eous. export oriented units [eous] units undertaking to export their entire production of goods and...

EOUsEOUs

Export Oriented Units [EOUs]Export Oriented Units [EOUs]

Units undertaking to export their entire production of goods and services (except permissible sales in the DTA), may be set up under the Export Oriented Unit (EOU) Scheme, for manufacture of goods, including repair, re-making, reconditioning, re-engineering and rendering of services. Trading units, however, are not covered under these schemes.

Benefits of EOUs Benefits of EOUs

Exports – all goods and services except prohibited items under ITC (HS)

Duty free import/procurement of Raw materialsCapital goodsSecond hand capital goods without age limit

Except items prohibited under ITC (HS)

An EOU can, on the basis of a firm contract between the parties, source the capital goods from a domestic/foreign leasing company without payment of customs/excise duties.


The EOU units can sell in the DTA up to 50% of FOB value of exports registered by them in the preceding year. DTA sale includes sale of waste, rejects and finished products together.

An EOU can export goods manufactured/software developed by it through a merchant exporter/status holder recognized under this Policy or any other EOU/EHTP/STP/BTP/SEZ unit.

Inter-unit transfer is allowed.

State trading regime does not apply to EOU manufacturing units.

EOUs operate under system of no licence. Hence, there is no need of making separate application for Advance Authorisations, which ultimately results into hassle free operations.


Exemption from payment of Income Tax as per the provisions of Section 10A and 10B of Income Tax Act.

Exemption from industrial licensing for manufacture of items reserved for SSI sector.

Export proceeds will be realized within 12 Months.


100% retention of export earning in the EEFC account.

The Units will not be required to furnish bank guarantee at the time of import or going for job work in DTA, where the unit has (i) a turnover of Rupees 5 crores or above, (ii) the unit is in existence for at least three years and (iii) unit having an unblemished track record.

100% FDI investment permitted through Automatic Route similar to SEZ units.


Existing DTA units, can apply for conversion into an EOU unit, and Income Tax benefits under Section 10B will be available under the scheme for plant, machinery and equipment already installed.

EOUs can export goods for holding exhibitions abroad with the permission of Development Commissioner.

EOUs can export goods for display/sale in permitted shops set up abroad in the showroom of their distributors / agents. They can also set up showrooms / retail outlets at the international airports for sale of goods.


Goods including free samples, can be exported/imported by airfreight or through Foreign Post Office or through courier, subject to the procedure prescribed by Customs. EOUs on prior intimation to customs can also supply or sell samples in DTA for display/market promotion on payment of applicable duties.

FOB value of export of an EOU unit can be clubbed, with FOB value of export of a parent company in DTA for the purposes of Star Export House Status.

EOU units, other than service units, can export to Russian Federation in Indian Rupees against repayment of State Credit/Escrow Rupee Account of the buyer subject to RBI clearance, if any.


Procurement and export of spares/components upto 1.5% of the FOB value of exports may be allowed to the same consignee/buyer of the export article within the warranty period.

DTA SaleDTA Sale

DTA [Domestic Tariff Area] sales are permitted to the extent of 50% of physical exports in value terms. The DTA sales are permitted primarily to tide over the following difficulties / situations:

At the initial stage during trial production, the goods produced may not be export-worthy. Such goods need to be disposed off as otherwise inventory will rise substantially.By-products and rejects are also required to be disposed off.

DTA SaleDTA Sale

By granting permission to selling in DTA, limited market access is given to EOU for selling the goods in home market. This is to tide over the difficulties arising out of weak demand.DTA sales also amount to an incentive as the raw materials required for DTA sales are allowed to be imported without payment of customs duty. Similarly, finished products when sold in DTA attract concessional duties.

DTA SaleDTA Sale

Provisions for DTA Sale:Subject to payment of concessional duties and fulfillment of positive Net Foreign Exchange [NFE].

Goods sold in DTA shall be similar to the goods exported or expected to be exported.

Sale to Private Bonded Warehouses for which payment is received from EEFC account shall be taken into account for arriving at the FOB value of the exports.

DTA SaleDTA Sale

Provisions for DTA Sale:The DTA sale entitlement is determined in relation to the FOB value of Exports and not Deemed Exports.

Sales to SEZ are included for calculating the FOB value of exports if the payment is made from the foreign exchange account.

Goods sold in DTA shall be subject to all prohibitions / regulations as applied in respect of goods imported into the country.

Sale to DTA would be subject to mandatory requirement of registration of pharmaceutical products (including bulk drugs).

