1. 21 January 2009SEZ and EOU1 21 January 2009 Essar House, Mahalaxmi By K. R. Choudhary

2. 21 January 2009SEZ and EOU2 Part A Special Economic Zone (SEZ)

3. 21 January 2009SEZ and EOU3 SEZ 1.A designated Duty free enclave, to be treated as foreign territory for trade operations, duties and tariff 2.Conceptualized, intended and implemented as engines for economic growth supported by quality infrastructure and attractive fiscal package - both at Centre and at the State level - with minimum possible regulations 3.The main objectives are: Promotion of exports of goods and services Promotion of investment from domestic and foreign sources Creation of employment opportunities Development of infrastructure facilities

4. 21 January 2009SEZ and EOU4 SEZ ( continued ) 4.SEZ Act and Rules provide for: Simplified procedure for development, operation and maintenance of SEZs, setting up Units and conducting business in SEZ Single window clearance for abovementioned point Single window clearance on matters relating to Central and State government ECB by units up to $500 million a year Freedom to bring in export proceeds without any time-limit SEZ units are allowed to write-off unrealized Exports Bills Simplified compliance procedure and documentation with an emphasis on self-certification

5. 21 January 2009SEZ and EOU5 SEZ ( continued ) 4.SEZ Act and Rules provide for (continued): Apex body ( the 19 member Board for Approval which is drawn from different ministries) The zonal level Approval Committee( headed by the Development Commissioner) The performance of the SEZs are periodically monitored by Approval Committee Units are liable for penal action under provision of FTDR in case of violation of conditions of Approval

6. 21 January 2009SEZ and EOU6 Legal Formalities Development Commissioner will issue a Letter of Approval for setting up the Unit Bond cum legal undertaking in Form-H executed by the Unit and in Form –D by the Developer Bond cum legal undertaking to be jointly accepted by Development Commissioner and the Specified Officer who is the Assistant Commissioner / Deputy Commissioner of Customs posted in the Zone There will be no debit or credit in the Bond account but it will be monitored on a Quarterly / Annual basis

7. 21 January 2009SEZ and EOU7 Direct Tax Benefits For SEZ Unit Various Income Tax benefits are available to SEZ Exemption from Income Tax is available only if an Unit is into international trading / exporting goods manufactured in the SEZ and not simply procuring goods from DTA and exporting them Income Tax benefits under Income Tax Act to Developers for any Block of 10 years in a15 years period Income of Infrastructure Capital Fund / Company from investments in SEZ are exempt from Income Tax 100% FDI is freely allowed in manufacturing sector in SEZ Unit - except for prohibited items

8. 21 January 2009SEZ and EOU8 Indirect Tax Benefits For SEZ Unit 1.A SEZ Unit is entitled for the following Indirect Tax exemptions, as per the provisions of SEZ Act, 2005,from: Payment of any Duty of Customs on goods imported Payment of any Duty of excise on goods brought from DTA Payment of service tax on taxable services rendered to the Unit Payment of Central Sales Tax on purchase of goods from DTA Unit DTA supplies to SEZ Unit Supply of goods by DTA manufacturers to SEZ Units / SEZ Developer are exempted from payment of: Excise Duty Central Sale Tax Local sales Tax

9. 21 January 2009SEZ and EOU9 Direct Import A SEZ Unit may import goods directly into SEZ / through Ports / Airports / Land Customs stations / Internal Container Depots / Foreign post offices / authorized couriers The Unit shall file Bill of Entry for home consumption in quintuplicate specially stamped as “SEZ Cargo” with the Authorized Officer of SEZ The Authorized officer shall register and assign a running annual serial number and assess the Bill of Entry on the basis of transaction value for transshipment. No separate documents / transshipment bond is needed to the filed and the transshipment permission shall be stamped on the fifth copy of the Bill of Entry On arrival of goods in the SEZ, the goods are subjected to the verification by the authorized Officer of the SEZ. Verification of Seal on the Container / truck for full container load and marks and number of packages in other cases shall be carried out. After verification, if details are in order, consignments shall be allowed inside the SEZ

10. 21 January 2009SEZ and EOU10 Procurement Procedure (Same SEZ / Other SEZ) The receiving Unit shall file Bill of Entry for home consumption with the authorized officer (in quintuplicate) giving description of the goods along with an invoice and packing list for assessment On the basis of such assessed Bill of Entry, the goods shall be allowed to be transferred to the receiving Unit under transshipment permission stamped on the Bill of Entry itself The receiving Unit shall submit the re-warehousing certificate within 45 days to the specified officer of the supplying Unit, failing which the specified officer of supplying Unit shall write to the specified officer of the receiving Unit to demand Duty from the receiving Unit Where the supplying and receiving Units are located in the same SEZ, the movement of goods is allowed without filing of Bill of Entry and the transactions shall be recorded in the regular books of account of these Units

