Laws and Procedure Relating To Setting Up of SEZ, Unit in SEZ, OBU, FT&WZ and IFSC

Laws and procedure relating to setting up of
SEZ,unit in SEZ ,OBU,FT&WZ and IFSC
Rajkumar S. Adukia
09323061049/093221 39642
radukia@vsnl.com
rajkumarfca@gmail.com
http://www.carajkumarradukia.com
Agenda
 Introduction
 Procedure for Setting up SEZ
 Procedure for Setting up SEZ Unit
 Offshore Banking Unit
 IFSC
 FT&WZ
© Rajkumar S Adukia 2
Some Definitions
 Developer means a person who, or a State
Government which, has been granted by the
Central Government a letter of approval and
includes a an Authority and a Co-Developer
( Section 2(g) of SEZ Act ,2005)
 Unit means a Unit set up by an entrepreneur in a
Special Economic Zone and includes an existing
Unit, an Offshore Banking Unit and a Unit in an
International Financial Services Centre( Section
2(zc) of SEZ Act ,2005)
Definition of person
“person” includes
• an individual, whether resident in India or outside India,
• a Hindu undivided family,
• co-operative society,
• a company, whether incorporated in India or outside India,
• a firm,
• proprietary concern, or
• an association of persons or
• body of individuals, whether incorporated or not,
• local authority and
• any agency, office or branch owned or controlled by such individual, Hindu
undivided family, co-operative, association, body, authority or company;
( Section 2(v) of SEZ Act, 2005)
Setting up SEZ
Procedure for setting up SEZ
-Sec 15
Any person, who intends to set up a Special Economic
Zone, may, after identifying the area make a proposal in
Form A to either of the following
a)State Government concerned
b) Board of Approval
25 Copies of Form A are to be given along with Project

report outlining the economic and commercial viability of
the project
No application fees
Suo moto set up of SEZ
Central Government may:-
(a) after consulting the State Government
concerned;
(b) without referring the proposal for setting up the
Special Economic Zone to the Board; and
(c) after identifying the area;
suo moto set up and notify the Special Economic Zone
(Proviso to sub section 4 of section 3 of SEZ Act ,2005)
Flow Chart for Setting up SEZ
SEZ can be formed in two ways
By Applying By applying to
to SG Board of Approval
Obtain the
SG forward the
concurrence
Proposal to BOA
of SG
SG=Sate
BOA Government
approves the
proposal
Flow Chart for Setting up SEZ
contd..
Central Government shall

issue letter of Approval to developer
Developer shall furnish to

Central Government information about area
Central Government will notify the area as SEZ
Contents of Form A
 Location of SEZ
 Distance from the nearest Sea Port/Air Port/Rail or
Road
 Details of Lease of Land
 Proposed investment details
 Means of financing
 Equity holdings
 Details of areas (Processing areas and non-
processing area) used for various purposes in SEZ
 Activities Proposed in Processing and non-
processing area
 Details of employment likely to be generated
Area requirements
 Requirement laid down in Rule 5 in the Special
Economic Zones Rules
 Due consideration given to whether SEZ is
1) Multi-product or sector specific
2) Located in special category states- Assam,
Meghalaya, Nagaland, Arunachal Pradesh, Mizoram,
Manipur, Tripura, Himachal Pradesh, Uttaranchal,
Sikkim, J&K, Goa or Union territory
3) For special sector- IT, Gems & Jewellery, Bio-tech,
Non-conventional energy
Kinds of SEZ
Kinds of SEZ
SEZ for SEZ for SEZ in a port or

multi-product specific sector airport
Definitions of Kinds of SEZ
1) SEZ for multi-product means a SEZ 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.(Rule 2(1)(za) of SEZ
Rules,2006 )
2) SEZ for specific sector means a SEZ meant exclusively for one
or more products in a sector or one or more services in a sector
( Rule 2(1)(zb) of SEZ Rules,2006 )
3) SEZ in a port or airport means a SEZ in an existing port or
airport for manufacture of goods in two or more goods in sector
or goods falling in two or more sectors or for trading and
warehousing or rendering of services; (Rule 2(1)(zc) of SEZ
Rules,2006 )
Minimum Contiguous Area
Requirement
Type Area for specific Min.Processing
states/UT Area
Multi-product 1000 hectares 200 hectares 25 % (old)
35% (new)
( may be relaxed
to 25% by CG on
Board
recommendation)
Multi -services 100 hectares 100 hectares 25%
Sector specific 100 hectares 50 hectares 50%
Electronic 10 hectares( and 10 hectares and 50%
Hardware and min. built up area of min. built up area of
software 1 lakh sq.mtrs) 1 lakh sq.mtrs)
Requirement
Type Area for specific Min.Proces
states/UT sing Area
Bio- technology/ 10 hectares (old) 10 hectares (old) 50 %
Non- conventional 10 hectares( with a min. 10 hectares( with a
energy built up area of 40000 min. built up area of
sq.m) (new) 40000 sq.m) (new)
Gems and jewellery 10 hectares (old) 10 hectares (old) 50 %