DTA Sale DTA Sale

An EOU may sell in the DTA goods upto 50% of the FOB value of exports subject to

fulfilment of positive NFE and

on payment of concessional duties.

DTA Sale DTA Sale Sale of Reject in DTA:

Permitted if rejects are not prohibited in LOP.Within an overall limit of 50%.On payment of applicable duties.Prior intimation to the Customs Authorities.Counted against DTA Sale entitlement.Sale of rejects upto 5% of the FOB value of exports will not be subject to achievement of NFE.

DTA Sale DTA Sale Sale of Scrap/waste/remnants into DTA:

Sale of scrap/waste/remnants allowed as per SION/Ad-hoc norms-fixed by Development Commissioner.On the payment of concessional duties.Within an overall ceiling of 50% of FOB value of exports.Not subject to achievement of positive NFE.Sale of waste/scrap/remnants by units not entitled to DTA sale or sales beyond the DTA sale entitlement, shall be on payment of full duties. The scrap/waste/remnants may also be exported.There shall be no duties/taxes on scrap/waste/remnants in case the same are destroyed with the permission of Customs authorities.

DTA Sale DTA Sale Sale By-products into DTA:

By-products must be included in the LOP.Subject to achievement of positive NFE.On payment of applicable duties within the overall entitlement.Sale of by-products by units not entitled to DTA sales or beyond the DTA sale entitlements can also be permissible on payment of full duties.

EOU units may sell finished products, which are freely importable under the Policy in the DTA under intimation to the Development Commissioner against payment of full duties provided they have achieved the positive NFE.

DTA Sale DTA Sale

In case of DTA sale of goods manufactured by EOU, where basic duty and CVD is nil, such goods may be considered as non-excisable for the purpose of payment of duty.

In case of new EOUs, advance DTA sale will be allowed not exceeding 50% of its estimated exports for the first year except the pharmaceutical units where this will be based on its estimated exports for the first two years.

Calculation of Duty in case of DTA Calculation of Duty in case of DTA SalesSalesAssessable Value 100.00 (A)

Basic Custom Duty @ 25% of 12.5% 3.13 (B)

103.13 (C )

CVD (Excise Duty) @ 16% 16.50 (D)

Education Cess @ 2% on CVD 0.33 (E)

Excise Duty Payable (D+E) 16.83 (F)

Custom (B+D+E) 19.96 (G)

Education Cess @ 2% 0.40 (H)

Total Customs duty including cess (G+H) 20.36 (I)

Add: Customs duty @4% (SAD) 4.81 note

Grand total of Customs duty 25.17 (J)

Calculation of Duty in case of DTA Calculation of Duty in case of DTA SalesSales

This (SAD) duty will be applicable in case of Sales Tax/Vat Exemption

Total duty 20.36

Cenvat (%) 16.83

Net duty Excluding Cenvat (%) 3.53

Note:

Local Procurement under EOULocal Procurement under EOU

EOUs are allowed to source the materials, capital goods etc. from local supplier.

The procedure to be followed is laid down in Excise Notification 22/2003-CE Dtd. 31.03.2003.

EOU Unit will have to obtain CT-3 to procure excise duty free materials from DTA.

The local supplier will get Deemed Export Benefits

Important Notifications Important Notifications

Notification No. 52/2003-Cus. dtd. 31.03.2003Exemption to specified goods imported or procure from Public/Private warehouse or from International exhibitions held in India by EOU for production or packaging or job work for export of goods and services

Notification No. 22/2006-Cus. dtd. 01.03.200Additional duty in lieu of Sales Tax/VAT – Exemption to specified goods

Important Notifications Important Notifications

Notification No. 22/2003-CE dtd. 31.03.2003

Exemption to goods brought into EOU units

Notification No. 23/2003-CE dtd. 31.03.2003Exemption to DTA Clearances of specified goods produced in EOU

Deemed Exports Deemed Exports


This is a special facility provided for supplies of indigenous products which can be consumed ultimately in the production of goods to be exported. The conditions are that supplied goods as it is do not leave the country but get consumed in the process of manufacture, payment for which is received in Indian Rupees or in foreign exchange.

The categories eligible for deemed exports benefits are given in Para 8.2 of Foreign Trade Policy which are listed here below:


(a) Supply of goods against Advance Authorisation/Advance Authorization for Annual Requirement/DFRC/DFIA;

(b) Supply of goods to Export Oriented Units (EOUs) or Software Technology Parks (STPs) or Electronic Hardware Technology Parks (EHTPs) or Bio Technology Parks (BTP);

Deemed ExportsDeemed Exports

Benefits for Deemed Exports:

(a)Supply of goods against Advance Authorisation/ Advance Authorization for Annual Requirement/ DFRC/ DFIA.

