Professional Documents
Culture Documents
5
The SEZ Rules provide for different minimum land requirement for
different class of SEZs. Every SEZ is divided into a processing area where
alone the SEZ units would come up and the non-processing area where the
supporting infrastructure is to be created.
A SEZ unit can be set up anywhere in India after fulfilling the following
requirements.
Step-by-Step Procedure
6
Notwithstanding anything contained in sub-section (2), any person,
who intends to set up a Special Economic Zone, may, after identifying the
area, at his option, make a proposal directly to the Board for the purpose of
setting up the Special Economic Zone:
7
The terms and conditions, subject to which the Developer shall
undertake the authorized operations and his obligations and entitlements.
Provided that different minimum are of land and other terms and
conditions referred to in clause (a) may be prescribed by the Central
Government for a class or classes of Special Economic Zones.
If the Board, -
Provided that the Central Government may, on the basis of approval of the
Board, approve more than one Developer in a Special Economic Zone in
cases where one Developer does not have in his possession the minimum
area of contiguous land, as may be prescribed, for setting up a Special
Economic Zone and in such cases, each Developer shall be considered as a
Developer in respect of the land in his possession.
8
Any person who, or a State Government which, intends to provide any
infrastructure facilities in the identified area referred to in sub-section (2)
to (4), or undertake any authorized operation may, after entering into an
agreement with the Developer referred to in sub-section (10), make a
proposal for the same to the Board for its approval and the provisions of
sub-section (5) and sub-sections (7) to (10) shall, as far as may be, apply to
the said proposal made by such person or State Government.
Documents Submission
Following necessary document are required before making the final
proposal for the SEZ units-
9
Status of the promoter (whether private/public or joint sector/ NRIs or
state government)
Project report
Area of the proposed SEZ and its distance from the nearest Sea
Port/Airport/Rail/Road head etc.
Financial details and mode of financing the project and viability of the
project.
Whether the zone will allow only certain specific industries or will be
a multi-product zone.
10
State Government Approval
The State Government shall, forward it along with their commitment to the
following to the Department of Commerce, Government of India:
That the area proposed under Special Economic Zone shall be free
from any environmental restrictions;
Exemption from State Sales Tax, octroi, mandi tax, turnover tax and
taxes, duty, Cess, levies on supply of goods from Domestic Tariff Area to
SEZ units;
11
All powers under Industrial Dispute Act, 1947 shall be delegated to
Development Commissioner.
Section 11(1) of Special Economic Zones Act, 2005 provides that "the
Central Government may appoint any of its officers not below the rank of
Deputy Secretary to the Government of India as the Development
Commissioner of one or more Special Economic Zones"
Government of India after considering the above proposals may grant in-
principle approval for setting up of SEZs. The in-principle approval shall
be valid for a period of one year. However, this validity period may be
extended by the Department of Commerce, as it may thinks fit.
According to Section 3(7) of Special economic Zones Act, 2005, the Board
of Approval may accept, modify or reject the proposal depending upon
various circumstances. In case of acceptance, approval is valid for a period
of 3 years within which time effective steps shall be taken by the developer
to implement the project. Although, this time period can be extended the
Department of Commerce depending upon various circumstances.
12
(7) Joint Secretary, Ministry of Science and Member
Technology
(8) Joint Secretary, Ministry of Small Scale Member
Industries and Agro and Rural Industries
(9) Joint Secretary, Ministry of Home Member
Affairs
(10) Joint Secretary, Ministry of Defence Member
(11) Joint Secretary, Ministry of Member
Environment and Forests
(12) Joint Secretary, Ministry of Law and Member
Justice
(13) Joint Secretary, Ministry of Overseas Member
Indian Affairs
(14) Joint Secretary, Ministry of Urban Member
Development
(15) A nominee of the State Government Member
concerned
(16) Director General of Foreign Trade or his Member
nominee
(17) Development Commissioner concerned Member
(18) A professor in the Indian Institute of Member
Management or the Indian Institute of
Foreign Trade
(19) Director or Deputy Sectary, Ministry of Member Secretary
Commerce and Industry, Department of
Commerce
13
electricity, etc required for the establishment of SEZ units. The State
Government has to forward the proposal with its recommendation within
45 days from the date of receipt of such proposal to the Board of Approval.
The applicant also has the option to submit the proposal directly to the
Board of Approval. Representative of the State Government, who is a
member of the Inter-Ministerial Committee on private SEZ, is also
consulted while considering the proposal.
