ unitRule 20 – Administrative Control of Special Economic ZonesEvery SEZ will be under the administrative control of a DC.
220 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.
221 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.
222 Models for setting up SEZ Central Govt./ State Govt./State Govt. AgencyMulti-Product+Private Sector
223 Models for setting up SEZ Public Sector+Multi-ProductState Govt. Agency+Private Sector
224 Models for setting up SEZ Multi-ProductPublic Sector Alone
225 Models for setting up SEZ State Govt. AgencySectorSpecific+Private Sector PlayersFew players may have majority stakes
226 Models for setting up SEZ Consortium ofMajorIndustrialPlayersSectorSpecific
227 Models for setting up SEZ One Major Industrial HouseSectorSpecific+Other Small Houses
228 Models for setting up SEZ Stand Alone –One Single Industrial HouseSectorSpecific
229 Models for setting up SEZ IndustrialHouseFree Trade &WarehousingZones+LogisticsCompany
230 Models for setting up SEZ Consortium ofLogisticsCompaniesFree Trade &WarehousingZones
231 Models for setting up SEZ Free Trade &WarehousingZonesConsortiumof
232 Models for setting up SEZ Consortium ofPvt. Sector Companieswith or withoutGovernmentAgenciesIT / ITES/G&J / BTEtc.
233 Models for setting up SEZ IT / ITESOne or MoreIT / ITES companies
234 Models for setting up SEZ IT / ITES/G&J / BTEtc.Stand Alone –One Single Company
235 Primary objectivesCreation 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.
236 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 ( ), projected investments of over US$ 320 billion at 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].
237 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.
238 ConclusionIn 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.
240 Relevant references SEZ Act, 2005 : Section 3 to 6 SEZ Rules, 2006: Rule 3 to 16
241 Important points to be considered for making Application Who are eligible to establish SEZ?Central Government,State Government,Any PersonEligible Activities.Manufacture of goods orRendering services orFor both orAs a Free Trade and Warehousing Zone [FTWZ]
242 Net worth and investment criteria Category of SEZMinimum Net worth Criteria[Rs. In crores]Minimum Investment criteriaMulti-Product SEZs2501000Sector-specific SEZs50IT SEZs100-Source: ET, Dtd
243 Important points to be considered for making Application Whom to approach for making Application?Two options are availableOption 1-to the State Govt.Option 2-directly to the Board of Approval.Approving AuthorityBoard of ApprovalChairperson – Secretary, Ministry of Commerce.Representatives from other relevant ministries.Development Commissioner.State Representative.
244 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 ApplicationIdentified Area and steps taken for acquisitionProcessing / Non- processing AreaFinancial Strength and ProjectionsSource/ application of fundsProposed activities in both the AreasMulti-product or Single productForeign Direct Investment (FDI)
245 Important points to be considered for making Application Checklist as inserted vide Notification No. S.O. 393 Dtd(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……….
246 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……….
247 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?"
248 Procedure for setting up of SEZ Step-1After identifying the area proposal can be made to1. State Government[St. Govt.]2. Directly to theBoard of Approval [BOA]On receipt of the proposal1. St. Govt. should ensure whether all requirements as per Rule 5 are being complied with or not2. After that it forwards the proposal, with its recommendations, to the BOA, within 45 days.Proposal can be made to Board of Approval, after approval by the Board concurrence of the State Government to be acquired within 6 monthsContd…..
249 BOA may approve, modify or reject the proposal as under: Step-2BOA may approve, modify or reject the proposal as under:If APPROVEDBOA will communicatesuch approval tothe Central Govt.If MODIFIED1. BOA willcommunicate suchmodifications to theapplicant2. If modifications areaccepted by theapplicant, the BOAshall communicateapproval of proposalto the Central Govt.If REJECTEDBOA will record thereasons of rejectionand communicateto the Central Govt.Central Govt. willcommunicate to theapplicantContd…..