(b)Deemed Export Drawback.

(c) Exemption from terminal excise duty where supplies are made against International Competitive Bidding. In other cases, refund of terminal excise duty will be given.

Benefits [Category wise]Benefits [Category wise]Category Benefits

Para 8.2 (a) [Advance Authorisation/ Advance Authorization for Annual Requirement/ DFRC/ DFIA]Supplies made to

i) Advance Authorisation

ii) ARO/Back to Back Letter of Credit issued against Advance Authorisation

iii) ARO/Back to Back Letter of Credit issued against DFRC

Advance Authorisation for Intermediate Supplies

Deemed export drawback and Refund of Terminal Excise Duty whichever is applicable.

Deemed export drawback

Benefits [Category wise]Benefits [Category wise]Category Benefits

Para 8.2 (b) [Supply of goods to Export Oriented Units (EOUs) or Software Technology Parks (STPs) or Electronic Hardware Technology Parks (EHTPs) or Bio Technology Parks (BTP)]

Advance Authorisation for Deemed ExportsOr Deemed export drawbackOr Refund of Terminal Excise Duty

[However exporter can either claim exemption or refund. They cannot claim both]

In case of EOUs, exemption from payment of terminal excise duty is available against CT-3 certificate issued by EOU unit in favour of deemed exporter. This equally applies to EHTPs/STPs and BTPs.

AgendaAgenda

Fundamentals of SEZHighlights of SEZ Act, 2005Highlights of SEZ Rules, 2006Procedure for setting up of SEZ Procedure for Establishment of a SEZ unit Recipe for SEZs

Fundamentals of SEZsFundamentals of SEZs

Fundamentals of SEZsSEZs (special economic zones) are fundamentally different from the traditional free zones.They are much larger in size; offer broader range of activities such as

a single-window management, streamlined procedures, and 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”.


Whether the enclave is termed an EPZ, FTZ or SEZ, the cardinal factor is the provision of

appropriate infrastructure and transport facilities, low factor cost, flexible labour laws, a low degree of tariff protection, convertibility of currency, stable legal and administrative regime, and a commitment to the canons of an open economy


Look at Chinese SEZ-Shenzhen SEZArea – 320 sq.km.Harbouring 3.5 million people Export volume in 2004 of $77.85 billion (about 23.6% of overall Chinese exports), $30 billion in FDI, 3 million employment Equipped with the state-of-the-art infrastructure Effective port facilities, Simplified procedures, Fully flexible labour policy in terms of hiring and firing.


Look at Jebel Ali Free Trade Zone in Dubai

Area - 100 sq kmHome to over 1,600 companies from 85 countries Triggered the economy and development of Dubai

Let us now study about Indian Let us now study about Indian SEZ Recent developments…..SEZ Recent developments…..

Highlights of SEZ Act, 2005Highlights of SEZ Act, 2005THE SEZ ACT HAS 8 CHAPTERS AND 3 SCHEDULES:Chapter 1: Title, definition etc.Chapter 2: Establishment of SEZ.Chapter 3: Constitution of Board of ApprovalsChapter 4: Development CommissionerChapter 5: Single Window Clearance Chapter 6: Special Fiscal Provisions for SEZsChapter 7: Special Economic Zone AuthorityChapter 8: Miscellaneous

The First Schedule: List 21 Acts, Tax duties or Cess under these enactments are not applicable to SEZs. [The list is given in the next slide]

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

Highlights of SEZ Act, 2005Highlights of SEZ Act, 2005THE FIRST SCHEDULE

(See sections 7 and 54)Enactments

1. The Agricultural Produce Cess Act, 1940 (27 of 1940).2. The Coffee Act, 1942 (7 of 1942).3. The Mica Mines Labour Welfare Fund Act, 1946 (22 of 1946).4. The Rubber Act, 1947 (24 of 1947).5. The Tea Act, 1953 (29 of 1953).6. The Salt Cess Act, 1953 (49 of 1953).7. The Medicinal and Toilet Preparations (Excise Duties) Act, 1955

(16 of 1955).8. The Additional Duties of Excise (Goods of Special Importance)

Act, 1957 (58 of 1957).9. The Sugar (Regulation of Production) Act, 1961 (55 of 1961).