11. 21 January 2009SEZ and EOU11 Procurement From Warehouse The Unit shall file a Bill of Entry with the specified Officer of the SEZ for assessment and submit the assessed copy to the Customs Officer in charge of the warehouse from where the unit is intending to procure the goods Customs officer in charge of the warehouse shall allow the clearance of the goods from the warehouse to the SEZ unit without payment of Duty based on the ex-bond shipping Bill and on the basis of Bill of Entry duly assessed Re-warehousing certificate by a way of endorsement by the authorized officer on the copy of the ex-bond shipping bill is to be submitted to the Customs officer in charge of warehouse within 45 days from the date of clearance of the goods from the warehouse, failing which the Customs officer in charge of the warehouse shall demand Duty from the supplier

12. 21 January 2009SEZ and EOU12 Domestic Procurement Supplies of goods by DTA manufacturers to SEZ units / SEZ Developer are treated as exports and are eligible for following export benefits as admissible under FTP, subject to the conditions that i) payment should be received in foreign currency and ii) Disclaimer certificate from SEZ Unit / Developer Duty Entitlement Pass Book Scheme (DEPB) Drawback - DTA manufacturers are entitled to get drawback of the Duty of Excise and Customs paid on the inputs when supplies are made to SEZ Unit / Developer Advance Authorizations Export Promotion Capital Goods (EPCG) Authorizations

13. 21 January 2009SEZ and EOU13 Sales In Domestic Tariff Area A Unit may sell goods and services including rejects / wastes / scraps / remnants / by-products arising during the manufacturing process / in connection therewith in the Domestic Tariff Area on payment of Customs Duties. Valuation and assessment of the goods cleared into Domestic Tariff Area shall be made in accordance with Customs Act A Buyer shall file the Bill of Entry for home consumption together with the invoice and packing list with the authorized officer The Bill of Entry for home consumption may also be filed by the Unit on the basis of the authorization from a DTA Buyer

14. 21 January 2009SEZ and EOU14 Sub-contracting A Unit may sub-contract a part / any of its production process to Unit(s) in DTA / SEZ / EOU / EHTP / STP with prior permission of the specified officer which is given on annual basis Permission is not required if both the Units are located in the same SEZ. However, proper accounts of the goods involved in sub-contracting are to be maintained by both the supplying and receiving Units The wastage is permitted as per the norms admissible under the FTP

15. 21 January 2009SEZ and EOU15 Sub-contracting ( continued ) The value of sub-contracted production of a Unit in any financial year shall not exceed the value of goods produced by the Unit within its own premises in the immediately preceding financial year Moulds, jigs, tools fixtures and drawings can be sent to the sub-contractor premises subject to the condition that these shall be brought back to the Unit immediately on expiry of sub-contracting arrangement

16. 21 January 2009SEZ and EOU16 Sub-contracting ( continued ) The Unit removing raw materials, consumables excluding fuel and components imported / domestically procured without any processing for sub-contracting into the DTA area shall file bank guarantee to the specified Officer to cover the Duty forgone on such materials Bank guarantee is not required if the SEZ unit turnover is Rs one crore or above or if the unit is in SEZ for more than a period of two years with an unblemished track record The specified officer or authorized officer may make random checks either at the sub-contractor’s premises / the SEZ gate for the purpose of verification of goods sent and received

17. 21 January 2009SEZ and EOU17 Sub-contracting ( continued ) The goods sent for sub-contracting shall be returned to the Unit within 120 days from the date of removal. Wherever material is not received within 120 days, the Unit has to apply for extension with the specified officer providing the reason for same who shall grant extension after recording the reason In case of failure by the Unit to bring back the goods after sub-contracting within 120 days or within the extension, the specified officer shall take action to recover the Duty on the goods taken for sub-contracting

18. 21 January 2009SEZ and EOU18 Export From SEZ SEZ can export through seaports / airports / Inland Container Depot / Container Freight Station / Land Customs Station / Post / Courier / Personal Carriage as under: The Unit shall file Shipping Bill (in quadruplicate) with the Authorized Officer of Customs in the SEZ together with relevant documents as in invoice, packing list and Currency Declaration Form (GR) - in duplicate The goods shall not be subjected to routine examination and ‘Let Export Order’ shall be given on the basis of self certification by the Unit Goods may be sealed after examination, as per the norms prescribed for free shipping bills - at the option of the Unit - by the Authorized Officer

19. 21 January 2009SEZ and EOU19 Export From SEZ ( continued ) If services are exported in a non-physical form, then, the export value is to be furnished by the Unit on self certification basis as per the instructions of the Reserve Bank of India In case of large quantity / size cargos, which can not be exported from SEZ, the export of the same may be allowed under Bond for Differential Duty amount by the specified officer. SEZ Unit shall submit the proof of export within 90 days of removal of such cargo, failing which applicable Duty on the goods (not exported) shall be payable

20. 21 January 2009SEZ and EOU20 Annual Performance Report The Unit shall maintain proper accounts which would clearly indicate in value terms the goods imported / procured from DTA / consumption / utilization / production of goods – including by- -products / waste or scrap / remnants / disposal of goods and balance in stock The Unit shall maintain such records for a period of 7 years from the end of relevant financial years The Unit shall submit Annual Performance Report in the Form I to the Development Commissioner