sector 10 hectares( with a min. 10 hectares
built up area of 50000 ( with a min. built up
sq.m) (new) area of 50000 sq.m)
(new)
Requirement
Type Area for specific Min.Proces
states/UT sing Area
Free Trade and 40 hectares 40 hectares 50 %(new)

Warehousing Zone (with 1 Lac square (with 1 Lac square
- Stand alone meter built up area) meter built up area)
Free Trade and No minimum area No minimum area

Warehousing Zone requirement but requirement but
- SEZ for a specific subject to max area subject to max area
sector not exceeding 20% not exceeding 20%
of the processing of the processing
area area
NEW Requirement
SEZ Amendment Rules,2006
( came into force on 10.08.2006)
1. Minimum processing area for multi- product shall be

at least thirty-five per cent of the area which may be
relaxed up to twenty-five per cent by the Central
Government on recommendations of the Board for
the reasons to be recorded in writing
NEW
SEZ Amendment
Rules,2006…
SPECIAL SECTOR
1. the area shall be ten hectares or more with a
minimum built-up area as under :
(i) forty thousand square meters in case of a
Special Economic Zone proposed to be set up
exclusively for bio-technology and non-conventional
energy sectors including solar energy
equipments/cells but excluding a Special Economic
Zone set up for non-conventional energy production
and manufacturing;
NEW
SEZ Amendment
Rules,2006…
(ii) fifty thousand square meters in case of a Special
Economic Zone proposed to be set up exclusively for
the gems and jewellery sector.”
NEW
SEZ Amendment Rules,2006…
FREE TRADE AND WAREHOUSING

ZONES
In a stand alone Free Trade and Warehousing Zone

at least fifty per cent of the area shall be earmarked
for developing processing area :
“Provided further that a Free Trade and

Warehousing Zone may also be set up as part of a
Special Economic Zone for multi-product;”
NEW
SEZ Amendment
Rules,2006…
Rule 5A. Infrastructure requirements relating to
information technology
In case of a Special Economic Zone 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.”. © Rajkumar S Adukia 21
NEW Rule 18(4) (g)
No proposal shall be considered for:
“ the use of any plant or machinery

previously used for any purpose in
Domestic Tariff Area.”
Area conversion factors
1 Acre = 0.404686 Hectare
1 Hectare = 2.47109 Acres
1 Sq. Km. = 0.38610 Sq. Mile
1 Sq. Km. = 100 Hectares
1 Sq. Mile = 2.58999 Sq. Kms
Guidelines for Central Government for
notifying special Economic Zone –sec 5
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; and
f) maintenance of sovereignty and integrity of India, the
security of the State and friendly relations with foreign
States.

Specific requirements for SEZ-
Rule 5(5)
Before recommending any proposal for setting up of
a SEZ, the State Government endeavor that
following are made available in the State to the
proposed SEZ and Developer
a. exemption from the State and local taxes, levies and
duties
b. exemption from electricity duty or taxes on sale, of
self generated or purchased electric power
c. allow generation, transmission and distribution of
power within a SEZ
Specific requirements for SEZ –
Rule 5(5) ….
d. providing water, electricity and such other services,
e. Delegation of power to the Development
Commissioner under the Industrial Disputes Act, 1947
and other related Acts in relation to the Unit
f. Declaration of the Special Economic Zone as a Public
Utility Service under the Industrial Disputes Act,
1947
g. Providing single point clearance system to the
Developer and unit under the State Acts and rules
Forms used
A Application for setting up SEZ
B Format for letter of approval for SEZ developers
C Format for Letter of approval for providing

Infrastructure facilities in SEZ
D Bond-cum Legal Undertaking for developers
E Format for Quarterly and half-yearly report for