Contd……….

Highlights of SEZ Act, 2005Highlights of SEZ Act, 200510.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).

Highlights of SEZ Act, 2005Highlights of SEZ Act, 2005

DEFINITIONSComprehensive definitions relating to SEZ incorporated.A SEZ is deemed to be a territory outside the custom territory of India for the purpose of undertaking the authorized operations.A new concept of co-developer recognition.Definition of manufacturing specifically incorporated.Definition of Services includes all tradable services as are covered under the General Agreement on Trade & Services.Free Trade & Warehousing Zones has been defined as Special Economic Zones for trading and warehousing and is thus a part of SEZ act.Concept of International Financial Services Centre introduced


ESTABLISHMENT OF SEZsA SEZ can be established either jointly or severally by the Central Govt.,State Govt. or any person for manufacture of goods or rendering services or for both or as a FTWZ.Any person who intends to set up can make a proposal to the State Govt. concerned which in turns sends the proposal to Board of Approval.First time the option has been given to the developers to make a proposal directly to Board of Approval [BoA] also.Central Govt. can set up the SEZ suo-moto after consulting the State Govt. concerned.Central Govt. may prescribe the minimum area of land


EXEMPTIONS FROM TAXES, DUTIES OR CESSAny goods or services exported out of or imported into or procured from the DTA by:

a unit in SEZ: ora developer

shall be exempt from payment of taxes, duties or Cessunder all enactments specified in the First Schedule.

First Schedule includes 21 enactments.

This list includes The Agriculture Produce Cess Act, The Coffee Act, The Rubber Act, The Tea Act, The Mica Act, The Textile Committee Act, The MPEDA Act, The Agriculture & Processed Food Export Cess Act, The Spices Act etc.

Highlights of SEZ Act, 2005Highlights of SEZ Act, 2005SPECIAL PROVISION FOR SEZs

Duty free goods for development of SEZs as well as for SEZ Units.Supply from DTA to SEZ treated as physical export.Exemption from Service tax.Exemption from CST.Exemption from Income Tax to SEZ units for 15 years (5+5+5)Existing SEZ Unit to get Income tax exemption for the balance period. No Income Tax exemption if 10 years IT benefit already availed.IT exemption extended to export of services which would include trading as well.SEZ developers given IT exemption for 10 consecutive assessment years out first 15 years of its operations.OBU entitled for IT exemption for 10 years (5+5).

Contd…..


SPECIAL PROVISION FOR SEZsUnit of an International Financial Service Centre entitled for IT exemption for a period of 10 years (5+5).For the purpose of IT exemption manufacture shall have the same meaning as assigned in the SEZ Act.Exemption from Capital gains in case of transfer of undertaking from an urban / rural area to SEZ.Sale in the DTA on payment of full applicable duty.Exemption from MAT to SEZ Developers and SEZ Units.SEZ Units and Developers exempted from Dividend Distribution Tax.Exemption of interest Income of NRI in respect of deposits in OBUs


SPECIAL ECONOMIC ZONE AUTHORITYCentral Govt. shall constitute for every SEZ set up by the Central Govt. a SEZ Authority.Every authority shall be a body corporate to acquire, hold and dispose of property, both movable and immovable.SEZ Authority to take measure for the development of infrastructure in the SEZ, promotes exports from the SEZ, levy user or service charges or fees or rents etc.

Highlights of SEZ Rules, 2006Highlights of SEZ Rules, 2006

The SEZ Act, 2005 was enacted by the Government of India in June 2005. For making SEZ Act operational, draft SEZ Rules were prepared by Ministry of Commerce and the same were circulated to all member units. A large number of suggestions received from members on these draft rules were considered by the Ministry of Commerce. Now SEZ Rules have been announced and SEZ Act along with SEZ Rules have become operational from 10th February 2006. SEZ Act and SEZ Rules are available on the website www.sezindia.nic.in. In the SEZ Rules, certain changes have been affected for simplifying the procedures further.

