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SEZ REGULATORY COMPLIANCE DOCUMENTATION
DEVELOPMENT PLAN FOR THE SEZ DEVELOPER
Special Economic Zones An Introduction
The SEZ scheme has its origin when Government of India (GoI) first introduced the concept of
SEZ in the Export -Import Policy 2000 with a view to provide an internationally competitive and
hassle free environment for exports. Special Economic Zones (SEZs) are hence specifically
delineated duty-free enclaves treated as a foreign territory for the purpose of industrial, service
and trade operations, with exemption from customs duties and a more liberal regime in respect
of other levies, foreign investment and other transactions
The main objectives of SEZ scheme can be briefly stated as:
1) Attract Foreign Direct Investment (FDI)
2) Earn foreign exchange and contribute to exchange rate stability
3) Boost the export sector, especially non-traditional exports
4) Create employment opportunities
5) Introduce new technology
6) Develop backward regions
7) Stimulate sectors such as electronics, information technology, R & D, tourism, infrastructure
and human resource development that are regarded as strategically important to the economy
8) Create backward & forward linkages to increase the output and raise the standard of local
enterprise that supply goods and services to the zone. Unlike most of the international instances
where zones are primarily developed by Governments, the Indian SEZ policy provides for
development of these zones in the government, private or joint sector. This offers equal
opportunity to both Indian and international private developers.
Legal Framework
Previously Special Economic Zones in India were governed by Chapter X-A of the Customs Act,
the Special Economic Zones Rules, 2003, and the Special Economic Zones (Customs Procedures)
Regulations, 2003 and Chapter 7 and 7A of Foreign Trade Policy.
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However, w.e.f. 10th February, 2006 the activities relating to Special Economic Zones are guided
by the provisions contained in the Special economic zones Act, 2005 and the Special Economic
Zones Rules, 2006. After the enactment of the SEZ Act, 2005 Chapter X-A of the Customs Act,the Special Economic Zones Rules, 2003, and the Special Economic Zones (Customs Procedures)
Regulations, 2003 are not in operation
Overview of the Special Economic Zones Act, 2005
The Special Economic Zones Act 2005 consists of 8 chapters, 58 sections and 3 schedules. The
provisions of this Act 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. (Section 51)
The Act provides for the following:
1) Procedure for making proposal to establish SEZ( Sec 3)
2) Establishment of SEZ with the approval from Board of Approvals( Sec 4)
3) Notifying an area as SEZ by Central Government ( Sec 5)
4) Approval by Board of Approval for establishment of SEZ ( Sec 8 to 10)
5) Development Commissioner as administrative Authority for the SEZ ( Sec 11 and 12)
6) Approval Committee to approve setting up of an unit in SEZ( Sec 13 and 14)
7) Single window clearance by Approval Committee for setting up unit in SEZ, setting up an OBU
and setting up an IFSC.( Sec 15 to 20)
8) Enforcement officer or agency for notified offences( Sec 21 and 22)
9) Special civil courts and criminal courts to try notified offences and appeal to High Court (Sec
23 and 24)
10) Special Fiscal provisions for special economic zones( Sec 26 to 30)
11) Establishment of SEZ Authority( Sec 31 to 41)
12) Reference of dispute to arbitration( Sec 42 and 43)
13) Exemptions and relaxations from provisions of some Central Acts ( Sec 49 and 54)
14) Power of the Central Government to make rules and to remove difficulties( Sec 55 and 56)
Important Definitions in the Act
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Developer means a person who, or a State Government which, has been granted by the
Central Government a letter of approval and includes an Authority and a Co-Developer (Section
2(g))
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))
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))
Free Trade and Warehousing Zone means a Special Economic Zone wherein mainly trading
and warehousing and other activities related thereto are carried on; (Section 2(n))
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))
Infrastructure facilities means industrial, commercial or social infrastructure or other
facilities necessary for the development of a Special Economic Zone or such other facilities
which may be prescribed (Section 2(p))
International Financial Services Centre means an International Financial Services Centre
which has been approved by the Central Government under sub-section (1) of section 18;
(Section 2(q) )
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Manufacture means to make, produce, fabricate, assemble, process or bring into existence,
