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Special Economic Zones in India - An Overview of Statutory Provisions
Special Economic Zones in India - An Overview of Statutory Provisions
Rajkumar S. Adukia
09323061049/093221 39642
radukia@vsnl.com
rajkumarfca@gmail.com
http://www.carajkumarradukia.com
©Rajkumar S. Adukia 1
Agenda
Overview
Laws applicable
Important
definitions
Administrative setup
Monitoring of SEZ
and SEZ Units
©Rajkumar S. Adukia 2
Role of SEZ s In Indian Economy
©Rajkumar S. Adukia 3
Overview
SEZ are delineated duty-free enclaves treated as a foreign
territory for the purpose of trade operations, Duties and
tariffs
Developed in the public, private or joint sectors, or by the
State Governments or any person for manufacture of goods
or rendering services or both or as a FTWZ
Import / export operations of the SEZ units on self-
certification basis.
SEZ units have to be a net foreign exchange earner
©Rajkumar S. Adukia 4
SEZ Framework
Ha
ork
ss
le
w
Fr
me
ee
Fiscal incentives Thrust on self-
Fra
Op
& regulatory certification &
e ra
benefits i cy in-zone
Pol
ti n
empowerment
gE
al
nti
nv
SEZ
ir
e
fer
on
me
Pre
nt
Integrated Infrastructure
Self-contained &
Self-managed
©Rajkumar S. Adukia 5
Salient Features of SEZ
©Rajkumar S. Adukia 6
Overview
Individual Undertaking Group of Undertakings
FTZ
100% EOU
EPZ
EHTP
IFSC
OBU Units
STP
Units SEZ
BTP FT&WZ FT &WZ
Units
©Rajkumar S. Adukia 7
Overview contd..
EOU/EHTP/STP/BTP FTZ/EPZ/SEZ
Earlier Covered by Chapter
Covered by Chapter 6
7 and 7A of Foreign Trade
of Foreign Trade
Policy (2004-09)
Policy (2004-09) Chapter 7 and 7A relating
Can be located to SEZ and FT&WZ are
anywhere in the India deleted w.e.f 07/04/2006
Can be Located in India at
those locations notified by
Government of India
©Rajkumar S. Adukia 8
History
All 8 EPZs converted into SEZs :-
©Rajkumar S. Adukia 9
Future SEZs
Petroleum, Chemicals Manufacturing
& Petrochemicals Investment Regions
investment regions
PCPIRS MIRS
©Rajkumar S. Adukia 10
Statistics
Currently there are 948 units in operation in the 15
functional SEZs.
The SEZ units provide employment to about 1.10 Lakhs
persons (out of which 40% are Females)
Exports from SEZ
Year Export ( Rs Crores)
2003-04 13,854
2004-05 18,309
2005-06 22,309
©Rajkumar S. Adukia 11
Exports From SEZ
25000
20000
15000
Rs in Crores
10000
5000
0
2003-04 2004-05 2006-07
©Rajkumar S. Adukia 12
Free Trade Warehousing Zones
Special category of SEZ with a focus on trading and
warehousing
Aims at creation of world class infrastructure for
warehousing of various products
These Zones operate on the same lines as SEZ
The country’s First FTWZ at Haldia in West Bengal has
already received in-principle clearance from centre as joint
venture between IL&FS and MMTC
©Rajkumar S. Adukia 13
SEZ as ‘Port’
Central Government is empowered to notify a Special
Economic Zone as
port
inland container depot
land station
land customs stations
under section 7 of the Customs Act, 1962:
(Section 53(2) of SEZ Act , 2005)
©Rajkumar S. Adukia 14
Customs Act,1962
As per section 7(a) of Customs Act ,1962 Central
Government can appoint ports or airports for Loading of
imported goods and loading of exported goods
As per section 29(1) of Customs Act ,1962 vessel or
aircraft entering India from place outside India must land
only at custom port or a Custom Airport
©Rajkumar S. Adukia 15
NO INTERMEDIARY
©Rajkumar S. Adukia 16
Self Certification
All inward or outward movement of goods into or from the
Zone by the Unit or Developer shall be based on self