250 Central Govt. after receiving communication from BOA, shall Step-3Central Govt. after receiving communication from BOA, shallgrant the Letter of Approval [LOA] within 30 days of theCommunication received from BOA as under.Formal Approval inFORM-BIn the cases wherethe land is in thepossessionof the Developer.[validity – 3 yrs forimplementation ofProposalExtension- 2 yrs]Formal Approval inFORM-CFor providinginfrastructuralfacilitiesin the SEZ.[validity – 3 yrs forimplementation ofProposalExtension- 2 yrs]In-principle approvalinFORM-B1[validity – 1 yr –withinWhich Developer shallsubmit suitableproposal for formalapproval in Form-AExtension- 2 yrs]
251 The Developer has to furnish to the Central Government, Step-4The Developer has to furnish to the Central Government,the particulars of the identified area, with proof oflegal right and possession and a certificate from theState Government or the authorized agency thatthe 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 vacantand it shall have no public thoroughfare.
252 Notification of SEZ by Central Govt. [Rule 8]: Step-5Notification of SEZ by Central Govt. [Rule 8]:Central Govt. after satisfying that all the requirements arefulfilled, shall notify the identified area in the state as a SEZStep-6Grant of approval for Authorised Operations [Rule 9]:The Developer can submit to the Board the details ofoperations proposed to be undertaken in the SEZ for obtainingauthorization at the time of seeking approvalfor setting up of SEZ or thereafter.Board may authorize the Developer to undertake suchOperations in SEZ, as may be authorised by Central Govt.
253 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 contractorProvided 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.
254 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 and Notification No. S.O. 393 DtdThe 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) aboveContd……….
255 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……….
256 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……….
257 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……….
258 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……….
259 After getting approval for authorised operations, SEZ Developer has to make an Applicationfor import/procurement from DTA,to the DC, along with List of goods and services,including machinery, equipments and construction materialsrequired for the authorized operations, duly certified by aChartered Engineer for approval by the Approval Committee.Declaration of the place of storage of goodswithin the SEZ to the Specified OfficerThe goods imported or procured from the DTA by the Developerare to be kept in a clearly demarcated area forinspection by the authorized officer before suchgoods are brought into use.
260 Execution of a Bond-cum-Legal Undertaking in Form D, jointly with the Development Commissionerand Specified Officer, with regard to proper accountaland utilization of goods for the authorized operationswithin a period of one year.Maintenance of proper account of the import or procurement,Consumption and utilization of goods and submitquarterly and half-yearly returns to theDevelopment Commissioner in Form E
261 The Developer has to submit a half-yearly certificate for the period ending 31st March and 30th September of everyfinancial year regarding utilization of goods from anindependent Chartered Engineer,to the DC and Specified Officer and every certificateunder this sub-rule shall be filed within30 days of the period specified, as the case may be.The Developer shall not remove goods from the SEZ tothe DTA except with the permission ofthe Specified Officer and on payment ofduty applicable on such goods.
262 Concept & Procedure for setting up of SEZ Unit
264 Concept 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.
266 Relevant references SEZ Act, 2005 : Section 15 and 16 SEZ Rules, 2006: Rule 17 to 19
267 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;
268 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.
269 Procedure for setting up of SEZ Unit Application to DC in Form F, in 5 copies,with a copy to the DeveloperDC after scrutinizing the proposal shallsubmit the same to the Approval CommitteeThe Approval Committee may approve orapprove with modification or rejectthe proposal within 15 day of its receiptContd…….
270 In case of modification or rejection, the Approval Committee should afford an opportunity of being heard to the applicant, andafter recording the reasons, either modify or reject the proposal.DC by order shall communicate suchmodification or rejection of proposalto the applicantThe Approval Committee shall approve theProposal on following grounds:Contd…….
271 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 ApprovalUndertaking to fulfill the environmental and pollution control norms,Submitting proof of residence,Submitting Income tax returns, etc.Contd…….