21. 21 January 2009SEZ and EOU21 Exit Policy An Unit can opt out of the SEZ with the approval of the Development Commissioner and on payment of the appropriate Duties. In case NFE is not fulfilled, the exit may be subject to penalty too Exit from SEZ is allowed to an Unit after 5 years from the date of LOA After the exit, an Unit can opt for EPCG as a one time option

22. 21 January 2009SEZ and EOU22 Part B Export Oriented Unit (EOU)

23. 21 January 2009SEZ and EOU23 Salient Features of EOU 1.These are Customs bonded Units set up under Section 65 of the Customs Act, 1962 but with a much relaxed control and in accordance with the FTP for manufacture of articles of export out of India or for production / packaging / job work for export of goods / services out of India 2.All required inputs and capital goods, indigenous / imported - are made available to these Units free of Customs and Excise Duties under Bond 3.The EOU unit may be engaged in manufacture of goods, including repair, re-engineering and rendering of services. However, Trading Units are not permitted.

24. 21 January 2009SEZ and EOU24 Salient Features of EOU (continued) 4.Raw material, machinery, packing material etc. imported in this zone is brought without Customs Duty in case of imported goods and Excise Duty in case of goods produced indigenously. Machinery can be obtained on lease 5.Second hand Capital goods can be imported without payment of Duty 6. DG sets and captive Power Plants can be procured by status holder EOU unit under intimation to Development Commissioner and jurisdictional Central Excise authority 7.The goods can be brought from Customs port under a transit bond or an insurance policy covering the duty involved. No bank guarantee is necessary

25. 21 January 2009SEZ and EOU25 Salient Features of EOU (continued) 8.Goods can also be procured from a public or private warehouse, where goods are kept without payment of Customs Duty 9.Special CVD of 4% is not payable in case of goods imported by EOU 10. Registration at one port and import can be from other port 11. Anti dumping Duty or Safeguard Duty is not applicable to imports by EOU 12. EOU Unit can procure indigenous material without payment of Excise Duty under CT3

26. 21 January 2009SEZ and EOU26 Salient Features of EOU (continued) 14.If goods cleared under CT3 are not used for intended purpose by the EOU Unit, action for recovery like confiscation of goods, forfeiture of security etc. can be initiated 15. A liberal rate of depreciation at different rates for each quarter without any upper cap has been allowed for de-bonding of Capital goods from the EOU unit, they need pay duty only on the depreciated value. It means zero duty where depreciation comes to 100% 16.The consumption of imported and indigenous goods should be as per SION (Standard Input Output Norms) 17. Scrap / waste / remnants arising out of production (up to 2%) within norms may be sold in DTA as per SION

27. 21 January 2009SEZ and EOU27 SEZ and EOU – A Distinction 1.Supplies to SEZ from DTA are ‘Exports’ while supplies to EOU from DTA are ‘Deemed Exports” 2.SEZ unit has to be located within the specified zones developed, while an EOU unit can be set up at any of over 300 places all over India 3.There is physical control over movement of goods in SEZs, but there is no such physical control over goods to individual EOUs 4.Fast Track Clearance Service (FTCS) for clearance of imported consignment for EOU. In case of SEZ units, Customs clearance for export and import is obtained within the zone itself

28. 21 January 2009SEZ and EOU28 SEZ and EOU – A Distinction (continued) 5. In case of EOUs, sale within India should be on payment of Excise Duty. In certain cases, this is payable only 50 % or 30% of normal Customs Duty payable of such goods if imported into India. In case of supplies from SEZ to DTA, normal Customs Duty as payable on import of similar goods is payable 6. EOU Unit can sell in DTA up to 50% of the FOB value of sales of preceding year - subject to fulfillment of positive NFE and on payment of concessional rate of Duty. There is no such restriction in case of SEZ on percentage, but SEZ have to attain positive NFE

29. 21 January 2009SEZ and EOU29 SEZ and EOU – A Distinction (continued) 7. An EOU can exit (de-bond) with permission of Development Commissioner and on payment of applicable Duties. However, in case of Unit in SEZ, it has to physically go out of SEZ 8. In case of an EOU, Central Sales Tax (CST) paid on purchases is refundable (but not local tax) provided goods are used for production (and not for services). In case of SEZ Unit, the supplier does not have to pay CST 9. Service Tax is exempted in case of services provided in SEZ. In case of an EOU, Service Tax exemption is not available - but refund can be claimed.

30. 21 January 2009SEZ and EOU30 SEZ and EOU – A Distinction (continued) 10. 100% foreign equity is permissible in SEZ. In case of an EOU, restriction of FDI (foreign direct investment) are relatively greater 11.Supplies made to EOU by an Indian Supplier are ‘Deemed Exports’ and he is entitled to benefits of ‘Deemed Exports’ in form of refund of terminal Excise Duty and Duty drawback. 12.Supplies to SEZ are ’Exports’ and all Export benefits i.e. DEPB and Duty drawbacks are available 13.Restriction on External Commercial Borrowing are less in case of SEZ, compared to restriction on EOU