Administrative set up
14
Considering the need to enhance foreign investment and promote exports
from the country, the Government of India has introduced various types of
special incentives and benefits to SEZ units, which are as follows-
Income Tax
15
April 1, 2005 will be eligible for a deduction of 100 percent of export
profits for the first five years from the year in which such manufacture/
provision of services commences and 50 percent of the export profits for
the next five years. Further, for the next five years a deduction shall be
allowed of up to 50 percent of the profit as is debited to the profit and loss
account and credited to the Special Economic Zone Reinvestment Reserve
Account (subject to conditions).
16
Machinery or plant is purchased for the purposes of business of
industrial undertaking in SEZ by the assessee.
Tax holiday for SEZ developers- A new section 80-IAB has been
introduced in the IT Act vide SEZ Act, 2005 whereby a deduction of 100
percent of profits derived from the business of developing SEZ (notified on
or after April 1, 2005) would be available to developer of SEZ for any 10
consecutive years out of 15 years beginning from the year in which SEZ
has been notified.
17
qualifying for tax holiday under section 80-IAB of the IT Act. However,
this exemption has been withdrawn with effect from assessment year 2007-
08.
18
Setting up of OBUs allowed in SEZs.
OBUS are entitled for 100% income tax exemption for 3 years and
50% for next 2 years.
Service Tax
Exemption from service tax to SEZ units.
19
Sales to DTA
All exports from the DTA to the Zone shall be exempt from state and
local body taxes or levies as (In some states, exports made to educational
institutions, hospitals, hotels, residential and / or commercial complexes,
leisure and entertainment facilities or any other facilities as may be notified
by the state government are not exempt).
20
Exemption from Central Sales Tax (CST) on supply of goods from the
DTA for development, operation and maintenance of SEZs.
21
With respect to each Special Economic Zone all such transactions
between the Zones or within the Zone or both, including the transactions of
land acquisition for development of the Zone between the developer or co-
developer and land owners and land transactions between the developers or
co-developers and the units, carried out after declaration of the Zone by the
Government of India, shall be exempt from the following State taxes, cess
and levies namely:
Stamp duty for the first transaction between the Developer or co-
developer and the land-owner and the first transaction between the
Developer or co-developer and the Units
Registration fee for the first transaction between the Developer or co-
developer and the land-owner and the first transaction between the
Developer or co-developer and the Units
22
Works Contract tax
Company Act
23
Enhanced limit of INR 2.4 crores per annum is allowed for managerial
remuneration.
24
Labour Laws
Normal Labour Laws are applicable to SEZs, which are enforced by the
respective State Governments. However, State Governments have been
requested to simplify the procedures / returns and for introduction of a
single window clearance mechanism by delegating appropriate powers to
Development Commissioners of SEZ.
Consequent upon the SEZ Rules coming into effect w.e.f. 10th
February 2006, Twenty-eight meetings of the Board of Approvals have
since been held. During these meetings, formal approval has been
granted to 531 SEZ proposals. There are 143 valid in-principle
approvals. Out of the 531 formal approvals, 260 SEZs have been
notified.
25
Out of the 531 formal approvals given till date, 174 approvals are for
sector specific and multi product SEZs for manufacture of Textiles &
Apparels, Leather Footwear, Automobile components, Engineering etc..
which would involve labour intensive manufacturing. SEZs are going to
lead to creation of employment for large number of unemployed rural
youth. Nokia and Flextronics electronics hardware SEZs in Sriperumbudur
are already providing employment to 14577 and 1058 persons. Hyderabad
Gems SEZ for Jewellery manufacturing in Hyderabad has already
employed 2145 persons. Majority of who are from landless families, after
providing training to them. They have a projected direct employment for
about 2267 persons. Apache SEZ being set up in Andhra Pradesh will
employ 20, 000 persons to manufacture 10,00,000 pairs of shoes every
month. Current employment in Apache SEZ is 5536 persons. Brandix
Apparels, a Sri Lankan FDI project would provide employment to 60,000
workers over a period of 3 years. Even in the services sector, 12.5 million
sq meters space is expected in the IT/ITES SEZs, which as per the
NASSCOM standards translates into 12.5 lacks jobs. It is, therefore,
expected that establishment of SEZs would lead to fast growth of labour
intensive manufacturing and services in the country.
Benefits derived from SEZs
Benefit derived from SEZs is evident from the investment, employment,
exports and infrastructural developments additionally generated. The
benefits derived from multiplier effect of the investments and additional
economic activity in the SEZs and the employment generated thus will far
outweigh the tax exemptions and the losses on account of land acquisition.
Stability in fiscal concession is absolutely essential to ensure credibility of
Government intensions.
