y A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws. "Nationwide" laws may be suspended inside a special economic zone. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of a structure is to increase foreign direct investment by foreign investors, typically an international business or a multinational corporation (MNC).

y The world first known instance of SEZ have been found in an industrial park set up in Puerto Rico in 1947. In the 1960s, Ireland and Taiwan followed suit, but in the 1980s China made the SEZs gain global currency with its l argest SEZ being the metropolis of Shenzhen.

From 1965 onwards, India experimented with the concept of such units in the form of Export Processing Zones (EPZ). But a revolution came in 2000, when Murlisone Maran, then Commerce Minister, made a tour to the southern provinces of China. After returning from the visit, he incorporated the SEZs into the Exim Policy of India. Five year later, SEZ Act (2005) was also introduced and in 2006 SEZ Rules were formulated.
y In the People's Republic of China, Special Economic Zones were founded by the central government under Deng Xiaoping in the early 1980s. The most successful Special Economic Zone in China, Shenzhen, has developed from a small village into a city with a population over 10 million within 20 years. India has also played a significant role in the founding and establishment of Special Economic Zones. It has the largest outsourcing industry in Asia.

Following the Chinese examples, Special Economic Zones have been established in several countries, including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland, South Korea, Russia, Ukraine, United Arab Emirates, Cambodia, North Korea. Currently, Puno, Peru has been slated to become a " Zona Economica" by its president Alan Garcia.


Special Economic Zone (SEZ) in India
y India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world -class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. y India passed special economic zone act in 2005. In India, the government has been proactive in the development of the SEZs. They have formulated policies, reviewed them occasionally and have ensured that ample facilities are provided to the developers of the SEZs as well as to the companies setting up units in the SEZs. y To instill confidence in investors and signal the Government's commitment to a stable SEZ policy regime and with a view t o impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill prepared after extensive discussions with the stakeholders. A number of meetings were held in various parts of the country both by the Minister for Commerce and Industry as well as senior officials for this purpose. y The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received Presidential assent on the 23rd of June, 2005. The draft SEZ Rules were widely discussed and put on the website of the Department of Commerce offering suggestions/comments. Around 800 suggestions were received on the draft rules. After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments. y A single SEZ can contain multiple 'specific' zones within its boundaries. The most prominent examples of this layered approach are Subic Bay Freeport Zone in the Philippines, the Aqaba Special Economic Zone Authority in Jordan, Sricity Multiproduct SEZ and Mundra SEZ in India and According to World Bank estimates of 2007 there are more than 3,000 projects taking place in SEZs in 120 countries worldwide. y SEZs have been implemented using a variety of institutional structures across the world ranging from fully public (government operator, governmen t developer,

government regul tor) to full rivate rivate operator, private eveloper, publi regulator). In many ases, publi sector operators and developers act as uasi government agencies in t at t ey ave a pseudo-corporate institutional structure and ave budgetary autonomy. SE s are often developed under a publi pri partnership arrangement, in ich the public sector provides some level of support provision of off-site infrastructure, equity investment, soft loans, bond issues, etc.) to enable a private sector developer to obtain a reasonable rate of return on the project typically -20% depending on risk levels).

Types o S
The diagram below is a snapshot of the different typesof SE s. ith the unending list of trouble-shooting problems in India, it becomes very important to understand the business of SE s in India. The report emphasi es on certain issues which brings clarity to the SE issue. The report helps you answer questions like:

Need o S
y In oduc on

n nd a

onsidering the need to enhance foreign investment and promote exports from the country and reali ing the need that a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally, the overnment of India had in April 2000 announced the introduction of Special Economic ones policy in the country, deemed to be foreign territory for the purposes of trade operations, duties and tariffs. As of 2007, more than 00 SE s have been proposed, 220 of which have bee n created. This has raised the concern of the orld Bank, which questions the sustainability of such a large number of SE s. The Special Economic s in India closely follows the P model .


or o For rendering services. filings have to be made by the Indian company with the RBI o CCFI Route . The Approval Committee at the Zone level deals with approval of units in the SEZs and other related issues. Development of infrastructure facilities. y ROUTES FOR FOREIG DIRECT I VESTME T o Automatic Route . Thereafter.Investment proposals falling outside the automatic route would require prior Government approval.No prior Government approval is required if the investment to be made falls within the sectoral caps specified for the listed activities. 4|Page .Investment proposals falling outside the automatic route and having a project cost of Rs. Foreign Investment requiring Government approvals are considered and approved by the Foreign Investment Promotion Board (³FIPB´). Creation of employment opportunities. 6. partnership or proprietorship): for manufacture of goods. or o As a Free Trade and Warehousing Zone. SEZ could be set up either jointly or severally by the Central Government. Promotion of investment from domestic and foreign sources. or o For both manufacturing of goods and for rendering services.000 million or more would require prior approval of Cabinet Committee of Foreign Investment (³CCFI´). State Government. Only filings have to be made by the Indian company with the concerned regional office of the Reserve Bank of India (³ RBI´) within 30 days of receipt of remittance and within 30 days of issuance of shares o FIPB Route . o The functioning of SEZs is governed by a three -tier administrative set-up. Department of Commerce. The Board of Approval is the apex body and is headed by the Secretary. Admini trative Setup y Introduction o Under the Act. Thereafter. or any person (including a private or public limited company.y MAI      OBJECTIVES OF THE SEZ Generation of additional economic activity Promotion of exports of goods and services. filings have to be made by the Indian company with the RBI. Decision of CCFI usually conveyed in 8-10 weeks. Decision of the FIPB usually conveyed in 4-6 weeks.

Ministry of Law and Justice 12. Ministry of Overseas Indian Affairs 13. A nominee of the State Government concerned 15. Member. The Board of Approval has 19 Members which are as follows: Table-Board of Members . All the major decisions are taken by the Board of Approval. Ministry of Small Scale Industries and Agro and Member Rural Industries Member Member Member Member Member Member Member Member Member Member 8 . Ministry of Defence 10. A professor in the Indian Institute of Management or the Indian Institute of Foreign Trade 18. Joint Secretary. Joint Secretary (SEZ). Ministry of Commerce and Industry. Joint Secretary. Member. Director General of Foreign Trade or his nominee 16. Chairman Member Member Member Member Member Joint Secretary. Joint Secretary. Joint Secretary. Director or Deputy Sectary. CBEC 3. Joint Secretary. IT. Development Commissioner concerned 17. Member Department of Commerce Secretary 5|Page .y Board of Approval o The Board of Approval has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act. DIPP 6. Secretary. Joint Secretary. Ministry of Environment and Forests 11. Ministry of Science and Technology 7. Joint Secretary. Joint Secretary. Department of Commerce 5. Ministry of Home Affairs 9. Ministry of Urban Development 14. CBDT 4.SEZ units 1. Department of Commerce 2.

y Step by step procedure 1. each zone are headed by a Development Commissioner. any person. approve the proposal subject to such terms and conditions as it may deem fit to impose. are given at the zonal level by the Development Commissioner. it may after choosing the area. make a proposal directly to the Board for the purpose of setting up the Special Economic Zone: 4. after identifying the area. SEZ units are liable for penal action under the provision of Foreign Trade (Development and Regulation) Act. the statutory functions are controlled by the Government while the rest of the operations are privatized. SEZs / EOUs. if any. who intends to set up a Special Economic Zone. who is also heading the Unit Approval Committee. After identifying the proper area a person wishing to establish a SEZ unit may make a proposal to the State Government 3. may. A separate units is also there who monitor the performance of the SEZ units on a periodic basis and is governed by the Approval Committee.y Unit Approval Committee o The entire request for setting up of units in the SEZ is approved at the Zone level by the Approval Committee consisting of Development Commissioner after a discussion with the Customs Authorities and representatives of State Government. Even a foreign company can also set up SEZ in India. forward the proposal directly to the Board of Approval for the purpose of setting up the Special Economic Zone: 5. The State Government may. 2. etc. broad banding diversification. State Government. Development Commissioner is the nodal officer for SEZs and help in resolution of problem. at his option. In case. Every proposal under sub-sections (2) to (4) shall be made in such form and manner containing such particulars as may be prescribed. forward the same together with its recommendations to the Board within a fix period as may be prescribed. the Board may. Notwithstanding anything contained in sub -section (2). In all SEZ¶s. According to SEZ Act 2005. on receipt of the proposal made under sub -section (2). after receipt of the proposal under sub -section (2) to (4). y Development Commissioner o E tabli hment Procedure A SEZ unit can be set up anywhere in India after fulfilling the following requirements . or any other person involve in the manufacturing of goods. 6. 6|Page . a State Government intends to set up a Special Economic Zone. change in the name of the company or implementing agency. in case of any violation in the rules formulated by the Approval Committee. or modify or reject the proposal. 7. a Special Economic Zone can be established either jointly or severally by the Central Government. All post approval clearances in matters related to importer-exporter code number. Without prejudice to the provisions contained in subsection (8). faced by the units or developer.