SEZ developer/co-developer to be furnished to
Development commissioner
Forms used Contd..
F Consolidated Application Form
G Format for letter of approval for Unit
H Bond-cum Legal Undertaking for SEZ
unit
I Annual Performance report for units
J Form for Appeal
K Permanent Identity Card
Check list for the proposals to be
taken up by BOA
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)
taken up by BOA…
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.
taken up by BOA….
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.
21) Audited Accounts of the Developer for last 3 years (for all the
constituents in case the Developer is a SPV).
22) Extent of FDI
23) Source of FDI
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?
Processing and Non Processing
area
 The areas falling within the Special Economic Zones may
be demarcated by the Central Government 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
(c) the non-processing areas for activities other than those
specified under clause (a) or clause (b) ( Section 6 of SEZ
Act,2005)
 The processing area and Free Trade and Warehousing Zone
shall be fully secured by boundary wall with specified entry
and exit points. – Rule 11(2) of SEZ Rules ,2006)
Usage of Land in SEZ-Rule 11
 The developer holding land on lease basis shall assign
lease hold right to the entrepreneur holding valid Letter of
Approval.(Rule 11(6))
 The lease period shall be co-terminus with the validity of
the Letter of Approval.(Rule 11(5))
 Developer may grant on lease land or built up space, for
creating facilities such as canteen, public telephone booths,
first aid centres, creche and such other facilities as may be
required for the exclusive use of the Unit. .( Proviso to
Rule 11(5))
Usage of Land in SEZ-Rule 11
 The Developer may allot land in the processing area on
lease basis to a person desiring to create infrastructure
facilities for use by the prospective Units. (Rule 11(8))
 The Developer shall not sell the land in a Special
Economic Zone. (Rule 11(9))
NEW New Rule11(10)
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
approved by the Board :
Provided that the developer or co-developer may lease
the completed infrastructure along with the vacant
land appurtenant thereto for such purposes
Provided further 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.”.
Environmental Clearance
 Any person who desires to undertake any new project in any part
of India or the expansion or modernization of any existing
industry or project shall submit an application to the Secretary,
Ministry of Environment and Forests, New Delhi.
 The application will be accompanied by an Environmental Impact
Assessment Report, Environment Management Plan
 Public hearing is not required in respect of units in SEZ
 Only 30 categories of industries proposed to be established in
SEZ need to take EIA approval like drugs ,Pesticides , Nuclear
power Projects, Petrochemicals,Paper Pulp etc
(Environment impact assessment notification S.O.60(E), dated
27/01/1994)
Equity Participation of
developer
• The Developer or Co-Developer shall have at least 26% of
the equity in the entity proposing to create business,
residential or recreational facilities in a Special Economic
Zone
• If such development is proposed to be carried out through
a separate entity or a special purpose vehicle being a
company formed and registered under the Companies Act,
1956
(Rule 5(4) of Special Economic Zones Rules,2006)
Setting up a SEZ Unit
Definitions in Special Economic
Zones Act,2005
Definitions Section
Unit 2(zc)
Offshore Banking Unit 2(u)
International Financial 2(q)
Services Centre
Entrepreneur 2(j)
Existing Unit 2(l )
Definitions in Special Economic
Zones Act,2005
1) "Unit" means a Unit set up by an entrepreneur in a Special Economic
Zone and includes an existing Unit, an Offshore Banking Unit and a Unit
in an International Financial Services Centre, whether established before or
established after commencement of this Act (Section 2(zc) of Special
Economic Zones Act ,2005)
2) “Offshore Banking Unit” means a branch of a bank located in a Special
Economic Zone and which has obtained the permission under clause (a) of
sub-section (1) of section 23 of the Banking Regulation Act, 1949
(Section 2(u) of Special Economic Zones Act ,2005)
DEFINITIONS contd..
3) “International Financial Services Centre” means an