Some of these provisions which are different from the existing provisions/practices are as follows:-

Highlights of SEZ Rules, 2006Highlights of SEZ Rules, 2006Rule 5(2) laid down the minimum area requirement for development of SEZ as under:-

a) Multi-product SEZ 1000 hectare

b) Service SEZ 100 hectare

c) Sector specific/port x-udd/ 100 hectareairport based SEZexcept the following:-

(a) Electronic Hardware & 10 hectare + built up Software processing area of one lakh information technology square meters.enabled services(b) Bio-technology, 10 hectarenon-conventional energy solar energy equipments/cell, or gem & jewellery sectors

Highlights of SEZ Rules, 2006Highlights of SEZ Rules, 2006Rule 5(2) laid down the minimum are requirement for development of SEZ as under:-

d) SEZ for Free Trade 40 hectare + built up area Warehousing Zone of not less than

one lakh square meters.

e) specified States (Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttranchal, Sikkim, Jammu and Kashmir, Goa or in a Union Territory.(i) Multi Product SEZ 200 hectare(ii) Sector Specific SEZ 50 hectare

The area required shall be contiguous area. However, in respect of multi product SEZ Rule 5(2)(a) has made a proviso that the fulfillment of the requirement of the contiguous area shall be considered and decided by the Board on a case to case basis on merits.


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)(a) has sought a commitment from the state Government for providing 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.

Rule 11(sub Rule 11) – SEZ shall be deemed to be a port, airport, inland container depot, land customs station etc. In case these facilities are to be used for cargo meant for DTA units as well, storage for such cargo shall be in a separate enclosure.

Highlights of SEZ Rules, 2006Highlights of SEZ Rules, 2006Rule 12 – The procedure for import and procurement of goods by the Developer is given in Rule 12. The developer is required to execute bond-cum-legal undertaking jointly with the Development Commissioner and specified officer. Goods are to be utilized by the developer within a period of 1 year.

Rule 18(4) – no proposal shall be considered for recycling of plastic scrap or waste provided that extension of Letter of Approval for a existing unit shall be decided by the Board.

Rule 18(5) – all transaction by a unit in FTWZ shall only be in convertible foreign currency.

Rule 19(7) – If an entrepreneur is operating both as a DTA unit as well as a SEZ unit, it shall have 2 distinct identities with separate books of accounts, but it shall not be necessary for the SEZ unit to be a separate legal entity.


Rule 22(iv)(d) – There shall be no debit and credit. The Bond-cum-Legal Undertaking amount shall be monitored quarterly for the Developer and yearly for the SEZ units based on QPR or APR respectively. In case of any shortfall in Bond-cum-Legal Undertaking amount, a fresh or additional Bond-cum-Legal Undertaking shall be furnished.

Rule 27(3) – Import of duty free material for setting up of social and commercial infrastructure in non-processing area is permitted but import of no duty free material shall be permitted for operation and maintenance of such facility.


Rule 39(1) – Destruction of goods within the SEZ has been allowed after advance intimation to the specified officer. Hence physical presence of the specified officer is not required. However, if destruction is to be carried out outside the SEZ then it can be carried out with the permission of the specified officer and in the presence of the authorized officer as per Rule 39(2).

Rule 46(6)(viii) – Personal carriage of spare parts by foreign bound passenger has been allowed now. The procedure for personal carriage of goods by authorized passengers is given in Rule 46(6)(ix) and the procedure for personal carriage of gems & jewellery is given in Rule 46(6)(x).

Highlights of SEZ Rules, 2006Highlights of SEZ Rules, 2006Rule 53 – Significant changes have been carried out in Rule 53 for discharge of NFE. These are as follows:-a) Rule 53(k) provides that service rendered by the Service unit in the DTA and paid for in free foreign exchange or such services rendered in Indian rupees which are otherwise considered as having been paid for in free foreign exchange by RBI shall be counted for NFE.

b) Rule 53(n) provides that supplies of goods to DTA against payment in foreign exchange from the EEFC account of the DTA buyer or free foreign exchange received from overseas shall be counted for NFE. Hence SEZ Rules have accepted a major demand of the SEZ units.

c) Rule 53(o) provides that supply of goods against free foreign exchange by a FTWZ unit shall be counted for NFE.


Chapter 7 prescribes a procedure for appeal against the rejection of the Unit Approval Committee. This entire procedure is a new addition to the SEZ Scheme.

Rule 75 – Rule 75 is a omnibus clause and provides as follows:-

“Self Declaration.- Unless otherwise specified in these rules all inward or outward movement of goods into or from the Zone by the Unit or Developer shall be based on self declaration made and no routine examination of these goods shall be made unless specific orders of the Development Commissioner or the Specified Officer are obtained.”

This is a very important provision for the operation of the entire SEZ Scheme.


Rule 76 – Rule 76 provides the list of services which are permissible under SEZ. This list of the services include specifically “TradingR!” also. As per Section 10AA of the SEZ Act as given in the Second Schedule of the Act, income tax exemption is available for export of goods manufactured or article produced or for providing any service. The list of the services permissible is given in Rule 76.