the proposal received under sub -section (2) to (4).y y y Approves without any modification. it shall record the reasons therefore and communicate the rejection to the Central Government which shall intimate to the State Government or the person concerned. for setting up a Special Economic Zone and in such cases. on receipt of communication under clause (a) or clause (b) of sub-section (9). Any person who. and o The terms and conditions. 12. has been granted letter of approval by the Central Government. apply to the said proposal made by such per son or State Government.8. received under sub -section (2) to (4). approve more than one Developer in a Sp ecial Economic Zone in cases where one Developer does not have in his possession the minimum area of contiguous land. within such time as may be prescribed. 9. on the basis of approval of the Board. namely: o The minimum area of land and other terms and conditions subject to which the Board shall approve. or a State Government which. 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. The Central Government shall. If the Board. as far as may be. 7|Page . The Central Government may prescribe the following requirement for establishment of a Special Economic Zone. 11. a letter of approval on such terms and conditions and obligations and entitlements as may be approved by the Board. to the Developer. grant. Rejects the proposal. after entering into an agreement with the Developer referred to in sub-section (10). whose proposal has been approved by the Board and who. subject to which the Developer shall undertake the authorized operations and his obligations and entitlements. it shall communicate the same to the Centra l Government. intends to provide any infrastructure facilities in the identified area referred to in sub -section (2) to (4). Approves with modifications the proposal received under sub -section (2) to (4). each Developer shall be considered as a Developer in respe ct of the land in his possession. the Board shall communicate the approval to the Central Government. modify or reject any proposal received by it unde r subsection (2) to (4) . 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. communicate such modifications to the person or the State Government concerned and if such modifications have been accepted by such person or the State Government. shall be considered as a Co Developer of the Special Economic Zone. 10. or undertake any authorized operation may. Every person or a State Government referred to in subsection (11). it shall. or which. being the person or the State Government concerned: Provided that the Central Government may. as may be prescribed.

Details of foreign equity. 3. o That single point clearances system and minimum inspections requirement under State Laws/Rules would be provided. transmission and distribution of power shall be allowed within the SEZ. y Documents Submission Following necessary document are required before making the final proposal for the SEZ units1. 4. o Generation. Area of the proposed SEZ and its distance from the nearest Sea Port/Airport/Rail/Road head etc. Whether the zone will allow only certain specific industries or will be a multi -product zone. turnover tax and taxes. electricity and other services would be provided as required. Financial details and mode of financing t he project and viability of the project. y State Government Approval The State Government shall. which shall indicate: 2. forward it along with their commitment to the following to the Department of Commerce. Location of the proposed Zone with details of existing infrastructure and that proposed to be established. o Water. duty. Name and address of the applicant 3. 8|Page . 15 copies of the application shall be submitted to the Chief Secretary o f the State. Project report The documents for establishment of SEZ shall be submitted with the following d etails: 1. octroi. 2. Cess. levies on supply of goods from Domestic Tariff Area to SEZ units. the Developer may allocate space or built up area or provide infrastructure services to the approved units in accordance with the agreement entered into by him with the entrepreneurs of such Units. o Exemption from State Sales Tax. if any 5. Status of the promoter (whether private/public or joint sector/ NRIs or state government) 4. Government of India: o That the area proposed under Special Economic Zone shall be free from any environmental restrictions. mandi tax.13. Subject to the provisions of this section and the letter of approval granted to a Developer. o Full exemption shall be given in electricity duty and tax on sale of electricity for self generated and purchased power.

raw materials. 2005. 1947 shall be delegated to Development Commissioner.o The Zone will be declared as a Public Uti lity Service under the Industrial Disputes Act. According to Section 3(7) of Special economic Zones Act. The in -principle approval shall be valid for a period of one year. modify or reject the proposal depending upon various circumstances. Although. Good which are imported duty free could be utilized over the approval period of 5 years. Sub -contracting may also be permitted for processing abroad with the permission of the board of approval.  Section 11(1) of Special Economic Zones Act. SAD. Incentive and Facilitie Customs and Excise y SEZ Units are free to import from the domestic sources without paying any duty on capital goods. y SEZ units may sub-contract a part of their production through units in DTA/SEZ/EOU/EPZ with the permission of the customs authorities.A new section 10AA has been introduced in the IT Act by SEZ Act. 2005 provides that "the Central Government may appoint any of its o fficers not below the rank of Deputy Secretary to the Government of India as the Development Commissioner of one or more Special Economic Zones" o Government of India after considering the above proposals may grant in -principle approval for setting up of SEZs. for implementation of their project in the zone without any license or specific approval. etc. as it may thinks fit. etc. including Countervailing Duty. y SEZ Units are free from the periodic examination by Customs of export and import cargo. DG sets. In case of acceptance. o All powers under Industrial Dispute Act. Income Tax Part-1 Income Tax incentives for SEZ units y Tax exemption for SEZ units engaged in manufacture or providing services. packing materials. spare. 2005 will be eligible for a deduction of 100 percent of export profits for the first five 9|Page . y Sales to DTA (Domestic Tariff Area) by SEZ units is always regarded as import and is subject to all normal import duties. 2005 which provides that the units in SEZ which start manufacturing or producing articles/ things or which start providing services on or after April 1. However. approval is valid for a period of 3 years within which time effective steps shall be taken by the developer to implement the project. this validity period may be extended by the Department of Commerce. the Board of Approval may accept. consumables. office equipment. this time period can be extended the Department of Commerce depending upon various circumstances.

2005 whereby a deducti on of 100 percent of profits derived from the business of developing SEZ (notified on or after April 1. Interest received by non-residents and not ordinary residents on deposits made with an Offshore Banking Unit on or after April 1. 2005 out of current income.No DDT would be payable by a developer of SEZ on dividend declared. Further. distributed or paid on or after April 1. Assesses has acquired land or building or has constructed building for the purposes of business in SEZ.Capital gains arising on transfer of assets (machinery. y y y y y y y y Tax exemption for Offshore Banking units in SEZ . to scheduled banks or foreign banks having an Offshore Banking unit in SEZ or to a unit of IFSC. The deduction shall be for 100 percent of income for five consecutive years beginning from the year in which permission/ registration has been obtained under the Banking Regulation Act or the SEBI Act or any other relevant law and 50 percent of income for next five years. Part-2 Income Tax incentives for SEZ Developer y y y Tax holiday for SEZ developers. and other specified expenses are incurred. However. 10 | P a g e .years from the year in which such manufacture/ provision of services commences and 50 percent of the export profits for the next five years. 200 5 shall be exempt from tax. The amount of exemption for capital gains would be restricted to the co sts and expenses incurred in relation to all or any of the purposes mentioned above.A deduction in respect of certain incomes would be allowed under the new sectio n 80LA. plant. Exemption from Minimum Alternate Tax ("MAT") . The exemption woul d be allowable if within one year before or three years after such transfer: Machinery or plant is purchased for the purposes of business of industrial undertaking in SEZ by the assesses. 2005 from any business carried on. land or any rights in buildings or land) on shifting of the industrial undertaking from an urban area to any SEZ would be exempt from capital gains tax. or services rendered by SEZ unit would be exempt from MAT under section 115JB. 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. building. for the next five years a deduction shall be allowed of upto 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). Exemption from Dividend Distribution Tax ("DDT") . Exemption from Capital Gains.A new section 80-IAB has been introduced in the IT Act vide SEZ Act.Income arising or accruing on or after April 1. The original assets are shifted and establishment of the industrial undertaking is transferred to SEZ. Exemption under section 10(23G) that was available to infrastructure capital fund or a cooperative bank on interest and long term capital gains investment had been extended to investment made by SEZ developers qualifying for tax holiday under section 80-IAB of the IT Act. this exemption has been withdrawn with effect from assessment year 2007 -08.