26
Year Value (Rs. Crore) Growth Rate (over
previous year)
2003-2004 13,854 39%
2004-2005 18,314 32%
2005-2006 22 840 25%
2006-2007 34,615 52%
2007-2008 66,638 92%
At present, 1943 units are in operation in the SEZs. In the SEZs established
prior to the Act coming into force, there are 1143 units providing direct
employment to over 1.97 lakh persons; about 37% of who are women.
Private investment by entrepreneurs in these SEZs established prior to the
SEZ Act is of the order of over Rs. 5626.24 Crore.
27
India and abroad, which is evident from the list of Developers who have
set up SEZs:
Nokia SEZ in Tamil Nadu
Quark City SEZ in Chandigarh
Flextronics SEZ in Tamil Nadu
Mahindra World City in Tamil Nadu
Motorola, DELL and Foxconn
Apache SEZ (Adidas Group) in Andhra Pradesh
Divvy's Laboratories, Andhra Pradesh
Rajiv Gandhi Technology Park, Chandigarh
ETL Infrastructure IT SEZ, Chennai
Hyderabad Gems Limited, Hyderabad
28
The SEZ should have a minimum area of 1000 hectares and
at least 35 % of the area is to be earmarked for developing industrial area
for setting up of processing units.
Key Issues
29
Offshore Banking Unit & International Financial Services Centre.
Setting up of offshore banking units / International Financial Services
Centre in SEZs.
30
responsible for exercising administrative control over a zone. The labour
commissioner’s powers are also delegated to the DC. Finally, clause 23
requires that designated courts will be set up by the state governments to
try all suits of a civil nature and notified offences committed in the SEZs.
Affected parties may appeal to high courts against the orders of the
designated courts.
100 per cent income tax exemption for 10 years in a block period of
15 years for SEZ developers.
31
The public private participation in infrastructure development.
There has been a tremendous rush to set up SEZs since the Act came
into effect in February 2006. The total number of approvals and in-
principle approvals across 21 states as on October 27, 2006, was 212 and
152, respectively. As on date, 34 SEZs out of these approvals have been
notified. Table 1 shows the current status of the upcoming SEZs.
Advantages
15 year corporate tax holiday on export profit – 100% for initial 5
years, 50% for the next 5 years and up to 50% for the balance 5 years
equivalent to profits ploughed back for investment.
32
Exemption from customs duty on import of capital goods, raw
materials, consumables, spares, etc.
The SEZ unit is permitted to realize and repatriate to India the full
export value of goods or software within a period of twelve months from
the date of export.
33
No routine examinations by Customs officials of export and import
cargo.
OBUs allowed 100% income tax exemption on profit earned for three
years and 50 % for next two years.
The Government has exempted SEZ Units from the payment of stamp
duty and registration fees on the lease/license of plots.
Enhanced limit of Rs. 2.40 crores per annum allowed for managerial
remuneration.
34
Disadvantages
Revenue losses because of the various tax exemptions and incentives.
Many traders are interested in SEZ, so that they can acquire at cheap
rates and create a land bank for themselves.
SEZ Controversy
Land, especially agricultural land is a very sensitive issue in India. There
are millions of people whose livelihood depends on agricultural land. But
the introduction of SEZ in India has resulted in the dispossession of
agricultural land and has affected the livelihood of farmer at large. In
against of this, farmers first protested to safeguard their interests through
litigation and court cases challenging the establishment of SEZs. But later
on, the resistance against SEZ in India became massive when political
parties also joined the farmers.
Jamnagar Incidence
35
agricultural land in the villages of the district not only violated the Land
Acquisition Act of 1894, but was also in breach of the public interest. This
led the Government to “consider” putting a ceiling on the maximum land
area that can be acquired for multi-product zones and decide to “go slow”
in approving SEZs.
Nandigram Violence
In 2007 the West Bengal government decided to allow Salim Group to set
up a chemical hub at Nandigram under the SEZ policy. Farmers of that
village were against it. So, on the order of the Left Front government on 14
March 2007, more than 3,000 heavily armed police stormed the
Nandigram area. The main objective was to remove the protestors in order
to expropriate 10,000 acres of land for a Special Economic Zone (SEZ) to
be developed by the Indonesian-based Salim Group. During this incidence,
police shot dead at least 14 villagers and wounded 70 more including
children and women.
The above given examples show the controversies associated with SEZs.
No doubts that these commercial hubs started with a lot of premature
praise and have now became a bone of contention which is readily
exploited by the political forces to the detriment of the peasants, who fear
losing their means of livelihood.