by hand or by machine, a new product having a distinctive name, character or use and shall
include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture,
pisciculture, poultry, sericulture, viticulture and mining; (Section 2(r))
Person includes an individual, whether resident in India or outside India, a Hindu undivided
family, co-operative society, a company, whether incorporated in India or outside India, a firm,
proprietary concern, or an association of persons or body of individuals, whether incorporated or
not, local authority and any agency, office or branch owned or controlled by such individual,
Hindu undivided family, co-operative, association, body, authority or company (Section 2(v))
Services means such tradable services which,-
(i) Are covered under the General Agreement on Trade in Services annexed as IB to the
Agreement establishing the World Trade Organization concluded at Marrakes on the 15th day of
April, 1994;
(ii) May be prescribed by the Central Government for the purposes of this Act; and
(iii) Earn foreign exchange (Section 2(z))
Unit means a Unit set up by an entrepreneur in a Special Economic Zone and includes an
existing Unit, an Offshore Banking Unit and a Unit in an International Financial Services Centre,
whether established before or established after commencement of this Act (Section 2 (zc))
Overview of the Special Economic Zones Rules, 2006
The policy relating to special economic zones is contained in Special Economic Rules, 2006
notified in the Gazette of India, Extraordinary No. GSR 54 (E), dated 10.2.2006. The Rules
contain 8 chapters, 77 rules, 11 forms - A to K and 2 Annexures Amendment were made in the
Special Economic Zones Rules by way of
1) The Special economic Zones (Amendment) Rules, 2006 which came into force on 10.08.2006
(vide Notification NO G.S.R. 470(E), dated 10-8-2006)
2) The Special Economic Zones (Amendment) Rules, 2007 ( vide Notification dated 16.03.2007)
3) The Special Economic Zones ( Second Amendment) Rules, 2007 ( vide Notification dated
12.10.2007)
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The significant features of the: Special Economic Zones Rules 2006 are as follows:
1) Simplification of procedures for development, operation, and maintenance of the SpecialEconomic Zones and for setting up and conducting business in SEZs;
2) Single window clearance for setting up of an SEZ;
3) Single window clearance for setting up a unit in a Special Economic Zone;
4) Single Window clearance on matters relating to Central as well as State Governments;
5) Simplified compliance procedures and documentation with an emphasis on self-certification;
6) Documentation for various activities of the units has been reduced to the barest minimum
with an emphasis on self-certification.
7) No requirement for providing bank guarantees, thereby reducing transaction costs;
8) Contract manufacturing for foreign principals allowed;
9) Option to obtain sub-contracting permission at the initial approval stage
Important definitions in the Rules include:
Special Economic Zone for multi-product means a Special Economic Zone where Units may
be set up for manufacture of two or more goods in a sector or goods falling in two or more
sectors or for trading and warehousing or rendering of two or more services in a sector or
rendering of services falling in two or more sectors (Rule 2 (za))
Special Economic Zone for specific sector means a Special Economic Zone meant exclusively
for one or more products in a sector or one or more services in a sector (Rule 2(zb))
Special Economic Zone in a port or airport means a Special Economic Zone in an existing
port or airport for manufacture of goods in two or more goods in sector or goods falling in two or
more sectors or for trading and warehousing or rendering of services (Rule 2(zc))
Area requirements for different SEZ can be summarized as under
S.No SEZ Type Minimum Area Minimum Processing Area
1 Multi Product 1000 hectares but not
exceeding 5000 hectares
35%
2 Multi Service 100 hectares 25%
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3 Specific Sector 100 hectares 50%
4 Electronic Hardware
and Software
10 hectares (with 1 Lac square
meter built up area)
50%
5 Bio Technology/Non
conventional energy
10 hectares (with a minimum
built-up area of forty thousand
square meters)
50%
6 Gems and Jewellery
Sector
10 hectares (with a minimum
built-up area of fifty thousand
square meters)
50%
7 Free Trade and
warehousing Zone
40 hectares (with 1 Lac square
meter built up area)
-
8 Stand alone 40 hectares (with 1 Lac square
meter built up area)
50%
9 Specific Sector No minimum area requirement
but subject to max area not
exceeding 20% of the
processing area
-
Approval mechanism:
The Amended Rules now provide for a distinction between In-principle Approvals (to be given,
subject to acquisition of land, in the newly notified Form B 1), and a Formal Approval (in cases
where the land is in possession), to the Developer.