Service Tax y Exemption from service tax to SEZ units. Exemption from interest rate surcharge on import finance . Banking / External Commercial Borrowings (ECBs) y y y y y y ECBs by units up to US$ 500 million a year allowed without any maturity restrictions. Freedom to bring in export proceeds without any time limit. From Domestic Tariff Area (DTA) to SEZ. o 3rd ± 5th year: 10% each year. distillation and brewing of alcoholic drinks and cigarettes. No cap of foreign investments for SSI reserved items. cigars and manufactured tobacco sub stitutes. except arms and ammunition. Off-Shore Banking Units (OBUs) y y Setting up of OBUs allowed in SEZs. OBUS are entitled for 100% income tax exemption for 3 years and 50% for next 2 years. 2005 by a SEZ developer would be exempt from MAT under section 115JB of the Act. operation and maintenance of units. For the purpose of calculation. narcotics and hazardous chemicals. 11 | P a g e . the value of imp orted capital goods shall be amortized as follows o 1st ± 2nd year: 5% each year.Any income earned on or after April 1. Exemption from interest rate surcharge on import finance. Foreign Direct Investments y y 100% FDI is freely allowed in manufacturing sector in SEZ units under automatic route. Net Foreign Exchange (NFE) shall be calculated cumulatively for a period of 5 years from the commencement of commercial production. Drawback or such other benefit as may be admissible from time to time on goods and services admitted from the DTA for setting up.y Exemption from MAT. Sales to DTA y y y y DTA sales can be undertaken subject to achievement of positive NFE. atomic substance. explosive. SEZ units allowed to write-off unrealized export bills. o 6th ± 8th year: 20% each year Exemption from capital gains on transfer of an industrial unit from urban area to a SEZ. Flexibility to keep 100% of export proceeds in EEFC account and freedom to make overseas payment from such account.

operation or maintenance of SEZ. Developers of SEZs may import or procure goods from DTA without payment of duty for development. interest or long term capital gains. Drawback or such other benefits as may be admissible from time to time on supply of goods from DTA for development. which is liable for entertainment duty under the Bombay Entertainments Duty Act. shall be exempt from the following State taxes. Exemption from Central Sales Tax (CST) on supply of goods from the DTA for development. Sales tax and Turnover tax o Specified sales (Lease tax) in respect of lease of goods o 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 o Registration fee for the first transacti on between the Developer or codeveloper and the land-owner and the first transaction between the Developer or co-developer and the Units o Land assessment tax o Electricity duty and tax (Only for sales to Units in processing area) o Water pollution cess o Works Contract tax State government shall ± o Provide exemption from electricity duty or taxes on sale of self generated or purchased electric power for use in processing area of an SEZ. cess and levies namely: o Purchase tax. hospitals. of an infrastructure capital company from investments made in an enterprise engaged in the development. 1987 shall not be liable to such tax The fiscal benefits shall be applicable for a period of 25 years from the date of notification of the zone by the Government of India or such extended period as may be decided by the State Government With respect to each Special Economic Zone all such transactions between the Zones or within the Zone or both. operation or maintenance of a SEZ are exempt from tax. hotels. Income tax exemption for a block of 10 years in the first 15 years of operation. o Allow generation. carried out after declaration of the Zone by the Government of India. Any activity or transaction in the Zone. 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. exports made to educational institutions. residential and / or commercial complexes. leisure and entertainment facilities or any other facilities as may be notified by the state government are not exempt).y y y y y y y y y y y All exports from the DTA to the Zone shall be exempt from state and local body taxes or levies as (In some states. operation and maintenance of SEZs. Investment income in the fo rm of dividends. distribution of power within a SEZ subj ect to the provisions of the electricity act 12 | P a g e . 1923 and Luxury Tax under the Maharashtra Tax on Luxuries Act. transmission. Foreign investment permitted. operation and maintenance of SEZs. Service tax exemption on services provided to a developer or to a unit located in the SEZ region.

the States Government properly checks all the necessary inputs such as water. It is compulsory for every SEZ units in India to achieve positive net foreign exchange earnings as per the formula given in paragraph Appendix 14 -II (Para 12. the government has been proactive in the development of SEZs. The State 13 | P a g e .1) of Handbook of Procedures.1 Company Act y y y Drugs and Cosmetics y y y y Labour Laws y Obligation under SEZ Unit y Role of State Government in E tabli hment of SEZ Unit y y In India. 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. SEZ units may sub-contract part of production or production process through units in the Domestic Tariff Area or through other EOU / SEZ units. reviewed them occasionally and also ensured that ample facilities are provided to the SEZ developers as well as the companies setting up units in SEZs. Before recommending any proposals to the Ministry of Commerce & Industry (Department of Commerce). electricity.4 crores per annum is allowed for managerial remuneration. a legal undertaking is required which has to be executed by a separate unit of the Development Commissioner. Sub-Contracting / Contract Farming. These favorable conditions resulted in the biggest ever corporate rush for the development of SEZs in India.Exemptions in Matters Related to Environment y y SEZs permitted to have non-polluting industries in IT and facilities like golf courses. SEZ units may also sub-contract part of their production process abroad. Vol. hotels and non -polluting service industries in the Coastal Regulation Zone area. Exemption from requirement of domicile in India for 12 mo nths prior to appointment as Director. Vol. SEZ units are exempted from public hearing under Environment Impa ct Assessment Notification. Exemption from port restriction under Drugs & Cosmetics Rules.1. which are enforced by the respective State Governments. Any proposal for setting up of SEZ unit in the Private / Joint / State Sector is routed through the concerned State government who in turn forwards the same to the Department of Commerce with its recommendations for consideration. desalination plants. However. etc required for the establishment of SEZ units. Enhanced limit of INR 2. Agreement to opening of Regional office of Registrar of Companies in SEZ. The is responsible for providing periodic reports to the Development Commissioner and Zone Customs as provided in Appendix 14 -I F of the Handbook of Procedures. Normal Labour Laws are applicable to SEZs. They have formulated policies. For this particular purpose. State Governments play a very active role to play in the establishment of SEZ unit.

Goods imported/procured locally are duty free and could be utilized over the approval period of 5 years. Exemption from customs duty on import of capital goods.53. raw materials. y Such SEZ shall make security arrangements to fulfill all the r equirements of the laws. Duty free import or domestic procurement of goods for setting up of the SEZ units. from the domestic market. The Indian government is expecting an investment to the tune of Rs. Allowed to carry forward losses. etc. 162 companies received in -principle approval and 100 companies received notification to set up SEZs. 15 year corporate tax holiday on export profit ± 100% for initial 5 years. y Detailed guidelines on setting up of SEZ in the Private/Joint/State S ector is given in Appendix 14-II. spares. Exemption from Central Excise duty on the procurement of capital goods. rules and procedures applicable to such SEZ.561 crore (USD 13274 million) and an additional job creation for 15. pollution control and the like.75. consumables. They shall also comply with industrial and labour laws as may be locally applicable. Advantage and Di advantage Advantages y y y y y y y y Over 234 companies received formal approval. is also consulted while considering the proposal.452 individuals in SEZs by December 2009 . Representative of the State Government. y The SEZ units shall abide by local laws . The applicant also has the option to submit the proposal directly to the Board of Approval. y Wherever the SEZs are landlocked. an Inland Container Depot (ICD) will be an integral part of SEZs. raw materials. who is a member of the Inter-Ministerial Committee on private SEZ. Term and Condition Only units approved under SEZ scheme would be permitted to be located in SEZ.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. 50% for the next 5 years and up to 50% for the balance 5 years equivalent to profits ploughed back for investment. y Minimum area of 1000 hectares will not be applicable to product specific and port/airport based SEZs. 14 | P a g e . rules. y 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. sewerage disposal. No licence required for import made under SEZ units. and consumable spares.N of Handbook of Procedures Volume I. regulations or laws in regard to area planning. etc.