36
EXPORT PROJECTION FROM SPECIAL
ECONOMIC ZONES FOR THE YEAR 2008-09:
Central govt. SEZs
Total 42898
37
State Govt./Private Special Economic Zones established
prior to SEZ Act
9. Moradabad 30
38
Total export projection from SEZs
39
sports goods
Ceramics 24 24
Food and 645.58 645.58
Agro Industry
Non- 126.01 126.01
conventional
Energy
Trading and 14073.22 6793.75 20866.97
service
Textiles and 1135.69 101.16 79.76 1316.61
garments
Tobacco 9.5 8.98 18.48
related
products
Misc. 314.66 103.23 431.59 849.48
40
Pharmaceutic
als
Plastic and 179.37 213.85 393.22
rubber
Handicraft 6.49 6.49
Leather and 168.47 168.47
sports goods
Ceramics 22.78 22.78
Food and 573.08 573.08
Agro Industry
Misc. 4667 34.89 4701.89
Tobacco 3.17 3.17
Biotech 33.4
Trading and 699.92 1670.24 2370.16
service
Total 25358.45 9134.502 34614.592
Aviation/Aerospace 1 2
IT/ITES/Electronic
341 11 181
Hardware/Semiconductor
Textiles/Apparel/Wool 20 13 10
Pharma/chemicals 22 2 14
Multi-Product 23 53 12
Building product/material 1 2
Bio-tech 26 1 9
Engineering 23 10 14
41
Multi-Services/Services 16 11 5
Metallurgical Engineering 1
Electronic prod/ind 3 4 3
Energy related
Footwear/Leather 7 2 4
Power/alternate energy 4 1 2
FTWZ 7 8 1
Metal/Stain.
8 4 3
Steel/Alum/Foundry
Food Processing 4 2 3
Non-Conventional Energy 4 1
Plasting processing 1
Handicrafts 4 1 1
Agro 5 3 2
Port-based multi-product 7 2
product
mills
42
SEZs: State wise Distribution
43
SEZ Glossary Words and Definitions
44
deemed to be consumables.
Any consumption goods, which can directly satisfy human
Consumer
needs without further processing and includes consumer
Goods
durables and accessories thereof.
Any arrangement under which exports/imports from/to
India are balanced either by direct imports/exports from
the importing/exporting country or through a third
country under a Trade Agreement or otherwise.
Counter Trade Exports/Imports under Counter Trade may be carried out
through Escrow Account, Buy Back arrangements, Barter
trade or any similar arrangement. The balancing of
exports and imports could wholly or partly be in cash,
goods and/or services.
A person or body of persons, company, firm and such
other private or government undertaking, who develops,
builds, designs, organizes, promotes, finances, operates,
Developer
maintain or manages a part or whole of the infrastructure
and other facilities in the Special Economic Zones as
approved by the central Government.
Development The Development Commissioner of the Special Economic
Commissioner Zone.
DFRC Duty Free Replenishment Certificate.
Domestic Tariff Area within India, which is outside the Special Economic
Area Zones.
Relation to any goods manufactured in India and
exported, means the rebate of duty chargeable on any
imported material or excisable material used in the
Drawback
manufacture of such goods in India. The goods include
imported spares, if supplied with capital goods
manufactured in India.
45
specifically exempted.
The obligation to export the product or products
covered by the license or permission in terms of
Export Obligation
quantity, value or both, as may be prescribed or
specified by the licensing or competent authority.
The Handbook of Procedures (Vol.1) and "Handbook
(Vol.2)" means Handbook of Procedures (Vol.2)
Handbook (Vol.1)
published under the provisions of the paragraph 2.4 of
the Policy.
A person who imports or intends to import and holds an
Importer Importer-Exporter Code number unless otherwise
specifically exempted.
Industrial, commercial and social infrastructure or any
Infrastructure
other facility for the development of the Special
facilities
Economic Zone as notified.
ITC (HS) Classifications of Export and Import Items
ITC (HS)
Book.
Processing or working upon of raw materials or semi-
finished goods supplied to the job worker so as to
Jobbing complete a part or whole of the process resulting in the
manufacture or finishing of an article or any operation
which is essential for the aforesaid process.
Licensing The authority competent to grant a license under the
Authority Act/Order.
The period beginning on the 1st April of a year and
Licensing Year
ending on the 31st March of the following year.
To make, produce, fabricate, assemble, process or bring
into existence, by hand or by machine, a new product
having a distinctive name, character or use and shall
include processes such as refrigeration, re-packing,
polishing, labeling. Re-conditioning repair, remaking,
Manufacture
refurbishing, testing calibration, re-engineering.
Manufacture, for the purpose of this Policy, shall also
include agriculture, aquaculture, animal husbandry,
floriculture, horticulture, pisciculture, poultry,
sericulture, viticulture and mining.
Manufacturer A person who exports goods manufactured by him or
Exporter intends to export such goods.