International Financial Services Centre which has been
approved by the Central Government under sub-section (1)
of section 18 (Section 2(q) of Special Economic Zones Act
,2005)
4) “entrepreneur” means a person who has been granted a
letter of approval by the Development Commissioner
under sub-section (9) of section 15 (Section 2(j) of Special
Economic Zones Act ,2005)
5) “existing Unit” means every Unit which has been set up
on or before the commencement of this Act (Section 2(l)
of Special Economic Zones Act ,2005)
New and Existing Unit
 New Unit Any person, who intends to set up a Unit for
carrying on the authorised operations in a Special
Economic Zone, may submit a proposal to the
Development Commissioner concerned
 Existing Unit An existing Unit shall be deemed to have
been set up in accordance with the provisions of SEZ
Act,2005 and such Units shall not require approval under
the SEZ Act, 2005 .
(Section 15(1) of SEZ Act,2005)
Procedure for establishment of
Unit ( if proposal not related to
Foreign collaboration and FDI)
Application to Development Commissioner
with a copy to developer
Development Commissioner shall scrutinise

proposal and place before approval committee
Approval Committee approve the proposal
Development Commissioner will issue a letter of

approval in Form G for setting up the unit
Procedure for establishment of
Unit ( if proposal relates to
Foreign collaboration and FDI)
Application to Development Commissioner
with a copy to developer
Development Commissioner shall scrutinise

proposal and place before Board
Board shall approve the proposal
Development Commissioner will issue a letter of