Enhanced limit of Rs. The sale of goods or merchandise that is manufactured outside the SEZ (i. its various models and the life cycle of its business before initiating any policy or investments for these projects. External Commercial Borrowings up to $ 500 million a year allowed without any maturity restrictions. Setting up Off-shore Banking Units (OBU) allowed in SEZs. no strikes would be allowed in such companies without giving t he employer 6 weeks prior notice in addition to the other conditions mentioned in the Industrial Disputes Act. The number of units applying for setting up EOU's is not commensurate to the number of applications for setting up SEZ's leading to a belief that this project may not match up to expectations.40 crores per annum allowed for managerial remuneration. 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. 1947. The Government has exempted SEZ Units from the payment of stamp duty and registration fees on the lease/license of plots. the rationale behind the rapid economic and industrial growth of the Indian SEZ policy is being questioned. the goods are meant f or undertaking authorized operations. so that they can acquire at cheap rates and create a land bank for themselves. No routine examination by Customs officials of export and import cargo. Many traders are interested in SEZ.e. Revenue losses because of the various tax exemptions and incentives. From payment of Service Tax. provided that. in DTA) and which is purchased by the Unit (situated in the SEZ) is eligible for deduction and such sale would be deemed to be exports. SEZ development has become the most controversial issue for India today. 2. ³Write-off´ of unrealized export bills is permitted up to an annual limit of 5% of their average annual realization. Location of SEZ in India At present there are 8 functional special economic zones located at: y y y y Santacruz (Maharashtra) Cochin (Kerala) Kandla and Surat (Gujarat) Chennai (Tamil Nadu) 15 | P a g e . Disadvantages y y y y Despite all the efforts. Exemption from requirement of domicile in India for 12 months prior to appointment as Director. OBU's allowed 100% income tax exemption on profit earned for three years and 50 % for next two years. It is very important to understand all aspects of SEZs such as basic concepts. Since SEZ units are considered as µpublic utility services¶. Despite the fact that the existing SEZ Act and FDI Policies for SEZs are very lucrative.y y y y y y y y y y y y y Exemption from payment of Central Sales Tax on the sale or purchase of goods.

4 62379.2 3086.4 110.P.9 63263. Moradabad and Greater Noida (U. 18 approvals have been given for setting up of SEZ at y y y y y y y y y y Positra (Gujarat) Navi Mumbai and Kopata (Maharashtra) Nanguneri (Tamil Nadu) Kulpi and Salt Lake (West Bengal) Paradeep and Gopalpur (Orissa) Bhadohi.3 16 | P a g e .1 501257.) Vishakhapatnam and Kakinada (Andhra Pradesh) Vallarpadam/Puthuvypeen (Kerala) Hassan ( Karnataka) Jaipur and Jodhpur ( Rajasthan) State wise Distribution of outstanding SEZ projects State No of SEZs Investment (Rs bn) y Maharashtra y Karnataka y Andhra Pradesh y Haryana y Gujarat y Tamil Nadu y Uttar Pradesh y West Bengal y Orissa y Rajasthan 70610.y y y y Visakhapatnam ( Andhra Pradesh) Falta (West Bengal) Noida ( Uttar Pradesh) Indore (Madhya Pradesh) In addition.4 13605.6 40850.5 2366. Kanpur.2 21153.

2005 Introduction o The policy relating to SE s was earlier contained in oreign Trade Policy. the SE Act was enacted. 2006.000 crore over the next three years with an employment potential of over 500. 17 | P a g e .000 was also expected from the new SE s. owever. Investment of the order of s 00. In 2005. to give a long term and stable policy framework with minimal regulation. a comprehensive Special Economic ones Act 2005 was passed by Parliament in ay 2005.SE Instituti nal ramework ± erview Spec a Econo y c Zone (SEZ) c . The SE Act 2005 and the rules of the SE Act came into force from ebruary 0. apart from indirect employment during construction period of the SE s.

Exemptions. out zone supplier and residents. Co-developers and approval for units to be located in the notified area. Earlier. Preliminary Establishment Of Special Economic Zone Constitution Of Board Of Approval Development Commissioner Single Window Clearance Special Fiscal Provisions For Special Economic Zones Special Economic Zone Authority Miscellaneous Enactments (See Sections 7 And 54) Modifications To The Income-Tax Act. This system did not give confidence to investors to commit substantial funds for development of infrastructure and for setting up units. 2005 The SEZ Act 2005 is mainly divided into 7 different chapters and 3 schedules.y SEZ Act. 1961. excise. service tax. Notified Offences & Civil Suits. drawbacks and concessions including exemptions from customs duty (on goods brought into or exported from the SEZ). occupant enterprise. the policy relating to the EPZs/ SEZs was contained in the Foreign Trade Policy while incentives and other facilities offered to the SEZ developer and units were implemented through various notifications and circulars issued by the concerned ministries/departme nts. Amendment To Certain Enactments (See Section 56) Chapter I Chapter II Chapter III Chapter IV Chapter V Chapter VI Chapter VII Chapter VIII Schedule I Schedule II Schedule III y Key Issues o o The SEZ Act deals primarily with the following matters: Establishment of the SEZ and the various authorities constituted in this connection. sales tax and income tax. Offshore Banking Unit & International Financial Services Centre. Setting up of offshore banking units / International Financial Services Centre in SEZs. 18 | P a g e . A single enforcement agency/officer for certain notified offences as well as the designation of courts by the state governments for such offences committed in and for civil suits arising in SEZs o o o o y Salient Features Governance: An important feature of the Act is that it provides a comprehensive SEZ policy framework to satisfy the requirements of all principal stakeholders in an SEZ ± the developer and operator. securities transaction tax. Appointment of the Developer.

The establishment of free trade and warehousing zones to create world class trade related infrastructure to facilitate import and export of goods aimed at making India a global trading hub. approval committees are constituted to approve/reject/modify proposals for setting up SEZ units. The total number of approvals and in -principle approvals across 21 states as on October 27. 100 per cent income tax exemption for 10 years in a block period of 15 years for SEZ developers. The setting up of offshore banking units and units in an internatio nal financial service centre in SEZs. service tax. The responsibility for promoting and ensuring orderly development of SEZs is assigned to the board of approval. The labour commissioner¶s powers are also delegated to the DC. In addition. At the zone level. and 3. SEZ Rule y 2006 with Form and Annexure Introduction o SEZ Rules 2006 are the rules which lay down the complete procedure which an individual is required to follow if one intends to d evelop the SEZ or one intends to establish a unit in SEZ. was 212 and 152. respectively. 2006. The public private participation in infrastructure development. 2. 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. Incentives: The Act offers a highly attractive fiscal incentive package. 4. Affected parties may appeal to high courts against the orders of the designated courts. which ensures 1. Exemption from custom duties. the Development Commissioner (DC) and his/her office is responsible for exercising administrative control over a zone. 100 per cent tax exemption for 5 years. 50 per cent for the next five years. It is to be constituted by the central government. 3. Finally. While the central government may suo motu set up a zone. As on date. 2. The benefits of various taxes available to a developer or a unit are also given in the SEZ rule. There has been a tremendous rush to set up SEZs since the Act came into effect in February 2006.Another major feature of the Act is that it claims to provide expeditious and single window clearance mechanisms. Tax holidays for 15 years (currently the units enjoy a seven year tax holiday). centra l excise duties. central sales taxes and securities transaction tax to both the developers and the units. Table 1 shows the current status of the upcoming SEZs. The setting up of a ³SEZ authority´ in each central government SEZ for developing new infrastructure and strengthening the existing one. i e. and 50 per cent of the ploughed back export profits for the next five years1. Infrastructure: Provisions have been made for: 1. proposals of the state governments and private developers are to be screened and approved by the board. 34 SEZs out of these approvals have been notified. 19 | P a g e .