Besides, The Rules provide for the validity of In-principle Approvals for a period of one year,
extendable, upon request, to a further period not exceeding two years.
For the purpose of obtaining a Notification of the SEZ, the Developer has now to furnish also a
certificate from the State Government or its authorized agency, stating that the Developer has
legal possession and irrevocable rights to develop the identified area as an SEZ, and that the said
area is free from all encumbrances.
SITE IDENTIFICATION, LAND ACQUISITION, RESETTLEMENT & REHABILITATION:
The provisions of the Land Acquisition Act and the Resettlement and Rehabilitation Policy as
framed by the Ministry of Rural Development will be applicable for acquisition of land for SEZ
also. However, while identifying the location for setting up of Special Economic Zones, the SEZ
Developer may keep in view the following aspects:
(i) As far as possible, SEZs may be located outside an urban agglomeration/municipal limit.
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(ii) Sufficient land and water resources for the population envisaged in the SEZs should be
available.
(iii) Cultivable land should be considered only if adequate quantum of other land is notavailable. First preference should be for acquisition of waste and barren land, followed by single
crop land and double crop land necessary to meet the contiguity requirements.
(iv) Site shall have potential for development as a self-contained entity along with
environmental sustainability.
(v) As far as possible SEZs shall be self-contained with respect to basic facilities and
requirements.
(vi) The developer may also strive to create facilities such as industrial training centres, ITIs,
vocational training programmes and other such community development programmes for the
benefit of the people impacted by the establishment of the Zone in association with the
Government or Non-Governmental agencies as considered appropriate.
DEVELOPMENT PLAN FOR ENGINEERING SEZ:
The Developer of the SEZ shall make a Development Plan, keeping in view the following aspects:
(i) Site analysis and assessment of physical and natural resources
(ii) Broad spatial plan showing land use pattern, road and other infrastructure
(iii) Activity nodes for location of industrial, commercial, trade and commerce and other
employment generating activities serving as nucleus for development around which other
activities are likely to come up.
(iv) Sectoral infrastructure plan, including fast track and efficient linkages/provision of
transportation with the mother city and other urban centres of the region.
(v) Development Plan for SEZ be prepared with a perspective of 20-25 years and shall be broken
up into short term Action Plans of five years each;
(vi) The plans need to be adequately backed by investments plans/programmes for infrastructure
to be implemented in a phased manner.
(vii) Planning of SEZs may adopt different kind of development low-rise and low-density
development or high rise, medium density or high-rise and high-density urban form depending on
the availability of land requirement of the operating units
(viii) Developers of the SEZs would strive to address environmental aspects as prescribed by law,
planned green areas, ground water recharging areas and disaster mitigation aspects.
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Role of State Government: SEZs may be located in a regulated or any non-regulated area. For a
SEZ falling within the regulated area, the State Government may constitute an Empowered
Committee under the Chairmanship of Chief Secretary and consisting of representatives fromvarious Ministries/Departments to prepare the guidelines for the development of Special
Economic Zone with regard to land usage, floor space level, environmental provisions, safety
measures and such other matters as may be required. It may also ensure compliance of the
approved master plan and may approve any modification in the plan if required by the Developer
and provide the guiding principles for town planning and urban development standards to be
implemented by the developer.
In case of SEZ falling in a non-regulated area, the master plan should conform to the overall
urban development guidelines of the State Government if there are none by the State
Government.
The authority for approving the building plans must be delegated to the Approval Committee of
the Zone headed by the Development Commissioner. The Committee will also have nominee of
the concerned Department of the State Government to ensure compliance to the policy of the
State Government on the subject.
The Master Plan approval shall be granted by the State Government on a time bound basis within
45 days of submission of Draft Master Plan related documents. This would include clearance from
the land ceiling provisions. For this purpose, the guidelines circulated by the Department of
Commerce vide letter No:H.5/3/2007-EPZ dated 24.1.2008 to the State Governments on creation
of Empowered Committee for granting all kinds of State Governments approval may be kept in
view.
Processing area and Free Trade Warehousing Zone (FTWZ):
The provision relating to the height of the boundary wall / wire mesh fencing, etc. of the
relevant areas in an SEZ have been deleted. It is now provided that the entry and exit points
shall be fully secured by taking such measures as approved by the Board.
PHYSICAL INFRASTRCTURE:
(i) External Connectivity: External connectivity for SEZs being critical to the success of the SEZ,
Developer should evolve a development and create adequate external infrastructure for the SEZs
on a time bound basis.