272 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 inForm G for setting up of the SEZ Unit.
273 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 yearsNet Foreign Exchange Earning [NFEE] for the first five years of operations andOther terms and conditions, if any, stipulated by the Board or Approval Committee.Contd…..
274 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 yearsSecond 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…..
275 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.
276 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:
278 Procurementwithin India[Rule 30]From DTA unit[Sub-Rule1 to 11]InternationalExhibitionheld in India[Sub-Rule 13]OtherSEZ Unit[Sub-Rule 15](1)(3)(5)BondedWarehouse[Sub-Rule 12]ProcurementFrom EOU/STP/EHTP/BTP[Sub-Rule 14](2)(4)
279 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.
280 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.ProcedureStep 1:Execution of Bond/LUT as applicable in case of normal exports
281 DTA unit will clear the goods from its premises: Step 2:DTA unit will clear the goods from its premises:Where export benefitsare not availedWhere export benefitsare availedOn the basis of ARE-1Clearance will beon the basis of1. ARE-1,2. Bill of Exports
282 Before arrival of goods, Authorised Officer [AO] Contd………Step 3:Before arrival of goods, Authorised Officer [AO]assesses the ARE-1 and/or Bill of Exports, as perthe instructions, procedures, including examinationnorms applicable to export goods.It is mandatory at this stage to check whether goodsare required for authorised operations by the SEZ unitor SEZ Developer with reference to the Letter ofApproval [LOA].
283 On arrival of goods from DTA to SEZ Gate, Contd………Step 4:On arrival of goods from DTA to SEZ Gate,Authorised Officer will examine the goodsin respect of particulars given in the ARE-1, invoice,Bill of Export and packing list and also as perthe examination norms laid down in respect ofexport goods in cases where the goods are beingprocured under claim of an export entitlement.
284 ARE-1 and/or Bill of Exports, as endorsed by AO is Contd………Step 5:ARE-1 and/or Bill of Exports, as endorsed by AO istreated as ‘proof of export’.After the goods are admitted in the SEZ, the copy ofsuch ARE-1 and/or Bill of Export is to be submittedto the Juris. Central Excise Officer ofDTA supplier, within 45 days.
285 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.
286 Rule 30 (12) - Procedure for procurement from Warehouse [WH] SEZ unit/developerfiles B/E withAuthorised Officer [AO]SEZ unit/developersubmits B/E assessedby the AO to the CustomsOfficer in-charge of the WHRe-warehousing certificateby way of endorsementby the AO on the copy ofex-bond Shipping Bill is to beSubmitted to the CustomsOfficer, in-charge of WH within45 daysCustoms Officer will allowclearance of the goods fromthe WH for supply to SEZunit/developer withoutpayment of duty on thecover of ex-bond ShippingBill and assessed B/E.
287 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.
288 Rule 30 (13) - Procurement from International Exhibition: Chapter IV – Terms and Conditions subject to which Entrepreneur and Developer shall be entitled to Exemptions, Drawback and ConcessionsRule 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.
289 Rule 30 (15) - Procedure for procurement from another SEZ unit located in the same SEZ or other SEZ: Step 1:Receiving unit/developer filesB/E for home consumptionwith AO of Customs in SEZ inQuintuplicate (with invoiceand packing list) for assessmentStep 2:After assessment, goodsshall be allowed transfer tothe receiving unit/developerunder Transshipment permit.Step 4:The supplying unit shall submitthe re-warehousing certificatewithin 45 days to the specifiedofficer of Customs in supplyingSEZ, failing of which duty shallbe demanded from theReceiving unit or developerStep 3:Additional documents orBond not required.Transshipment permissionwill be endorsed on B/E itself
290 If supplier and receiver both are situated in the same SEZ, no need of following above Steps 1 to 4 and goods willmove by making entries into regular Account Books– no need of filing B/E also.
292 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……….
293 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……….
294 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.
295 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……….
296 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.
297 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
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