drawbacks and concessions o Chapter V (Rule 47 to 52) o Conditions subject to which goods may be removed from a special economic zone to the domestic tariff area o Chapter VI (Rule 53. the Central Government hereby makes the following rules.2) Preliminary Chapter II (Rule 3 to16) Procedure for establishment of special economic zone Chapter III (Rule 17 to 21) Procedure for establishment of a unit Chapter IV (Rule 22 to 46) Terms and conditions subject to which entrepreneur and developer shall be entitled to exemptions. namely: SEZ Rules o o o o o o o o Chapter I (Rule 1. 2005 (28 of 2005). 54) o Foreign exchange earning ± requirements and monitoring o Chapter VII (Rule 55 to 69) o Appeal o Chapter VIII (Rule 70 To 77) o Miscellaneous y SEZ Forms o Form A Application for setting up of Special Economic Zone o Form B Format for letter of approval for SEZ developer o Form C Format for letter of approval for providing infrastructure facilities in SEZ. o Form D Bond-cum-legal undertaking for developer o Form E Format for quarterly and half-yearly report for SEZ developer/co-developer to be furnished to the development commissioner o Form F Consolidated application form o Form G Format for letter of approval for unit o Form H Bond-cum-legal undertaking for special economic zone unit o Form I Annual performance report for units o Form J Form for appeal o Form K Permanent identity card 20 | P a g e .y GSR 54 (E) In exercise of the powers conferred by section 55 of the Special Economic Zones Act.

earn foreign exchange to the country. As on 31st December 2005. 1924 units are in operation under the EOU scheme. o Objective of EOUs  The main objectives of the EOU scheme is to increase exports. o Major Sectors In EOUs            GRANITE TEXTILES / GARMENTS FOOD PROCESSING CHEMICALS COMPUTER SOFTWARE COFFEE PHARMACEUTICALS GEM & JEWELLERY ENGINEERING GOODS ELECTRICAL & ELECTRONICS AQUA & PEARL CULTURE o Export from EOU 21 | P a g e . ports of export. transfer of latest technologies stimulate direct foreign investment and to generate additional employment. is complementary to the SEZ scheme. availability of technological skills. hinterland facilities. existence of an industrial base and the need for a lar ger area of land for the project. introduced in early 1981. It adop ts the same production regime but offers a wide option in locations with reference to factors like source of raw materials.y SEZ Annexure o o o o Annexure I (See Rule 54) Guidelines for annual monitoring of performance of units in special economic Annexure II (See Sub-Rule 3 of Rule 5) Minimum area for product specific SEZ Export Oriented Unit (EOU ) y Introduction o The Export Oriented Units (EOUs) scheme.

pisciculture.28827. registering a growth of 27. bio -technology. o EOU Activities  Initially. pisicul ture. poultry.17 crores as compared to the export of Rs. EOU owner are required to submit the application form to the Development Commissioner who will then put them up to the Board of Approvals (BOA). In the above mention cases. aquaculture. Explosives and allied items of defense equipment.68%. o Choosing the location for EOU  EOUs can be set up anywhere in the country and may be engaged in the manufacture and production of software. Narcotics and psychotropic substances and hazardous chemicals. agriculture including agro-processing. horticulture. animal husbandry. Chemicals. viticulture. aquaculture. agriculture. Plastics. However. servicing. o Need For Special License To set up an EOU for the following sectors. re -engineering including making of gold/silver/platinum jewellery and articles thereof. it is to be located in an area designated as an "industrial area" before the 25th July. development of softwa re. y y y y y y y Arms and ammunition. repair. EOU has extended it area of work which includes functions like manufacturing. the proposed location should be at least 25 km away from the Standard Urban Area limits of that city unless. com puter software and printing are exempt from such restriction while choosing the area. floriculture. such as Bangalore an d Cochin.58 crores achieved during 2003-2004. Defense aircraft and warships. Distillation and brewing of alcoholic drinks. Granites and Minerals/Ores. trading. an EOU owner needs a special license. setting up of an EOU is also strictly guided by the environmental rules and regulations. an even if the EOU unit has fulfilled all locational policy but not suitable from environmental point of view then the Ministry of 22 | P a g e . Atomic substances. Exports from EOUs during 2004-2005 were of the order of Rs. Non polluting EOUs such as electronics.36806. Cigarettes/cigars and manufactured tobacco substitutes. animal husbandry. But now a day. sericulture and granites. poultry and sericulture or other similar activities. remaking. Food Processing. reconditioning. Electronics. Therefore. floricul ture. 1991. Apart from local zonal office and state government. it should be noted that in case of large cities where the population is more than one million. horticulture. EOUs were mainly concentrated in Textiles and Yarn.

As for instance. 7th April. Recognizing that settling the accounts for every consignment is complex and time consuming it has been decided to allow disposal of left over material on the basis of previous year's imports. The EOUs can export all products except prohibited items of exports in ITC (HS). 2006) y y y y The export of goods up to one and half percent of the FOB value. 23 | P a g e . For electronics hardware sector. However on a request of EOU Unit.f.5 crore and above are required to achieve positive NFEP and export US$ 3. o EOU Obligation  The EOUs are required to achieve the minimum NFEP (Net Foreign Exchange Earning as a Percentage of Exports) and the minimum EP (Export Performance) as per the provisions of EXIM Policy which vary from sector to sector. for 5 years. whichever is higher. whichever is higher. NFEP is calculated cumulatively for a period of 5 years from the commencement of commercial production acc ording to a prescribed formula. minimum NFEP has to be µpositive¶ and minimum EP for 5 years is US$ 1 million or 3 times the CIF value of imported capital goods. In order to facilitate the smooth functioning of the EOU units. The EOU units in Textile Sector are allowed to dispose off the left over material/fabrics up to 2 per cent of Cost Insurance Freight (CIF) value of imports.Environment. In such situation industrialist would be required to abide by that decisio n. the period of bonding is initially for five years. As per the Exim Policy. Government of India has right to cancel the proposal.e. which is extendable to another five years by the Development Commissioner. Recent Policy Changes in the EOUs Scheme ( w. time period can also be extended for another five year by the Commissioner / Chief Commissioner of Customs. New units engaged in export of Agriculture/Horticulture/Aqua -Culture products have been now allowed to remove capital goods inputs to the DTA on producing bank guarantee equivalent to the duty foregone on the capital goods/input proposed to be taken out.5 million or 3 times the CIF value of imported capital goods. on consignment basis. th e units with investment in plant and machinery of Rs. Volume -I (HOP). the Development Commissioners will fix time limits for finalizing the disposal of matters relating to EOUs. o Bonding Period of EOU  The EOUs are licensed to manufacture goods within the bonded time period for the purpose of export. o EOU in EXIM Policy Currently EOU scheme is mentioned in the Ch apter 9 of the Foreign Trade Policy (1997 2002) and Chapter 9 of the Handbook of Procedures.

if any. limitations. Proposals for setting up units in EOU requiring Industrial License may be granted approval by the Development Commissioner after clearance of the proposal by the EOU Board of Approval and Department of Industrial Policy and Promotion within 45 days. by products and rejects in the DTA and such other matter as may be necessary and also impose such co nditions as may be required. Udyog Bhavan payable at New Delhi. o Letter of Permission(LOP) Items of manufacture/service activity. Ministry of Commerce. three copies of the application form as mentioned in the Appendix-14I-A of the Handbook (Vol. the application is need to be signed by owner in case of an independent firm or by the partners in case of partnership firm.000/.1) are required to submit to the Development Commissioner (DC) of the concerned EOU along with 3 copies of Project Report and a Demand Draft for Rs. Central Bank of India.5. The application shall be accompanied by: y y y Project Report Income Tax Returns of the promoters Identity proof of the promoters Also.y Application Procedure o Introduction For setting up a unit in an EOU. projected annual export for the first years in dollar terms. regarding sale of finished goods. The LOP/LOI shall specify the items of manufacture/service activity. if any regarding the sale of finishe d goods. Letter of permission (LOP) and Letter of Intent (LOI) issued to EOU units by the Development Commissioner would be construed as a license for all purposes.  Conditions as may be required  Legal undertaking in Appendix 14 1F      24 | P a g e . Net Foreign Exchange Earnings Limitations. A copy of the memorandum and Articles of Association has to be filed with the application.  Such other matter as may be necessary. Net Foreign Exchange Earnings (NFE). Annual capacity Projected annual export for the first five years in dollar terms. annual capacit y.drawn in favor of Pay & Accounts Officer. Proposals for setting up units i n EOU which do not require industrial license may be granted approval by the Unit Approval Committee under the chairmanship of the Development Commissioner within 15 days. by products and rejects in the DTA. including for procurement of raw material and consumables either directly or through canalizing agency.