MAI Market Access Initiative
46
Merchant A person engaged in trading activity and exporting or
Exporter intending to export goods.
Net Foreign Exchange Earning as a percentage of
NFEP
exports.
Notification A notification published in the Official Gazette.
An Order made by the Central Government under the
Order
Act.
An element of a sub-assembly or assembly not normally
useful by itself and not amenable to further disassembly
Part
for maintenance purposes. A part may be a component
or an accessory.
An individual, firm, society, company, corporation or
Person
any other legal person.
The Export and Import Policy, 2002-07 as amended
Policy
from time to time.
Prescribed under the Foreign Trade (Development and
Prescribed Regulation) Act, 1992 (No. 22 of 1992) or the Rules or
Orders made there under or under this Policy.
A notice published under the provisions of paragraph
Public Notice
2.4 of the Policy.
(i) basic materials which are needed for the
Raw material manufacture of goods, but which are still in a raw,
natural, unrefined or unmanufactured state; and
(ii) for a manufacturer, any materials or goods which
are required for his manufacturing process, whether
they have actually been previously manufactured or are
processed or are still in a raw or natural state.
(RCMC) means the certificate of registration and
Registration-Cum-
membership granted by an Export Promotion Council
Membership
or other competent authority as prescribed in the
Certificate
Policy or Handbook (Vol.1).
Rules made by the Central Government under Section
Rules
19 of the Act.
All the tradable services covered under General
Services Agreement on Trade in Services and earning free
foreign exchange.
Service Provider A person providing
(i) Supply of a ‘service’ from India to any other
47
country;
(ii) Supply of a ‘service’ from India to the service
consumer of any other country in India; and
(iii) Supply of a ‘service’ from India through
commercial or physical presence in the territory of any
other country.
(iv) Supply of a ‘service’ in India relating to exports
paid in free foreign exchange.
Special Economic Zone notified by the Ministry of
SEZ
Commerce & Industry, Department of Commerce.
All types of vessels used for sea borne trade or coastal
Ships
trade and shall include second hand vessels.
Standard Input Output Norms notified by DGFT in the
SION Handbook (Vol.2), 2002-07/approved by Board of
Approval.
A part or a sub-assembly or assembly for substitution,
that is ready to replace an identical or similar part or
Spares
sub-assembly or assembly. Spares include a component
or an accessory.
Specified Specified by or under the provisions of this Policy.
An exporter recognized as "Export House/Trading
House by DGFT/ Development Commissioner or Star
Status holder
Trading House/ Super Star Trading House" by the
Director General of Foreign Trade.
STP Software Technology Park
Exports made by an exporter or manufacturer on
Third-party behalf of another exporter(s). In such cases, shipping
exports bills shall indicate the name of both the
exporter/manufacturer and exporter(s).
The Committee notified for Special Economic Zones to
Unit Approval
consider proposals on matters relating to Special
Committee
Economic Zone unit under its jurisdiction.
Any wild animal as defined in Section 2(36) of the
Wild Animal
Wildlife (Protection) Act, 1972.
The Zone Development Board notified for Special
Zone Development
Economic Zones to consider matters relating to
Board
development, operation and maintenance of SEZs.
48
RECOMMENDATION
I have already mentioned that SEZ is a growth engines that can boost
manufacturing, augment export and generate employment. Before 1947
India didn’t have concept of foreign trade and its simplication on the Indian
economy. After 1950, when we started planning to enter foreign trade, lot of
issues were there, in which exports and imports of goods was also an
important issue. That time National Defence Council suggested to establish
49
foreign trade section under the Ministry of Commerce. After starting 5 years
plan there was awareness and Planning Commission suggested the role of
exports and imports and its simplications or effect on the economic growth.
In 1991 a policy was drawn which is known as EXIM Policy and a
separate chapter on SEZ was added to the EXIM Policy for the 5 years plan
1997-2002. Now on the basis of report and collected data, conclusions are as
follows-
SEZ units may import or procure from the domestic sources, duty
free, all their requirements of capital goods, raw materials,
consumables, spares, packing materials, office equipment, DG sets
etc. for implementation of their project in the Zone without any
license or specific approval.
50
Inter Unit Sales are permitted as per the Policy. Buyer
procuring from another unit pays in Foreign Exchange.
BIBLIOGRAPHY
1) sezindia.nic.in
2) sezindia.com
3) thehindubusinessline.com
4) Export Do It Yourself- Mahajan
5) How To Export- Navi Publication
51
6) How To Import- Navi Publication
7) Foreign Exchange- Jeevan Anandam
8) International Economics- Francis Cherunilam
52