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(ii) Water Supply: There should be planning for adequate provision for water supply to meet
both residential and nonresidential demand of water. Best practices should be adopted for
conservation and recycling of water. The Zone should be adequate facilities for rainwaterharvesting. If water is drawn in bulk from an existing water supply system, the storage reservoir
may suitably be sited.
(iii) Drainage: The drainage system shall be designed based on the soil conditions, ie. Water
absorption capacity of the soil, area of pen spaces and other non-residential uses. The storm
water drainage system shall be designed keeping in view the historical rainfall intensity of the
area.
(iv) Sewarage: Adequate and appropriate sewerage system should be put in place by the
Developer in accordance with the developmental plan. Sewerage treatment plant facilities may
be provided for the SEZ as a whole. The prevailing wind direction should also be considered
while orienting the development in the pockets adjoining sewerage treatment plant. For pockets
adjoinining sewerage treatment plants, think clusters of tress could be planted to act as a
buffer.
(v) Solid Waste management: Properly designed enclosures at suitable places in the SEZ shall be
provided for depositing segregated solid waste. Appropriate landfill sites away from the SEZ shall
be earmarked as per the National Urban Housing Policy 2007. These houses shall be provided to
the labour and staff of the developers and units in the Zone. The employers would take thee
houses on long-term lease and would rent out to the employees. Proper space for street vendors
in the commercial areas shall be provided keeping in view the National Policy on Urban Street
Vendors, 2009.
(vi) Medical & Food Facilities: Developers shall provide appropriate medical facilities in the
zone for use by the residents & employees. Developers should also provide low cost food
facilities for workers living in dormitories.
(vii) Mass Transportation: Developer shall provide mass transportation facilities in the Zone. The
State Government will provide appropriate connectivity for mass transportation from the nearby
towns to the Zone and the Developer will take appropriate steps for the same.
(viii) Training and Manpower: The developer shall be responsible for setting up technical
education facilities on need basis in non processing area which will include Polytechnics,
courses for higher education as well as facilities for evening
(ix) Power Supply: It would be appropriate that the SEZ shall be self-dependent on power supply
and the SEZs should be able to provide 7x24 hours uninterrupted quality power supply. The
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power supply should be based on multiple supply lines and not liable to single line point failures.
It would be desirable to plan for captive power plants. Overhead lines need to be minimized.
The Zone should adopt best practices in energy conservation, including use of LEDs.All buildings should have built in provisions for Solar Energy use and maximum use of solar energy
may be made through solar energy power systems for heating and lighting purposes for
industrial, institutional buildings and public buildings and places.
(x) Telecommunications: A Zone must have optical fibre connectivity to provide state-of-the-art
high speed communication link for audio and video to the users in the zone. There should be a
video conferencing facility in the office of the Developer and the DC in the Zone which should be
operational for use by the DC for reviews as well as for meeting with the State Government
Departments/Central Government Departments as well as investors.
(xi) Housing: Five per cent of the total area must be used for constructing low cost housing and
dormitories in all SEZs of a size of 100 hectares or more. In case of a SEZ of a size of less than
100 hectares, developers should provide low cost housing /dormitories to the employees
depending upon the need of the classes for the nearby areas of each Zone to provide qualified
manpower in the units coming up in the Zone.
(xii) Regional Development: SEZs being centres for economic activity, will have the influence of
developing township around it. State Governments have therefore been instructed to look at the
development of the area around the Zone in a planned manner in particular for SEZs around
which there is no commercial or industrial activity. Developers will work with the State
Government to achieve the same objective.
Infrastructure in Non-processing Area:
Incorporating the restriction indicated in the Notification dated 27 October 2006, the Rules now
provide that infrastructure for business or social purposes in an SEZ created in addition or excess
of those approved by the Board shall not be eligible for any exemptions, concessions or
drawback.