LOP shall have a validity period of 5 years from the date of LUT( Letter of Undertaking) and the Development Officer shall satisfy himself as to the genuine nature of the lease. Permanent email address and digital signature on the said email id. which is issued by the Superintendent of Customs and Central Excise in charge of the EOU. the uni t shall apply for renewal if it opts to continue within a period of 6 months to the Development Commissioner. it should be noted that such procurement from DTA is against CT-3. LoP / LoA issued is valid for a period of 5-years for its activities. The undertaking has a schedule which lays down list of duty free goods which are to be imported or procured from local market. EOUs are free to make replacement of exported goods which has been found defective. However. o Procurement of Goods Indigenously under CT-3 Procedure  The EOUs can procure goods from DTA (Domestic Traffic Area) without payment of Central Excise duty as mentioned in the Chapter X of Central Excise Rules. On completion of the period of approval. further imports and DTA sale shall not be permitted by the Development Commissioner. If no intimation in this regard is received. the DC will cancel the approval and take further action. it should be noted that such defective. 1944. In case of an EOU not having a permanent email id and digital signature. In case of lease obtained from private parties. o Application Procedure on Leased Land  EOU may be approved on leased land provided the lease has been obtained from the Government Dept/undertaking/agency. the unit has to execute an undertaking in prescribed form Appendix 14-1F to abide by the terms and conditions of the LOP. The EOUs are also allowed to re-import part consignment/full consignment in case of failure of the foreign buyer to take delivery. LOP must have an initial validity of 3 years by which time the unit should have commenced production. Such goods are required to be brought directly from the manufacturer /warehouse into the unit's premises under AR3A and examined by the designated officer. o Goods Imported Exported and Found Defective  As per the GR waiver grant given by the RBI. damaged or unfit for the overseas buyers. 25 | P a g e . However. Once the unit commences production. damaged or otherwise unfit for use goods are required to be brought back subsequently. to the country. o Legal Undertakings  After receiving the LOP.

consumables etc. These notifications specify the dif ferent categories of items allowed to be imported / procured duty free as well as the conditions thereof. Government of India. one copy of AR -3A is sent by registered post to the jurisdictional Central Excise authorities as a Re warehousing Certificate in token of receipt of the goods in the unit. dated 4-11995. silver and jewellery products for export . Gold. 96/93 Cus.Notifications No. packaging of products and service (i) activities for export.Notification Nos.94 and 10/95 -CE. Granite quarrying for export± Notification No. y SEZ v/ EOU o The Export Oriented Units (EOUs) scheme introduced in early 1981 is complementary to the SEZ scheme. the EOUs are allowed to procure capital goods.97 and 1/95 -CE. Goods procured from DTA and found to be defective can be returned to the manufacturer under Chapter X procedure of erstwhile Central Excise Rules. Software technology products for export .Notification Nos.12.91 (ii) and 1/95-CE. production. 26 | P a g e .Notification Nos. 1944. Floriculture. dated 8-5-2000 and (vii) 37/2000-CE. dated 4-1-1995.3. raw materials. 126/94-Cus dated 3. 196/94 Cus dated 8. ports of export.Notification Nos. 58/2000-Cus. for export . dated 4-1-1995.90. hinterland facilities. Pisciculture etc. 53/97 Cus dated 3. It adopts the same production regime but offers a wide option in locations with reference to factors like source of raw materials. To avoid separate permission every time.Notification Nos. (v) dated 8-12-1995. 140/91 Cus. Aquaculture for export.94 and (iv) 136/94-CE.6. dated 2. 277/90-Cus dated (vi) 12.10. o Customs and Central Excise Notifications of EOU Scheme y For the support and assistance of EOUs to import / procure domestic ally their requirement of raw materials. Electronic hardware products for export . The notifications are as under: General activity of manufacture. dated 23-2-1995. dated 22. a number of Customs and Central Excise notifications have been issued by the Ministry of Commerce.12. dated 8-5-2000. After examination of such goods. capital goods and office equipment without paying any duty. the EOUs are issued pre authenticated CT-3 in booklet form and against such pre -authenticated CT-3.6. 2004. existence of an industrial base and the need for a larger area of land for the project. availability of technological skills.93 (iii) and 1/95-CE. 1764 units are in operation under the EOU scheme as on March.

except rejects up to prescribed limit. raw materials. Special Economic Zone (SEZ) Imported Procedure There is no such limit for SEZ. Similarly. supplier does not have to pay CST Supplies made by Indian Suppliers Supplies to SEZ are µexports¶ and all export benefits are available.Factors Establishment Export Oriented Units (EOU) The unit can import capita goods. consumables. Infrastructure General infrastructure available to SEZ unit is much better as available to SEZ units. but prescribed records are required to be maintained. Second hand capital goods can also be imported. 27 | P a g e . Generally. Minimum investment in plant and machinery and building is Rs 100 lakhs for EOU. but prescribed records are required to be maintained. Fast Track Clearance Scheme (FTCS) for clearances of imported consignments for EOU. General infrastructure available to EOU unit is not as better as available to SEZ units. Green Channel There is no physical supervision of customs / excise authorities over production and clearances. spares etc. customs clearance for export and import is obtained within the zone itself. packing material. without payment of customs duty. all final production should be exported. except rejects up to prescribed limit. There is no physical supervision of customs / excise authorities over production and clearances. these can be procured indigenously without payment of excise duty. Generally. In case of SEZ units. This should be before commencement of commercial production. all final production should be exported. Custom Clearance Export of Final Production Central Sales Tax Central Sales Tax (CST) paid on purchases is refundable (but not local tax). Supplies made to EOU by Indian supplier are µdeemed exports¶ and supplier is entitled to benefits of µd eemed export¶. In case of SEZ unit.

Mundra SEZ will have world class Industrial. This makes Mundra SEZ the first Large Format Private SEZ to be notified by the Government of India. o Mundra SEZ is India¶s first port-based multi-product SEZ. Colleges. o Mundra SEZ would provide integrated infrastructure encompassing all infrastructure relating to business. and Social infrastructure like deve lopment of Industrial plots. on the west coast of India. to set up an SEZ at Mundra. It is also India's largest non -government cargo terminal. living. India¶s largest private port and special economic zone. Mundra Special Economic Zone Limited (MSEZ ) was incorporated in November 2003. seaport & rail. with the first phase area of 6893 acres. learning. airport. Business. to reflect the nature of business.84 times. y Mundra Port IPO o Mundra Port and special economic zone came up with an IPO in November 5 2007 to raise around $450m. The IPO received overwhelming response and got subscribed 115. sewage. as well as recreation facilities so as to make the zone self -sufficient. Mundra Port provides cargo handling and other value-added port services. water desalination plant and supply network. water recycling plant. transmission & distribution network. telecom network and multi -modal connectivity viz. MSEZ was merged with GAPL in April 2006. o The company was renamed as Mundra Port and Special Economic Zone Limited. already notified by the Government of India.Example Mundra SEZ (MSEZ) y Introduction o Mundra Port and Special Economic Zone Limited (MPSEZ ). 28 | P a g e . o The Government of India and the State Government of Gujarat have accorded the approval to the Adani Group to Develop. roads. It is the first IPO by an Indian port company. Commercial and Residential buildings. Operate and Maintain a Special Economic Zone (SEZ) at Mundra in Gujarat. Sports and Recreation facilities. The Project is referred to as Mundra SEZ. was incorporated as Gujarat Adani Port Limited (GAPL) in 1998 to develop a private port at Mundra. Entertainment. The SEZ will have all essential utilities such as power generation. o The company commenced commercial operations in October 2001. Hospital. Schools. It is spread over an area of 100 km².