declaration
No routine examination of these goods shall be made
unless specific orders of the Development Commissioner
or the Specified Officer are obtained.-( Rule 75 of SEZ
Rules 2006)
©Rajkumar S. Adukia 17
A Director can be non-resident
As per Schedule XIII Part I clause (e) of Companies Act,1956
one of the condition for appointments as a Managing or Whole
Time director is that he should be resident In India
This is not applicable to Companies in SEZ Provided they
enter in India after obtaining proper Employment visa from the
concerned mission abroad and
Such Person is required to furnish along with visa application
form Profile of the company ,Principal Employer and terms
and conditions for such employment
©Rajkumar S. Adukia 18
Definition of Resident as per
Schedule XIII of Companies
Act,1956
Resident in India includes a person who has been
staying in India for a continuous period of not less than
12 months immediately preceding the date of
employment as a managerial person and who has come
to stay in India
i. For taking up employment in India
ii. For carrying on a business or vocation in India
©Rajkumar S. Adukia 19
Maximum Limit of remuneration
raised in case of SEZ Companies
In Schedule XIII Part II section II of Companies Act,1956 there are
maximum Limits for Maximum managerial remuneration in case of
companies having no profit or inadequate profit depending on effective
capital of the company with prior approval of Central government
Maximum Limit is Rs.4,00,000 p.m for companies
This limit is raised to Rs 20,00,000 p.m in case of companies in SEZ
provided these companies have not raised money by public issue and
not made default in repayment of debt or interest
©Rajkumar S. Adukia 20
Laws
applicable to
SEZ
©Rajkumar S. Adukia 21
Laws applicable to SEZ
Concept of SEZ was first introduced in EXIM Policy
( now termed as Foreign Trade policy) announced on 31st
March 2000 by Government of India
Chapter 7 of Foreign Trade policy and Chapter 7 of Handbook
of procedures ( as amended on 07/04/2006 w.e.f 01-04-2006)
state that policy relating to SEZ is governed by SEZ 2005 and
rules framed there under
The SEZ Act 2005 and SEZ Rules, 2006 came into effect from
10th February 2006
©Rajkumar S. Adukia 22
Laws applicable to SEZ
©Rajkumar S. Adukia 27
Overriding Effect (Section 51 of
Special Economic Zones
Act,2005)
The provisions of the Special Economic Zones Act ,2005
shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in
force or in any instrument having effect by virtue of any
law other than this Act
This was emphasized in the Instruction Number 6/2006
dated 03/08/2006 issued by SEZ Section Department of
commerce
©Rajkumar S. Adukia 28
Certain Provisions not to
Apply to SEZ
After introduction of Special Economic Zones
Rules,2006 following are not applicable to SEZ
Chapter X-A Of The Customs Act, 1962
Special Economic Zones (Customs Procedure)
Regulations, 2003
Special Economic Zones Rules,2003
Section 52 states that these will be withdrawn by issue of
Notification.
Notification No SO 320(E)
Dated 14/03/2006
©Rajkumar S. Adukia 29
State SEZ Policy
Some States have also come out with their own SEZ Policy
and /or SEZ Act
SEZ Policy Provide inter alia provide for
Exemption from state sales tax /VAT and other state levies
Exemption from electricity duty
Single window approval for state level clearances
Declaration of Development Commissioner as Labour
Commissioner under the Industrial Disputes Act.
Simplification of returns and inspection systems.