approval in Form G for setting up the unit
Letter of Approval to a Unit-Rule
19(2) and (3)
 An entrepreneur holding Letter of Approval shall only
be entitled to set up a Unit in processing area of the
Special Economic Zone or Free Trade and Warehousing
Zone, as the case may be:
 The Letter of Approval shall specify interalia
(i) items of manufacture
(ii)particulars of service, trading or warehousing activities
(iii) projected annual export for the first five years
(iv) projected Net Foreign Exchange Earning for the first
five years of operations
Validity period of Letter of
approval
 The Letter of Approval shall be valid for one year within which
period the Unit shall commence production or service or trading
or Free Trade and Warehousing activity .(Rule 19(4) of SEZ
Rules ,2006)
 Further extension may be granted by the Development
Commissioner for valid reasons to be recorded in writing for a
further period not exceeding two years upon a request by the
entrepreneur.( Proviso to Rule 19(4) of SEZ Rules ,2006)
 The Development Commissioner may grant further extension of
one year subject to the condition that 2/3 rd 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.(Proviso to Rule 19 of SEZ Rules ,2006)
Validity period of Letter of approval
after commencement of production
 The Letter of Approval shall be valid for five years from
the date of commencement of production or service
activity
 It shall be construed as a licence for all purposes related to
authorized operations
 After the completion of five years from the date of
commencement of production, the Development
commissioner may, at the request of the Unit, extend
validity of the Letter of Approval for a further period of
five years, at a time.(Rule 19(6) of SEZ Rules ,2006)
Foreign Companies in SEZ- Rule
19(7)
 Foreign companies can also set up manufacturing units as
their branch operations in the Special Economic Zones in
accordance with the provisions of Foreign Exchange
Management (Foreign exchange derivatives contracts)
Regulations, 2000.
Some Contents of Project Report
 Overview of the entire project
 Details of Activities proposed
 Direct and indirect employment likely to be generated
 Project cost and means of finance
 Financial/Technical, etc. tie ups
 Details of Backward and Forward integrations
 Details of Past experience
 Infrastructure: About the Land, Factory premises,
Equipment, Office premises
 Risks associated with Project
 Implementation schedule
Matters that can be included in
application- Rule 17(1)
(a) Setting up of unit in a SEZ
(b) Annual permission for sub-contracting
(c) Allotment of Importer-Exporter Code number
(d) Allotment of land/industrial sheds in the SEZ
(e) Water connection
(f) Registration-cum-Membership Certificate
(g) Small Scale Industries Registration
Matters that can be included in
application Rule 17(1) contd..
(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
Contents of Form F
 Nature of industrial undertaking
 Items of manufacture activity/service activity
 Investment in Plant and machinery
 Import and indigenous requirements of material and other
inputs
 Infrastructure requirements
 Details of Foreign collaboration
 Pattern of shareholding
 Foreign Exchange Balance sheet for the 5 years
 Details of Industrial license or LOI/LOA under
SEZ/EOU /STP/EHTP Scheme
 Details of sub-contracting in manufacturing operations
Annexures with Application
(Form F)
 DD of Rs 5000 in favour of Pay and Accounts Officer of
the concerned SEZ
 Project report giving details of activities proposed
 Certificate of Incorporation, Articles of Association and
Memorandum of Association in case of Company
 Partnership deed in case of Partnerships firms
 Affidavit
 Proof of residence
 Income tax returns and audited Balance sheet for the last
three years
Consideration of proposals-Rule
18(2)
1) Positive net foreign exchange earning
2) Availability of space and other infrastructure support
applied for is confirmed by the Developer in writing, by
way of a provisional offer of space
3) Applicant undertaking to fulfill the environmental and
pollution control norms
4) Applicant submitting proof of residence
5) Applicant submitting the Income tax returns, along with
annexures, of the Proprietor or Partners, or in the case of
a company, audited balance sheet for the last three years
Net Foreign Exchange
Earnings- Rule 53
 The Unit shall achieve Positive Net Foreign Exchange to
be calculated cumulatively for a period of five years from
the commencement of production according to the
following formula, namely:-
 Positive Net Foreign Exchange = A – B >0
A Consists of
FOB value of exports including exports to Nepal and Bhutan
against freely convertible currency, by the Unit and the
value of following supplies of their products, namely: -
(a) supply of goods against Advance Licence or Duty Free
Replenishment Certificate under the Duty Exemption or
Remission Scheme or Diamond Imprest Licence
(b) supply of capital goods to holders of licence under the
Export Promotion Capital Goods scheme
(c) supply of goods to projects financed by multilateral or
bilateral agencies
A Consists of
(d) supply of capital goods, accessories, tools, dies and such
goods which are used for installation purposes till the stage of
production and spares to the extent of ten per cent. of the free
on rail value to fertilizer plants;
(e) supply of goods to any project or purpose in respect of which
the Ministry of Finance, by a notification, permits the import of
such goods at zero customs duty;
(f) supply of goods to the power projects and refineries
(g) supply to projects funded by United Nations Agencies;
(h) supply of goods to nuclear power projects through competitive
bidding as opposed to International Competitive Bidding;
A Consists of
(i) supply made to bonded warehouses and free trade and warehousing
zones, where payment is received in foreign exchange;
(j) supply against special entitlements of duty free import of goods
under the Foreign Trade Policy;
(k) export of services by services units including services rendered
within Special Economic Zone or services rendered in the
Domestic Tariff Area 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 the Reserve
Bank of India;
(l) supply of Information Technology Agreement items and notified
zero duty telecom or electronic items, namely, Color Display
Tubes for monitors and Deflection components for colour monitors
A Consists of
(m) supply to other units and Developers in the same or other
SEZ/EOU/EHTP/STP/BTP provided that such goods and
services are permissible for import or procurement by
such units and Developers;
(n) supply of goods to Domestic Tariff Area against payment
in foreign exchange from the Exchange Earners Foreign
Currency account of the Domestic Tariff Area buyer or
Free Foreign Exchange received from overseas;
(o) supply of goods against free foreign exchange by a Free
Trade and Warehousing Zone Unit;
B Consist of
(a)sum total of the CIF Value of all imported inputs used for
authorized operations during the relevant period and the
CIF value of all imported capital goods even though paid
for in Indian Rupees and the value of all payments made
in foreign exchange by way of export commission,
royalty, fees, dividends, interest on external commercial
borrowings during the first five year period or any other
charges;
(b) value of goods obtained from other Unit or
EOU/EHTP/STP/BTP or from bonded warehouses or
procured from international exhibitions held in India or
precious metals procured from nominated agencies;
B Consist of
(c) the CIF value of the goods and services, including
prorata Cost Insurance Freight of capital goods, imported
duty free or leased from a leasing company or received
free of cost and or on loan basis or on transfer for the
period they remain with Unit;
(d) for annual calculation of Net Foreign Exchange, value of
imported capital goods and lump sum payment of foreign
technical know-how fee shall be amortized at the rate of
ten per cent. every year from the first year to tenth year.
Advance Licence
 An Advance Licence is issued to allow duty
free import of inputs, which are physically
incorporated in the export product (making
normal allowance for wastage
 Advance Licences are issued on the basis of
the inputs and export items given under
Standard Input Output Norms (SION).
Funds notified by Department of
Economic affairs
1. International Bank for Reconstruction and Development
(IBRD) and the International Development Association
(IDA).
2. International Fund for Agricultural Development (IFAD).
3. Asian Development Bank (ADB).
4. Organisation of Petroleum Exporting Countries (OPEC)
Fund.
5. Yen credit channelised through Japan Bank for
International Cooperation (JBIC). (Development
component only).
6. Swedish International Development Agency (SIDA).
Sector specific requirements –
Rule 18(3)
1) Export of high-grade iron ore, that is sixty-four per cent.
Fe and above, except iron ore of Goa origin and Redi
origin, which would be subject to approval of Board
2) No sub-contracting or job work of polyester yarn shall
be permitted in Domestic Tariff Area or in Export
Oriented Unit or Units in other Special Economic Zone:
Proposals not be considered-Rule
18(4)
a) Recycling of plastic scrap or waste
b) Enhancement of the approved import quantum of
plastic waste and scrap beyond the average annual
import quantum of the unit since its commencement
of operation to the existing Units
c) Reprocessing of garments or used clothing or
secondary textiles materials and other recyclable
textile materials into clipping or rags or industrial
wipers or shoddy wool or yarn or blankets or
shawls
d) Import of other used goods for recycling
Proposals not be considered-Rule
18(4) contd..
e) Export of Special Chemicals, Organisms, Materials,
Equipment and Technologies (SCOMET) unless it
fulfils the conditions indicated in the Import Trade
Control (Harmonized System) Classifications of export
and import items
f) if there is any instance of violation of law or public
policy by the promoters, having a bearing on the merits
of the proposal.
g) the use of any plant or machinery previously used for
any purpose in Domestic Tariff Area
SCOMET
 The Director General of Foreign Trade specified a list of
Special Chemicals, Organisms, Materials, Equipment and
Technologies (SCOMET), the export of which is either
prohibited or permitted only under license.
 The grant of license inter alia depends upon end-use cum
end-user certification.
 The SCOMET List is notified in the Export Policy in
Schedule 2 Appendix 3 of the Indian Tariff Classification
(Harmonized System) - ITC(HS) Classifications of Export
and Import Items
Units for services provided to
overseas entities –Rule 18(6)
 Overseas Entity means a non-resident or a person of
foreign origin and includes a company not incorporated
in India
 Conditions
1) Capital goods, raw materials including consumables sub-
assemblies,components, semi-finished goods shall be
supplied by the Overseas Entity free of cost
2) Capital goods for setting up such facilities may also be
supplied on loan or lease basis
Units for services provided to overseas
entities Rule 18(6) contd…
3) Finished goods shall be exported out of the country or
transferred to the Customs Bonded Warehouse to be
maintained by the Overseas entity
4) The Unit shall receive the consideration for its
manufacturing services in convertible foreign exchange
directly from the said overseas entity;
5) Separate accounts shall be maintained for the
manufacturing and service activity in case the said
manufacturing facility is used by the Unit for carrying
out production on its own account
OFFSHORE BANKING UNIT
OFFSHORE BANKING
UNIT
Setting up of Offshore Banking
Unit-Rule 21
 The application for setting up and operation of
Offshore Banking Unit in Special Economic Zone shall be
made to the Reserve Bank of India in the Form VI
prescribed under Banking Regulation (Companies) Rules,
1949 under section 23 of the Banking Regulation Act,
1949.
 The terms and conditions subject to which an Offshore
Banking Unit may be set up and operated in a Special
Economic Zone shall be as specified in the Notification
number FEMA 71/2002-RB dated 7th September, 2002 by
the Reserve Bank of India, as amended from time to time.
Foreign Exchange Management (Offshore
Banking Unit) Regulations, 2002
 The Offshore Banking Unit shall not be regarded as an