quality -driven process systems. o The Adani Group's business activities operate primarily in two business sectors.50. y Benefits offered by the SEZ o The Government of India through the SEZ Policy has made available a basket of Incentives. manufacturing and services  Private infrastructure y Terminals o Mundra Port has the world's biggest coal handling terminal. Mundra port is over 180 kms. Gautam Adani. o Founded in 1988 by Chairman & Managing Director Mr. Some of the salient features are : y One of the deepest ports on the coastline of India blessed with a natural draft of 17 m. y Back-up Infrastructural facilities developed in an area of 300 acres for Dry. A leader in international trading and infrastructure development. Liquid. namely:  Global trading. y Proximity to Northern & Western hinterland of the country which generates over 42% of the total international trade of India. Through timeconscious delivery. the Adani Group is engaged in a continuous endeavour to maximize potentialities. 000 crore. Closer to Delhi than Mumbai Port & JNPT.y Promoters o The Adani Group is one of India¶s most dynamic business houses in India with an annual turnover of INR 16. Concessions and Privileges (IECP) to the SEZ Developers and the SEZ Units. total reliability and uncompromising commitment to customer satisfaction. by synergizing the multiple core competencies of the Group. and a reputation as a responsible international business house. 29 | P a g e . y The Port has dedicated infrastructure to cater to various c argo like Grain. It can import 40 million tonnes of coal annually. and capable of berthing Capesize vessels up to 1. Liquid & Container cargo. essentially translate into :  Reduced Cost of Infrastructure  Cost of Utilities  Reduced Cost of Raw Material  Reduced Cost of Capital  Reduced Cost of Manpower  Operational Ease y Advance Mundra o Mundra Port is India's largest privately developed Port equipped with state of the art technology and excellent infrastructure. Adani Group has found success around the world. the Adani Group has grown from being a trading house to a well -diversified group with interests from infrastructural development to FMCGs. It was built at a cost of Rs 2000 crore. and break new ground.000 DWT. y State of the Art mechanized Bulk handling system. The benefits available to the Developer and Unit under the SEZ Policy. POL and coal amongst others. Exemptions.

The advantages include:  Direct Tax Benefits ± Income Tax o 100% exemption for the first 5 years o 50% exemption for the sixth to tenth (next 5) years 30 | P a g e . There is an airstrip within Mundra SEZ which is under construction to facilitate movement of wide-bodied aircraft. y Linked to the national railway grid through a self -develpoed 57 kms. With a total quay length of 895 m. Air A fully functional airport at Bhuj is 65 km from Mundra SEZ. and State Highways SH-6 and SH-48. Info-comm o Drainage. the Port has four berths ranging from 180 to 225 m. It has the shortest rail route from any Port to Northern India. Additional Infrastructure facilities are: y o Airport. Container freight stations o Testing & Certification labs o Silos. y An area of 5.000 acres available for further developing the Port back up related Infrastructural facilities. besides an 85 m. in width. Railway. Healthcare & recreational facilities o Warehouses. Cool & Cold storages Road Mundra SEZ is linked to the National Highway through NH-8A ext. These berths can easily handle 9 million tones of cargo per annum on the existing inf rastructural facilities. Water Desalination & Recycling o Housing. A newly constructed at airstrip at Mandvi is at a distance of 40 km. in length and 31 m. Water. y Large tank farm area for storage of wide variety of Liquid cargo. barge berth for handling a wide variety of cargo. Education. y In-house wheat cleaning as well as rice sorting & grading facility. Long railway link capable of handling 24 rakes per day. Kandla Airport is at distance of 55 km from Mundra Port (about 5 km from the notified Mundra SEZ boundary). Gas.Ample closed and open storage space for Dry cargo. Sewage. Telecom. y Connected to NH-8 of the National Highway network. Rail Mundra SEZ has its own 57-km long rail-link and an in-zone receipt and dispatch yard which is connected to the National Railway network. The SEZ Policy of the Government of Ind ia lays down a number of financial benefits for manufacturing units in the SEZ. y Can accommodate 4 Single Point Moorings inside the Port¶s limits.. y Advantages fiscal Industries located in SEZs get a host of fiscal advantages over those located outside them. Road & Sea routes for transportation o Developed land (leveled & landscaped) with boundary walls and street lights o Utilities ± Power.

Besides the Government of India benefits.  External Commercial Borrowings upto US $ 500 Million without any specific approvals. 31 | P a g e . The Bhuj airport is a short drive away. Cost competitive financing can be availed from Offshore Banking Units (OBUs). the Gujarat government has also designed a policy that offers added incentives to the in -SEZ industrial units. for an additional 5 years. y Advantages operational  o Mundra Port and Special Economic Zone Limited.Perennial exemption in all taxes including o Excise Duty o Custom Duty o Service Tax o Value Added Tax (VAT) o Stamp Duty / Lease Tax o Entry Tax and various other State levies that would otherwise be applicable on operations Domestic Tariff Area (DTA) supplier is eligible for export benefits on SEZ sales making the sourcing cost competitive. planned to be spread over 100 sq. This large format SEZ allows flexibilty in deciding size of plot for setting up variety of Business Units. and proposed Mundra airstrip will bring airways to the Port zone.o o  50% exemption on the ploughed back profits. The Port has privately developed a 57 km railhead which is connected to the nearest railhead. This area generates nearly 70% of India¶s containerized international trade. The SEZ at Mundra will be spread over 100 Square kilometers. o SEZs offer a host of benefits that facilitate operations for in -zone industrial units. to which it is well-connected by both railways and roadways. providing excellent flexibility in  Single Window Clearance for statutory requirements  Waiver of routine Customs examination of imports and exports  Clearance of Export consignments on self -certification  100% FDI permitted through the automatic approval route except the negative list  Relaxed labour policy specifically for SEZ units(Applicable only in Gujarat)  Freedom to realize and repatriate export proceeds within 12 months  No limit on quantum of DTA sales  Foreign investments allowed for items generally reserved for the Small Scale sector  Contract manufacturing permitted with units outside the SEZ or in other SEZs y Strategic location o The Port is strategically placed with respect to the northern and western hinterland. is developing and managing a multi-sector Special Economic Zone (SEZ). km in Kutch. after ten years Exemption from Minimun Alternate Tax Indirect Tax Benefits .

office equipment. without any license or specific approval. on payment of the applicable Customs duty o Domestic sales of rejects. raw materials. consumable s. multi-sector. of capital goods. The Government approved Mundra SEZ is multi-modal. packing materials.y Port facilities and services o o o o o o o o o Berths Single Point Mooring (SPM) Marine Operations & Equipments Hydrographical Information Railway Services Container Freight Stations (CFS) Facilities Project Management Facilities Cargo Storage Facilities Cargo Handling Services y In-house facilities o The port is an end-to-end comprehensive service provider with state-of-the-art facilities including:  Mechanized bulk handling  Packaging of cargo Closed and open storage for bulk cargo  Liquid tank farm area  Cleaning and sorting of cereals  Privately developed road and rail network y In-zone options o The in-zone Mundra International Container Terminal and Mundra SEZ are value additions offering attractive options to clients of Mundra Port. What are the Fiscal benefits for a Mundra Port SEZ unit? o Single window clearance for Central and State level approvals. multi-product and is the largest SEZ in India. y Customs and Excise o Duty free import (or domestic procurement). and anything else required for implementation of their project in MPSEZ o Generous 5 year period for utilization of goods imported duty -free or goods procured locally o Exemption of domestic sales from Special Additional Duty (SAD) o Domestic sales of finished products or by -products. o The port operates with a single window clearance system of management which ensures swift clearance and rapid movement of cargo and quick turnaround time. on payment of the applicable Customs duty 32 | P a g e . MICT is a world-class container terminal capable of handling container vessels. spares. waste and scrap.

for the first 5 years. o Reinvestment allowance of up to 50% of ploughed back profits for next 5 years o Carry forward of losses to the next financial / accounting year y Foreign Direct Investment (FDI) o 100% FDI under the automatic route is allowed in MPSEZ units in the manufacturing sector. atomic substance. explosive.y Income Tax o Physical export benefit o 100% exemption from Income Tax under Sec 10A of the Income Tax Act. and 50% exemption for the next 5 years o Exemption from minimum alternate tax under section 115JB of the Income Tax Act.for details please refer to guidelines issued by the Reserve Bank of India o Entrepreneurs have freedom to bring in export proceeds without any time limit o SEZ units can keep 100% of export proceeds in an EEFC (Exchange Earner Foreign Currency) account and make overseas investment from this account o Commodity hedging is permitted o SEZ units are exempt from the interest surcharge on import finance o SEZ units are allowed to write-off unrealized export bills y Companies Act o Directors of SEZ units do not have to fulfill the requirement of 12 months domicile in India prior to appointment as Director y Sub-Contracting/Contract Farming o SEZ units are allowed to sub-contract part of their production to units in the Domestic Tariff Area or to other Export Oriented Units or SEZ units o SEZ units may also sub-contract part of their production abr oad o Agro industries in SEZ are allowed to provide inputs and equipment to contract farmers in the Domestic Tariff Area for their supplies 33 | P a g e . is allowed without any restrictions on maturity . narcotics and hazardous chemicals. distillation and brewing of alcoholic drinks and cigarettes. up to $500 million a year. ---. cigars and manufactured tobacco substitutes o There is no cap on foreign investments for items reserved for small scale industries y Banking / Insurance / External Commercial Borrowings o Setting up of Off-shore Banking Units (OBU) is permitted in MPSEZ o OBUs are allowed 100% Income Tax exemption on profits for 3 years and 50% exemption for the next two years o External commercial borrowings by SEZ units. except in the following area s: arms and ammunition.