PROVISIONS RELATING TO THE FUNCTIONING OF THE SPECIAL ECONOMIC ZONES
Grant of Approval for authorized operations:
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All exemptions, drawbacks and concessions shall be available as per procedure laid down in Rule
12 after the SEZ has been notified in the Gazette (Rule 9 of The Special Economic Zones Rules,
2006). The normal time period for a SEZ to be notified is one month from date of approval
Permission for procurement of items: (Rule 10 of The Special Economic Zones Rules,2006 )
a) These benefits will also be available to the contractors appointed by the developer/
codeveloper and all the documents in such cases shall bear the name of the developer or co-
developer along with the contractor and these shall be filed jointly in the name of the developer
or co-developer and the contractor.
b) The developer or co-developer shall be responsible and liable for proper utilization of goods in
all cases.
Processing and Non-processing area:
a) The Development Commissioner of the SEZ shall be the authority for demarcating the areas
within the SEZ(Rule 3(1) of The Special Economic Zones Rules,2006)
b) Only authorised persons shall be allowed to enter the processing area of the SEZ(Rule 11(4) of
The Special Economic Zones Rules,2006)
c) The land or built up space in the processing area or FTWZ shall be given on lease only to the
entrepreneurs holding a valid Letter of Approval issued under Rule 19 and the lease period shall
not be less than five years but notwithstanding any other condition in the lease deed, the lease
rights would cease to exist in case of the expiry or cancellation of the Letter of Approval
(Amended Rule 11(5) of The Special Economic Zones Rules,2006)
d) The Developer may with the prior approval of the Approval committee grant on lease land or
built up space for creating facilities such as canteen, public telephone booths, first aid centres,
crche and such other facilities as may be requires for the exclusive use of the unit(proviso to
Rule 11(5) of The Special Economic Zones Rules,2006)
e) The developer may allot land in the processing area on lease basis to a person desiring to
create infrastructure facilities for use by prospective units.( Rule 11(8) of The Special Economic
Zones Rules,2006)
f) The developer shall not sell the land in a SEZ (Rule 11(9) of The Special Economic Zones
Rules,2006)
g) No vacant land in the non-processing area shall be leased for business and social purposes such
as educational institutions, hospitals, hotels, recreation and entertainment facilities, residential
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and business complexes, to any person except a co-developer approved by the Board. However,
the developer or co-developer may lease the completed infrastructure along with the vacant
land appurtenant thereto for such purposes (amended Rule 11(10) of The Special EconomicZones.
h) Infrastructure for business or social purposes in the Special Economic Zone, as may be
approved by the Board, shall be eligible for exemptions, concessions, drawback and any such
infrastructure created in addition or in excess thereof shall not be eligible for any exemptions
concessions and drawback (amended Rule 11(10) of The Special Economic Zones (Second
Amendment) Rules,2007)
Import and Procurement:
The Rules have been amended to extend exemption from payment of duty, taxes or cess,
drawbacks and concessions on all types of goods and services, required for setting up and
maintenance of factory buildings, also to contractors appointed by the SEZ Unit. The Unit shall
be held responsible and liable for the proper utilization of such goods and services.
Sub-contracting by the Developer:
The amended Rules allow a Developer, Co-developer or Contractor on their behalf, to
temporarily remove the goods procured duty free for authorized operations, to a place in the
DTA, EOU, Unit in same or other SEZ, EOU, STP Units, etc. for sub-contracting a process with
prior permission and subject to prescribed conditions. The procedure for sub-contracting the
process has been prescribed.
Proposals not to be considered- Rule 18(4)
(a) Recycling of plastic scrap or waste:
(b) Enhancement of the approved import quantum of plastic waste and scrap beyond the average
annual import quantum of the unit since its commencement of operation to the existing Units;
(c) Reprocessing of garments or used clothing or secondary textiles materials and other
recyclable textile materials into clipping or rags or industrial wipers or shoddy wool or yarn or
blankets or shawls:
(d) Import of other used goods for recycling, Reconditioning, repair and reengineering may be
permitted subject to the condition that exports shall have one to one correlation with imports
and all the reconditioned or repaired or re-engineered products and scrap or remnants or waste
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shall be exported and none of these goods shall be allowed to be sold in the Domestic Tariff Area
or destroyed;
(e) Export of Special Chemicals, Organisms, Materials, Equipment and Technologies unless itfulfils the conditions indicated in the Import Trade Control (Harmonized System) Classifications
of export and import items;
(f) If there is any instance of violation of law or public policy by the promoters, having a bearing
on the merits of the proposal.