Hence Rule 76 brings about a significant change for encouraging export of services from SEZ.

The operationalization of the SEZ Act and formulation of the SEZ Rules considerable simplification in procedures would be affected and SEZ as an instrument for export promotion would play a significant role in employment generation, creation of infrastructure and increasing exports in the times to come.

Procedure for setting up of Procedure for setting up of SEZSEZ[Incorporating provisions of SEZ Act, 2005 and SEZ Rules,

2006]

Who can make the Application for setting up of SEZ?A Special Economic Zone may be established under this Act, either jointly or severally by ;

the Central Government, State Government, or any person for manufacture of goods or rendering services or for both or as a Free Trade and Warehousing Zone.

[Refer section 3, sub-section (1) of SEZ Act, 2005]

Procedure for setting up of Procedure for setting up of SEZSEZ

Where to apply for setting up of SEZ?

A). In case of Any Personi) Concerned State Government. The State Government then forwards the proposal with its recommendations to the Board of Approval within 45 days of receipt of such proposal Or ii) Directly to the Board of Approval [Board]. However, in this case after receipt of approval from Board, applicant has to obtain the concurrence of the State Government within the six month from the date of such approval

B). In case of State Government i) The Board of Approval [Board][Refer section 3, sub-section (2), (3), (4), (6) of SEZ Act, 2005 and Rule 4, sub-rule (1) of SEZ Rules, 2006]


Forms – The application is to be made in Form-A.

[Refer section 3, sub-section (5) of SEZ Act, 2005 and Rule 3 of SEZ Rules, 2006]


Procedure After receiving the proposal from a person or state government, the Board will approve the proposal subject to such terms and conditions as it may deem fit to impose, or modify or reject the proposal.

[Refer Section 3, sub-section (7), (8), (9), (10) of SEZ Act, 2005, Rule 6 of SEZ Rules, 2006]


Co-developer: Any person who, or a State Government which, intends to provide any infrastructure facilities in the identified area, or undertake any authorised operation may, after entering into an agreement with the Developer, make a proposal for the same to the Board for its approval. The procedure to get approval of the Board and to get Letter of Approval by the Central Government will be the same of that of the Developer.Hence, Co-Developer is a person or state government as stated above and whose proposal has been approved by the Board and granted letter of approval by the Central Government shall be considered as co-developer of the SEZ.

[Refer section 3, sub section (11), (12) of SEZ Act, 2005]


Notification of SEZ:The developer after getting letter of approval will submit the exact particulars of the identified area with proof of legal right and possession and a certificate from the state government or authorized agency that the identified area is free from all encumbrances to the Central Government. However, in case developer has lease hold right over the identified area, the lease shall be for a period not less than twenty years.

The central government may after satisfying the following requirements notify the specifically identified area in the State as a Special Economic Zone


Guidelines for notifying SEZ by Central GovernmentThe Central Government, while notifying any area as a Special Economic Zone or an additional area to be included in the Special Economic Zone and discharging its functions under this Act, shall be guided by the following, namely:-(a) generation of additional economic activity(b) promotion of exports of goods and services;(c) promotion of investment from domestic and foreign sources;(d) creation of employment opportunities;(e) development of infrastructure facilities; andf) maintenance of sovereignty and integrity of India, the security of the State and friendly relations with foreign States.

[Refer Section 5 of SEZ Act, 2005]


Processing and non-processing areas.The areas falling within the Special Economic Zones may be demarcated by the Central Government or any authority specified by it as-(a) the processing area for setting up Units for activities, being the manufacture of goods, or rendering services; or

(b) the area exclusively for trading or warehousing purposes; or

Cond…….


Processing and non-processing areas.(c) the non-processing areas for activities other than those specified under clause (a) or clause (b). [The Developer may allot the land in the non-processing area for business and social purposes such as educational institutions, hospitals, hotels, recreation and entertainment facilities, residential and business complexes: Provided that infrastructure for business or social purposes in the Special Economic Zone, as may be approved by the Board, shall be eligible for exemptions, concessions and drawback.]

[Refer Section 6 of SEZ Act, 2005 and Rule 11, sub Rule (10) of SEZ Rules, 2006]


Exemption from taxes, duties or cess.

Any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area by, -(i) a Unit in a Special Economic Zone; or(ii) a Developer;shall, subject to such terms, conditions and limitations, as may be prescribed, be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule.