authorised dealer
 An offshore Banking Unit may undertake foreign
exchange transactions with any authorised dealer in India
only on principal-to-principal basis.
An Offshore Banking Unit may undertake transaction in
foreign exchange with a unit located in Special Economic
Zone to the extent the latter is eligible to enter into or
undertake such transaction, within the ceilings and subject
to the conditions specified in the Regulations governing
such transaction.
Scheme for Setting up OBU in
SEZ
 The parent bank would be required to provide a minimum
of US$ 10 million to its OBU.
 OBUs would be exempt from CRR, SLR
 Deposits of OBUs will not be covered by deposit insurance.
 The OBUs would be required to scrupulously follow
"Know Your Customer (KYC)" and other anti-money
laundering instructions issued by RBI from time to time.
 OBUs will be regulated and supervised by RBI through its
Exchange Control Department, Department of Banking
Operations and Development and Department of Banking
Supervision.
IFSC AND FT&WZ
International Financial Services
Centre (IFSC)- Sec 18
 The Central Government may approve the setting up of an
International Financial Services Centre in a Special
Economic Zone and may prescribe the requirements for
setting up and operation of such Center:
 The Central Government shall approve only one
International Financial Services Centre in a Special
Economic Zone.
 The Central Government may, subject to such guidelines as
may be framed by the Reserve Bank, the Securities and
Exchange Board of India, the Insurance Regulatory and
Development Authority and such other concerned
authorities, as it deems fit, prescribe the requirements for
setting up and the terms and conditions of the operation of
Units in an International Financial Services Centre.
Free Trade and Warehousing
Zones- Rule 5(2)(c)
 Special Economic Zone for Free Trade and Warehousing
shall have an area of forty hectares or more with a built up
area of not less than one lakh square meters
 A Free Trade and Warehousing Zones may also be set up
as part of a Special Economic Zone for multi-products
 In a Special Economic Zone for a specific sector,
Free Trade and Warehousing Zone may be permitted with
no minimum area requirement but subject to the condition
that the maximum area of such Free Trade and
Warehousing Zone shall not exceed 20% of the processing
area.
Conditions applicable to
FT&WZ- Rule 18(5)
 Units in FT&WZ shall be allowed to hold the goods on
account of the foreign supplier for dispatches as per the
owner’s instructions and shall be allowed for trading with
or without labeling, packing or repacking without any
processing:
 These Units may also re-sell or re-invoice or re-export the
goods imported by them
 All transactions by a Unit in Free Trade and Warehousing
Zone shall only be in convertible foreign currency
Recent
developments in
Special economic
Zones
List of authorised operations
eligible for approval by the Board
of Approval
 The Board of Approvals in its meeting held on 21st September, 2006
discussed and decided the procedure to be adopted by the Board of
Approval while approving infrastructure in the non-processing area of
the Special Economic Zones.
 In this regard, the Central Government has notified a list of authorised
operations
 This list would be used by the Board of Approval for authorizing
operations which only would qualify for exemptions, concessions and
drawback.
Criteria to be followed by the Board
for approval of SEZ Developers
1. MinimumInvestment or Net worth of the Promoter Company & all
Group companies & Flagship companies as follows
a) Sector specific SEZs:
Minimum investment of Rs.250 crores or net worth of Rs.50
crores
b) Multi product SEZs:
Minimum investment of Rs.1000 crores or net worth of Rs.250
crores
2) Proposals not meeting the above minimum investment or net worth
criteria with enough justification for the same, to be considered on
merits by the Board of Approvals.
No SEZ on prime agriculture
Land
 The Centre has directed the states that mainly waste and barren land
and if necessary single crop agricultural land alone should be acquired
for the SEZ.
 It has been further clarified that if perforce a portion of double-
cropped agricultural land has to be acquired to meet the minimum area
requirements, the same should not exceed 10% of the total land
required for the SEZs.
QUESTIONS/
SUGGESTIONS/
COMMENTS ???