Enclosure-9. thus providing cost-efficient solutions to the end-customers. increase output. o The proposed facility will be environment -friendly. and is expected to be operational by June 2007. o The total investment in material handling equipment is worth around 80 crores.000 kl and it is meant for the storage of Class A/B/C product. The Port also plans to expand the Gandhidham-Palanpur rail link to Broad Gauge.y Can foreign companies set up a unit in a SEZ? Yes. and enhance speed of handling with proper stockpile capacity. o The capacity of new enclosure is 60. The total investment is worth 31 crores. 2 Gottwald as well as 4 Liebherr cranes are being added to our existing facilities. Amongst the facilities being added are a bulk terminal with a 450m quay length and a depth of 17m. safe storage facilities. Amongst the facilities being added are a bulk terminal with a 450m quay length and a depth of 17m. we also propose in-motion wagon loading system for faster and more accurate loading. y Development & future plans o The Port management has ambitious plans of increasing capacity to 120 MT by 2010. o The Port management has ambitious plans of increasing capacity from 10 MT to 120 MT by 2010. o Mundra port is an integral part of the Mundra SEZ. 1 o SEZ units have to execute a bond with the Zone Customs for their operations in the SEZ o Any company set up with Foreign Direct Investment (FDI) has to also be incorporated under the Indian Companies Act to operate in India. Future plansThe development plans at Mundra Port are concentrated primarily in the areas of advanced material handling systems. 34 | P a g e . and logistics. The German made state-of-the-art cranes are expected to drastically increase current output of 1500 TPH. o Along with stacker-cum-reclaimer. increasing the tally of 100 T capacity Gottwalds to 4. which would further decrease the distance to the northern hinterland by 220 kms. The SEZ status confers significant benefits to the developers and business partners of the port. Net Foreign Exchange inflow Net Foreign Exchange outflow > 0 o SEZ units have to provide periodic reports to the Development Commissioner and Zone Customs as provided in Appendix 14 -I F of the Handbook of Procedures. in a joint venture with Indian Railways and others. while the Liebherr cranes will be commissioned on the new Terminal 2 jetty. and is expected to be fully operational by June 2006. o Long term development plans include additional berths and backup facilities that will eventually take the Port to its proj ected target in the next 10 years. a new storage facility for liquid cargo is being completed. A project under management preview is a stacker-cum-reclaimer of 2000 TPH handling capacity for the better stacking and reclaiming of coal. The 2 Gottwald cranes are operational. Vol. a foreign company can take the Automatic Approval Route to set up a unit in an SEZ. With the help of in -motion wagon loading system the Port will be able to handle about 5 to 7 coal rakes a day.

agpur. y Fire and safety o ire & Safety department of ujarat Adani Port td. o The construction of the jetty alone is expected to cost 54 crores. The length of the berth is 632 mtr.o A losed odown of 22. while another losed odown of 0. ape si e vessels will be able to berth alongside at this terminal. and can accommodate cape si e vessels with its draft of mtr. and is 7.000 sq mtr are on the cards.4 km length conversion is under construction. ollege 35 | P a g e . The internal road of 22km length is being . is expected to be completed by uly 2006. o ork on a new terminal BT or T-2) to equip the Port to handle greater container traffic is also in progress. The existing 0 km long external two-lane road connecting undra road network to Port has already been converted into a four-lane road of . o A new berth is being constructed to add to the existing all-weather multipurpose berths.2. Terminal 2 etty has a length of 575 mtr. All the &S staff are experienced and trained from ational ire Service ollege. The new Terminal -2 jetty is under construction and is being carried out by /s.000 sq mtr and a ard Stand . converted to y Port Statistics o undra Port is India¶s largest private sector port and one of the fastest growing. o The extant road network is also being upgraded. and will be provided with 4 handling facilities. 2.5 mtr wide. has state of the art fire fighting facility to deal with any emergency situation. with an available draft of mtr. The port has grown today to handle almost 0 times of the cargo that it started with at its inception ). will have a back up s and optimum area of 470 mtr X 350 mtr.6 km length.000 sq mtr are under construction. and a ard Stand of . which is a crore investment. The new container terminal is expected to be completed by April 2007. of 7.Simplex. o The proposed location of the new terminal is in continuation with the western & T side of the existing container berth. The port is well set on its path to handle 50 million tonnes of cargo by 2025 and become a major regional transshipment hub.000 sq mtr.5 mtr width. The work has been awarded to E . of which 4 km have been completed. The berth. Another 2.

especially agricultural land is a very sensitive issue in India. In against of this. Besides these crew. Ahmedabad. round the year. GAPL F&S also extend its services for community development. National Fire Academy. o Twelve watch towers exist for observation. They claimed that the acquisition of large tracts of agricultural land in the 36 | P a g e . o Fire & Safety crew man the Fire Control Room round the clock. Ahmedabad. SEZ Controver y y Introduction o Land. Often F&S team of GAPL aid in helping the nearby industries and villagers by provi ding fire fighting facility. y Security o Materials are stored and kept under the observation of the security personnel round the clock. y Jamnagar incidence o In November 2006. the resistance against SEZ in India became massive when political parties also joined the farmers. Fixed security posts at various focal points are manned by the security personnel. Patrolling is being carried out by the personnel. F&S personnel are posted at all the critical and hazardous area.000-ha) SEZ by Reliance Infrastructure. o All workers entering inside the Port are mustered with the help of electronic bar coded cards. imparting training to nearby village. town. schools in collaboration with UNDP-GSDMA and various NGOs. Worker entry permits are issued in consultation with the concerned department with whom a contractor intends to work & they are subject to a physical check at the entry/exit . 4.000-acre (approx. farmers first protested to safeguard their interes ts through litigation and court cases challenging the establishment of SEZs. farmers from the Jamnagar Dis trict in Gujarat moved the High Court of Gujarat and later to the Supreme Court in order to challenge the setting-up of a 10. o The F&S department has established safe work culture by implementing work permit system for various ac tivities.of Fire Technology. There are millions of people whose livelihood depends on agricultural land. Baroda and Gandhi Labour Institute. Movements of the vehicles at the weigh bridges are monitored by the security to avoid any manipulation in Tare/gross weight. But later on. Two fire fighting mobile units with rescue and safety equipment are kept at standby at the Fire Station to meet any emergency situation inside and outside the port premises. in case of emergency. Cargo vehicles are permitted inside the Port with cross verification of the cargo entry permits. But the introduction of SEZ in India has resulted in the dispossession of agricultural land and has affected the livelihood of farmer at large.

on the south bank of the Haldi River. Nandigram is a rural area in Purba Medinipur district of the Indian state of West Bengal. opposite the industrial city of Haldia.000 heavily armed police stormed the Nandigram area. The main objective was to remove the protestors in order to expropriate 10.villages of the district not only violated the Land Acquisition Act of 1894. Farmers of that village were against it.000 acres of land for a Special Econo mic Zone (SEZ) to be developed by the Indonesian-based Salim Group. more than 3. 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. During this incidence. It is located about 70 k m south-west of Kolkata. This led the Government to ³consider´ putting a ceiling on the maximum land area that can be acquired for multi-product zones and decide to ³go slow´ in approving SEZs. but was also in breach of the public interest. So. The above given examples show the controversies associated with SEZs. 37 | P a g e . 2007. on the order of the Left Front government on 14 March. police shot dead at least 14 villagers and wounded 70 more including children and women. In 2007 the West Bengal government decided to allow Salim Group to set up a chemical hub at Nandigram under the SEZ policy. y Nandigram Violence o The Nandigram violence is another famous incidence related to SEZ controversy.

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