©Rajkumar S. Adukia 30
Important Definitions
©Rajkumar S. Adukia 31
Following important definitions are
defined in Special Economic Zones
Act,2005
S.No Definitions Section
1 Developer 2(g)
2 Domestic Tariff Area 2(i)
3 Export 2(m)
4 Import 2(o)
5 International Financial Service Centre 2(q)
6 Manufacture 2(r )
7 Off Shore Banking Unit 2(u)
8 services 2(z)
©Rajkumar S. Adukia 32
Definition of Developer and
DTA
“Developer” means a person who, or a State Government
which, has been granted by the Central Government a letter of
approval under sub-section (10) of section 3 and includes an
Authority and a Co-Developer ( Section 2(g) of Special
Economic Zones ACT ,2005)
“Domestic Tariff Area” means the whole of India (including
the territorial waters and continental shelf) but does not include
the areas of the Special Economic Zones ( Section 2(i) of
Special Economic Zones ACT ,2005)
©Rajkumar S. Adukia 33
Manufacture
Sec 2( r )
Manufacture means to And include Processes
1. Make 6. refrigeration
2. Produce 7. cutting
3. Fabricate 8. polishing
4. Assemble 9. blending
5. Process or bring into 10. repair
existence, by hand or by 11. remaking
machine,
12. re-engineering
©Rajkumar S. Adukia 35
Services-Rules 76
1. Trading 8. graphic information system
2. warehousing services
3. research and development 9. human resources services,
services 10. insurance claim processing
4. computer software services, 11. legal data bases
including information enabled 12. medical transcription,
services such as back-office 13. Payroll
operations
14. Remote Maintenance
5. call centers
15. revenue accounting,
6. content development or
animation, 16. support centers and web-site
services
7. data processing, engineering
and design,
©Rajkumar S. Adukia 36
Services-Rules 76
25. Distribution services
17. off-shore banking services 26. environmental services
18. professional services 27. financial services
(excluding legal services and 28. hospital services
accounting) 29. other human health services
19. rental/leasing services without 30. tourism and travel related
operators Services
20. other business services 31. recreational
21. courier services, 32. cultural and sporting services
22. audio-visual services 33. transport services
23. construction and related 34. services auxiliary to all
services (excluding retail modes of transport
services) 35. entertainment services,
24. educational services, 36. pipelines transport.
©Rajkumar S. Adukia 37
NEW
SEZ Amendment
Rules,2006
In Rule 76, the following Explanation shall be inserted at the
end:
©Rajkumar S. Adukia 38
Definition of Export
Export means –
(i) taking goods, or providing services, out of India, from a
Special Economic Zone, by land, sea or air or by any other
mode, whether physical or otherwise; or
(ii)supplying goods, or providing services, from the Domestic
Tariff Area to a Unit or Developer; or
(iii) supplying goods, or providing services, from one Unit to
another Unit or Developer, in the same or different Special
Economic Zone (Section 2(m) of Special Economic Zones
Act ,2005)
©Rajkumar S. Adukia 39
Definition of Import
Import means-
(i) bringing goods or receiving services, in a Special
Economic Zone, by a Unit or Developer from a place
outside India by land, sea or air or by any other mode,
whether physical or otherwise; or
(ii) receiving goods, or services by, Unit or Developer from
another Unit or Developer of the same Special Economic
Zone or a different Special Economic Zone; (Section 2(o)
of Special Economic Zones Act ,2005)
©Rajkumar S. Adukia 40
Administrative
set up for SEZs
©Rajkumar S. Adukia 41
Administrative set up for
SEZs
1) Board of approval is apex body in department
2) Each Zone is headed by Development Commissioner
who is also heading approval committee
3) Approval Committee at the Zonal Level dealing with
approval of units in SEZ and other related issues
©Rajkumar S. Adukia 42
Board of approval
©Rajkumar S. Adukia 43
Address of Board of approval
Board of Approval
SEZ Section
Department of Commerce
Ministry of Commerce and Industry
Udyog Bhavan
New Delhi – 110011
©Rajkumar S. Adukia 44
Approvals for Special economic
zones
©Rajkumar S. Adukia 45
NEW CAP ON SEZs
The empowered Group of Ministers on Special
Economic Zones, headed by the Defence Minister,
Mr Pranab Mukherjee, decided on 23.08.2006 to
remove the existing cap on the number of SEZs
that can be established within the country.