Laws and Procedure Relating To Setting Up of SEZ, Unit in SEZ, OBU, FT&WZ and IFSC

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Laws and Procedure Relating To Setting Up of SEZ, Unit in SEZ, OBU, FT&WZ and IFSC

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Laws and procedure relating to setting up of

SEZ,unit in SEZ ,OBU,FT&WZ and IFSC

25 Copies of Form A are to be given along with Project

SEZ can be formed in two ways

Central Government shall

Developer shall furnish to

Central Government will notify the area as SEZ

SEZ for SEZ for SEZ in a port or

Gems and jewellery 10 hectares (old) 10 hectares (old) 50 %

Free Trade and 40 hectares 40 hectares 50 %(new)

Free Trade and No minimum area No minimum area

1. Minimum processing area for multi- product shall be

FREE TRADE AND WAREHOUSING

In a stand alone Free Trade and Warehousing Zone

“Provided further that a Free Trade and

“ the use of any plant or machinery

a) generation of additional economic activity

C Format for Letter of approval for providing

E Format for Quarterly and half-yearly report for

1) Name of the Developer.

17) Projected exports from the project.

Existing Unit 2(l )

3) “International Financial Services Centre” means an

Development Commissioner shall scrutinise

Approval Committee approve the proposal

Development Commissioner will issue a letter of

Development Commissioner shall scrutinise

Board shall approve the proposal

Development Commissioner will issue a letter of

 The Offshore Banking Unit shall not be regarded as an

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