[Refer Section 7 of SEZ Act, 2005]


Import and procurement of goods by the Developer.- (1) The Developer may import or procure goods from the Domestic Tariff Area, without payment of duty, taxes and cess for the authorized operations.

[Refer Rule 12 of SEZ Rules, 2006]

Procedure for Establishment Procedure for Establishment of SEZ Unitof SEZ Unit

Proposal for approval of UnitConsolidated application in Form F is to be made to the Development Commissioner in five Copies with a copy to Developer with the following.

a) Setting up of unit in Special Economic Zoneb) Annual permission for Sub Contractingc) Allotment copy of Importer Exporter Coded) Allotment copy of Land/Industrial Sheds in SEZe) Water Connection – approval from the local authority f) Allotment of Registration Cum Membership Certificateg) Small Scale Industrial registration


Proposal for approval of Unit

h) Registration with Central Pollution Control Boardi) Power connection from State Electric Authorityj) Approved Plan layout (Building)k) Sales tax registration certificatel) Approval from inspectorate of factoriesm) Pollution control clearance, wherever requiredn) Any other approvals required from the Central Government

Development Commissioner scrutinizes the proposal and get it place before the Approval Committee for consideration.The proposals received under clauses (c) and (e) of sub-section (2) of section 9 shall be placed before the Board by the Development Commissioner for its consideration.


Proposal for approval of UnitClauses (c ) and (e) of sub-section (2) of section 9 of SEZ Act 2005:(c) granting of approval to the Developers or Units (other than the Developers or the Units which are exempt from obtaining approval under any law or by the Central Government) for foreign collaborations and foreign direct investments, (including investments by a person resident outside India), in the Special Economic Zone for its development, operation and maintenance;

Contd………..


Proposal for approval of Unit(e) granting, notwithstanding anything contained in the Industries (Development and Regulation) Act, 1951, a licence to an industrial undertaking referred to in clause (d) of section 3 of that Act, if such undertaking is established, as a whole or part thereof, or proposed to be established, in a Special Economic Zone;




Consideration of proposals for setting up of Unit in a Special Economic ZoneWithin 15 days of the receipt of the application, the approval Committee shall approve or approve with modification or reject the proposal.


Proposal for approval of UnitUnits may also be setup for providing services or manufacturing services to Overseas Entities subject to following conditions, namely:- (a) Capital goods, raw materials including consumables sub-assemblies, components, semi-finished goods shall be supplied by the Overseas Entity free of cost;

(b) Capital goods for setting up such facilities may also be supplied on loan or lease basis, provided the notional value of such capital goods shall be taken into account for calculation of Net Foreign Exchange Earnings under rule 53.

Contd…….



(c) finished goods shall be exported out of the country or transferred to the Customs Bonded Warehouse to be maintained by the Overseas entity; Provided that any supplies of finished goods shall be as per the instructions of the Overseas entity.

(d) the Unit shall receive the consideration for its manufacturing services in convertible foreign exchange directly from the said overseas entity;

Contd………..



(e) in case the said manufacturing facility is used by the Unit for carrying out production on its own account, separate accounts shall be maintained for the manufacturing and service activity.

Explanation: - “Overseas Entity” means a non-resident or a person of foreign origin and includes a company not incorporated in India.


Procedure for procurement from Procedure for procurement from DTADTA

Procedure for Procurement from DTA is covered under Rule 30 of the SEZ Rules 2006;

The following points are noteworthy:a) It is similar to physical exports except in place of ‘Shipping bill’, one has to use ‘Bill of export’;

b) The procedure provides for supplies by manufacturers as well as merchants;

c) Drawback & DEPB are allowed only against payment made by SEZ unit from its Foreign Currency Account.

Contd…..

Procedure for procurement from Procedure for procurement from DTADTA

Procedure for Procurement from DTA is covered under Rule 13;

d) Sub rule(12) covers procedure for procurement from Warehouse;

e) Sub rule(13) covers procedure for procurement from International Exhibitions held in India;

f) Sub rule(14) covers procedure for procurement from EOU/STPI/BTP;

g) Sub rule(15) covers procedure for procurement from Units located in same or other SEZ;

Recipe for SEZ Recipe for SEZ

Inspite of all these provisions, in order to make any SEZ successful, the following should be borne in mind.

Government support particularly for creation of infrastructure and utilitiesCapacity to attract FDI Proximity to portFlexible labour lawsAttitude towards establishment of Greenfield SEZs particularly that of State Government and Removal of all related bottlenecks including the bottleneck due to mindset.