Decided that approvals for new SEZs would
resume only after 75 SEZs were made operational
©Rajkumar S. Adukia 46
Major Functions of Board-Sec
9(2)
Granting of approval or rejecting proposal or modifying
such proposals for establishment of SEZ;
granting approval of authorised operations to be carried
out in the SEZ by the Developer
granting approval to the Developers or Units
for foreign collaborations and foreign direct
investments,in
the SEZ for its development, operation and maintenance
granting approval or rejecting of proposal for
providing infrastructure facilities in SEZ
©Rajkumar S. Adukia 47
Development Commissioner
The Central Government may appoint any of its officers
not below the rank of Deputy Secretary to the Government
of India as the Development Commissioner of one or more
Special Economic Zones.-Sec 11 of Special Economic
Zones Act ,2005
Every Development Commissioner shall take all steps in
order to discharge his functions under this Act to ensure
speedy development of the Special Economic Zone and
promotion of exports there from.-Sec 12(1) of Special
Economic Zones Act ,2005
©Rajkumar S. Adukia 48
Major functions of Development
Commissioner- Sec 12(2)
Guide the entrepreneurs for setting up of Units in
the Special Economic Zone;
Ensure and take suitable steps for effective promotion of
exports from the Special Economic Zone
Ensure proper co-ordination with the Central
Government or State Government Departments concerned or
agencies with respect to, or for the purposes specified above
monitor the performance of the Developer and the Units in a
Special Economic Zone ;
©Rajkumar S. Adukia 49
Approval Committee
©Rajkumar S. Adukia 50
Major functions of approval
committee-Sec 14(1)
Approve the import or procurement of goods from the
Domestic Tariff Area, in the SEZ for carrying on the
authorised operations by a Developer
Approve the providing of services by a service provider, from
outside India, or from the Domestic Tariff Area, for carrying
on the authorised operations by the Developer, in the SEZ
Monitor the utilisation of goods or services or warehousing or
trading in the SEZ
Approve, modify or reject proposals for setting up Units for
manufacturing or rendering services or warehousing trading
in the SEZ
©Rajkumar S. Adukia 51
Monitoring of
performance
©Rajkumar S. Adukia 52
Performance reports- Rule
22(3) and (4)
The unit shall submit Annual performance reports in Form
I to the development commissioner
The Developer shall submit Quarterly Report on import
and procurement of goods from the Domestic Tariff Area,
utilization of the same and the stock in hand, in Form E to
the Development Commissioner and the Specified Officer
©Rajkumar S. Adukia 54
Monitoring of performance
Performance of the Unit shall be monitored by the
Approval Committee as per the guidelines given in
Annexure appended to the rules.
In case the Approval Committee come to the conclusion
that a Unit has not
achieved positive Net Foreign Exchange Earning
failed to abide by any of the terms and conditions of the
Letter of Approval or Bond-cum-Legal Undertaking
the said Unit shall be liable for penal action under the
provisions of the Foreign Trade (Development and
Regulation) Act, 1992 ( Rule 54 of SEZ Rules 2006)
©Rajkumar S. Adukia 55
Contravention of Provision of
Foreign Trade (Development
and Regulation), Act 1992
Penalty amount
©Rajkumar S. Adukia 56
GUIDELINES FOR ANNUAL MONITORING OF
PERFORMANCE OF UNITS.(Annexure I of SEZ
Rules, 2006)
Number of year from date of Monitoring
commencement of production
©Rajkumar S. Adukia 60
If an enterprise is
operating both as a
Domestic Tariff Area
unit as well as a
Special Economic
Zone Unit, it shall have
two distinct identities
with separate books of
accounts but it shall no
t be necessary for
special Economic Zone
Unit to be a separate
Legal Entity
Rule 19(7)
©Rajkumar S. Adukia 61
Books of Accounts
Rule 22(2)
Every Unit and Developer shall maintain proper accounts,
financial year wise, and such accounts should clearly
indicate in value terms
the goods imported or procured from DTA
consumption or utilization of goods
production of goods, including by-products, waste or scrap or
remnants
Exports
sales or supplies in the DTA
Transfer to SEZ or EOU or EHTP or STP or BPU
Balance in stock
©Rajkumar S. Adukia 62
Sub Contracting
©Rajkumar S. Adukia 63
Sub Contracting-Rule 41
A Unit, may subcontract a part of its production or any
production process, to
a unit(s) in the Domestic Tariff Area or
in a Special Economic Zone or
Export Oriented Unit or
a unit in Electronic Hardware Technology Park or
Software Technology Park unit or
Bio-technology Park unit
with prior permission of the Specified Officer to be given on
an annual basis
©Rajkumar S. Adukia 64
Conditions for sub-contracting –
Rule 41
(a) the finished goods requiring further processing or semi-
finished goods including studded jewellery, taken outside
the Special Economic Zone for sub-contracting shall be
brought back into Unit within 120 days or extended time
(b) Wastage shall be permitted as per the wastage norms
admissible under the Foreign Trade Policy read with the
Handbook of Procedures
(c) the value of the sub-contracted production of a Unit in any
financial year shall not exceed the value of goods produced
by the Unit within its own premises in the immediately
preceding financial year:
©Rajkumar S. Adukia 65
Conditions for sub-contracting
abroad –Rule 41(2)
©Rajkumar S. Adukia 66
Conditions for sub-contracting in
another unit within same SEZ
–Rule 42(4)
(i) the movement of goods shall be under serially numbered
challans and record of such movement of goods shall be
maintained by the Unit;
(ii) raw material imported or procured by the Unit for
manufacture of capital goods may be transferred to another
unit for the purpose of manufacture or fabrication of
capital goods for use by the Unit which had imported or
procured the raw materials.
©Rajkumar S. Adukia 67
Conditions -Sub-contracting for
Domestic Tariff Area unit for export.
Rule 43
(a) all the raw material including semi-finished goods and
consumables including fuel shall be supplied by Domestic
Tariff Area exporter;
(b) finished goods shall be exported directly by the Unit on
behalf of the Domestic Tariff Area exporter
(c) export document shall be jointly in the name of Domestic
Tariff Area exporter and the Unit
(d) the Domestic Tariff Area exporter shall be eligible for
refund of duty paid on the inputs by way of brand rate of
duty drawback.
©Rajkumar S. Adukia 68
Exit of Units
The SEZ Unit may opt out of Special Economic Zone with
the approval of the Development Commissioner
Such exit shall be subject to payment of applicable duties on
the imported or indigenous capital goods, raw materials,
components, consumables , spares and finished goods in stock
If the unit has not achieved positive Net Foreign Exchange, the
exit shall be subject to penalty that may be imposed under the
Foreign Trade (Development and Regulation), Act, 1992
The Unit shall continue to be treated a unit till the date of final
exit.(Rule 74 of Special Economic Zones, 2006)
©Rajkumar S. Adukia 69
website : www.sezindia.nic.in
©Rajkumar S. Adukia 70
About World export processing
zones Association ( WEPZA)
Founded in 1978 by the United Nations
WEPZA is the private non-profit World Association of
Economic Processing Zones and Free Trade Zones.
It is an independent association dedicated to the
improvement of the efficiency of all Economic Processing
Zones (EPZs)
©Rajkumar S. Adukia 71
www.wepza.org
©Rajkumar S. Adukia 72
WEPZA aims at improving the efficiency of the EPZs through:
Periodic exchange of information at WEPZA Conferences and
Workshops
Recruiting and training EPZ Management
Research on markets and trade flows supplied to members as the
WEPZADB database
Creation and maintenance of the WEPZA Website on the Internet
Cooperative Transport arrangements to reduce costs
Networks of subcontracting and purchasing among zone factories
Cooperative promotion of EPZs to manufacturers and services
providers worldwide
Periodic discussions between EPZs and the
manufacturing/services community
Representing Free Zones and EPZs before international bodies in
defense of their interests and their freedoms
©Rajkumar S. Adukia 73
Web-sites
Government
– http://www.commerce.nic.in/
– http://dgftcom.nic.in/-
– http://www.sezindia.nic.in
– http://dbtindia.nic.in/
– http://www.mit.gov.in/
©Rajkumar S. Adukia 74
Web-sites….
• SEZ
– www.seepz.com- seepz
– www.kasez.com- kandla
– www.csez.com- cochin
– www.mepz.com- madras
– www.vepz.com- vizag
– www.fepz.com- falta,kolkatta
– www.nepz.com- noida
– www.riico.com- jaipur
©Rajkumar S. Adukia 75
Web-sites…
STPI
– http://www.stpp.soft.net/site_map.htm
– http://www.blr.stpi.in/index.htm- Bangalore
– http://www.stpkol.soft.net/- Kolkatta
– http://www.chennai.stpi.in/stpc.html- Chennai
– http://www.hyd.stpi.in/index.html- Hyderabad
– http://www.stpj.soft.net/- Jaipur
– http://www.stpmum.soft.net/- Mumbai
– http://www.stpn.soft.net/- Noida
©Rajkumar S. Adukia 76
Web-sites…
BTP
– http://www.ticelbiopark.com/
– http://www.biotechcitylucknow.org/
– http://www.iciciknowledgepark.com/icicikp/ind
ex.asp
– http://www.ibpl.net/
©Rajkumar S. Adukia 77
QUESTIONS/
SUGGESTIONS/
COMMENTS ???
©Rajkumar S. Adukia 78