Recipe for SEZRecipe for SEZ

Another point to remember is that SEZs are medium to long terms projects. Mere approvals cannot guarantee the operationalisation within short period say 18 months or so.

One should not totally depend on governmental support, industry also has to participate whole heartedly.

List of List of Important Important Customs Customs NotificationsNotifications

List of Important Customs List of Important Customs NotificationsNotifications

Sl. No.

Notification No.and date

Subject Refers to which Export Promotion

Scheme

(1) 43/2002-CUSTOMS, dated 19th April, 2002.

Customs exemption Notification on Advance Licences of EXIM Policy 2002-2007

Advance Licences

(2) 45/2002-CUSTOMS, dated 22nd April, 2002.

Customs exemption notification for DEPB

DEPB


Customs Exemption Notification for DFRC of EXIM Policy 2002-2007

DFRC



Exemption to materials imported for manufacture of final goods under Advance Licence for Deemed Exports

Advance Licence for Deemed Exports

(5) 53/2003-CUSTOMS, dated 1st April, 2003

Exempts goods when imported into India against a duty free entitlement credit certificate

Duty Free Entitlement Credit Certificate [DFCE]


(6) 55/2003-CUSTOMS, dated 1st April, 2003.

EPCG - Additional duty and special additional duty leviable

EPCG

(7) 56/2003-CUSTOMS. dated 1st April, 2003.

Exempts materials imported into India against an Advance License for Annual Requirement

Annual Advance Licence

(8) 90/2004-CUSTOMS dated 10th September, 2004.

Duty Free Replenishment Certificate or Duty Free Replenishment Certificate for Intermediate Supply

DFRC



Exempts materials against Advance Licence for deemed export

Advance Licence for Deemed Exports


Materials Against an Advance Licence

Advance Licence



Materials Against an Advance Licence for Annual Requirement

Annual Advance Licence


Export Promotion Capital Goods Scheme – Customs Duty Exemption Notification

EPCG

(13) 32/2005-CUSTOMS dated 8th April, 2005.

Exempts goods when imported into India against a duty credit certificate issued under the Target Plus Scheme

Target Plus Scheme

List of Important Customs List of Important Customs NotificationsNotifications(14) 96/2004-

CUSTOMS dated 17th September, 2004

Duty Entitlement Pass Book – Customs Duty Exemption Notification

DEPB

(15) 89/2005-CUSTOMS dated 4th October, 2005.

Duty Entitlement Pass Book (DEPB) - extended upto 31st day of December, 2005

DEPB


(16) 40/2006-CUSTOMS dated 1st May, 2006

Duty free import authorisation – duty exemption

DFIA

List of Important List of Important Excise Notifications Excise Notifications

List of Important Excise NotificationsList of Important Excise Notifications

Excise RebateNotification No. 19/2004 CE (NT) Dtd. 06.09.2004 and Notification No. 20/2004 CE (NT) Dtd. 06.09.2004 [Rebate of duty on export of goods-Procedure]

Notification No. 21/2004 CE (NT) Dtd. 06.09.2004 [Rebate of duty on material used in the processing or manufacture of export goods-Procedure]

Excise BondNotification No. 42/2001 CE (N.T.) Dtd. 26.06.2001 [Export under bond of all excisable goods except to Nepal and Bhutan-procedure]

Notification No. 43/2001 CE (N.T.) Dtd. 26.06.2001 [Export under bond-procurement of excisable goods without payment of duty for use in manufacture of export goods-procedure]

List of Important Excise NotificationsList of Important Excise Notifications

Excise BondNotification No. 44/2001 CE (N.T.) Dtd. 26.06.2001 [Export under Bond-Removal of intermediate goods without payment of duty, for manufacture and export by holder of DEEC and Advance Licence-Procedures]Notification No. 45/2001 CE (N.T.) Dtd. 26.06.2001 [Export under bond to Nepal or Bhutan-Procedure]

Warehousing Notification No. 46/2001 CE (N.T.), Dtd. 26.06.2001 [Warehousing of goods for export]Notification No. 17/2004 CE (N.T.), Dtd. 04.09.2004 [Warehousing-removal of specified excisable goods from factory to warehouse to another warehouse without payment of duty]

eous. export oriented units [eous] units undertaking to export their entire production of goods and...

Documents

benefits of eous goods

eous slide

eou units

sale of goods

benefits of eous exemption

manufacture of goods

retention of export

export proceeds