Cancellation of letter of approval to entrepreneur:
Sec 16 of The Special Economic Zones Act, 2005
(i) The approval Committee may at any time if it has any reason to believe that the entrepreneur
has persistently contravened any of the terms and conditions or its obligations subject to which
the letter of approval was granted to the entrepreneur, cancel the letter of approval
(ii) No such letter of approval shall be cancelled unless the entrepreneur has been afforded a
reasonable opportunity of being heard.
Monitoring
Rule 15 of the Special Economic Zones Rules, 2006
The utilization of the goods imported or procured from the Domestic Tariff Area by the
Developer shall be monitored by the Approval Committee.
Period of lease:
The period of lease of land or built-up space in the processing area / FTWZ by the Developer to
the Unit shall be subject to the following conditions:
- Shall not be less than 5 years
- Shall cease on expiry or cancellation of the Units letter approval
Letter of Approval to a unit
Rule 19 of The Special Economic Zones Rules, 2006
a) The Letter of Approval shall be valid for one year within which period the Unit shall
commence production or service or trading or Free Trade and Warehousing activity and the Unit
shall intimate date of commencement of production or activity to Development Commissioner
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b) Further extension may be granted by the Development Commissioner for valid reasons to be
recorded in writing for a further period not exceeding two years on a request by the
entrepreneurc) The Development Commissioner may grant further extension of one year subject to the
condition that two-thirds of activities including construction, relating to the setting up of the
Unit is complete and a chartered engineers certificate to this effect is submitted by the
entrepreneur.
d) If the Unit has not commenced production or service activity within the validity period or the
extended validity period the Letter of Approval shall be deemed to have been lapsed with effect
from the date on which its validity expired.
e) The Letter of Approval shall be valid for five years from the date of commencement of
production or service activity and it shall be construed as a licence for all purposes related to
authorized operations, and, after the completion of five years from the date of commencement
of production, the Development Commissioner may, at the request of the Unit, extend validity of
the Letter of Approval for a further period of five years, at a time.
f) 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 not
be necessary for the Special Economic Zone unit to be a separate legal entity:
Bond cum Legal undertaking
Rule 22 (1) of The Special Economic Zones Rules, 2006
i. The Unit shall execute a Bond-cum-Legal Undertaking in Form H, with regard to its obligations
regarding proper utilization and accountal of goods, including capital goods, spares, raw
materials, components and consumables including fuels, imported or procured duty free and
regarding achievement of positive net foreign exchange earning;
ii. Bond-cum-Legal Undertaking executed by the Unit or the Developer including Co-Developer
shall cover one or more of the following activities, namely: -
(a) The movement of goods between port of import or export and the Special Economic Zone;
(b) The authorized operations, as applicable to Unit or Developer;
(c) temporary removal of goods or goods manufactured in Unit for the purposes of repairs or
testing or calibration or display or processing or sub-contracting of production process or
production or other temporary removals into Domestic Tariff Area without payment of duty;
(d) Re-import of exported goods.
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iii. The Bond-cum-Legal Undertaking, where the entrepreneur or Developer is a company shall be
executed by the Managing Director of the company or the Director(s) or any person who has or
have been duly authorized for this purpose by a resolution of the Board of Directors of thecompany and shall be affixed with the common seal of the company
iv. The value of the Bond-cum-Legal undertaking shall be equal to the amount of effective duties
leviable on import o procurement from the Domestic Tariff Area of the projected requirement of
capital goods, raw materials, spares, consumables, intermediates, components, parts, packing
materials for three months as applicable but which will not be levied on account of admission of
such goods into the Unit or the amount of effective duties leviable on import or procurement
from Domestic Tariff Area of the projected requirements of goods for the authorized operation
by the developer but will not be levied on account of admission of such goods into the Special
Economic Zone;v. If the value of Bond-cum-Legal undertaking executed falls short on account of requirement of
additional goods, the Unit or the Developer shall submit additional Bond-cum-Legal Undertaking;
vi. If no communication is received within seven working days from the date of its submission,
the duly completed Bond-cum-legal undertaking executed by the Unit or Developer, in
accordance with the rules above, as the case may be, shall be deemed to have been accepted,
Maintenance of accounts and submission of performance report
Rule 22(2) of The Special Economic Zones Rules, 2006
(i) Every Unit and Developer shall maintain proper accounts, financial year wise,
(ii) Such accounts which should clearly indicate in value terms the goods imported or procured
from Domestic Tariff Area, consumption or utilization of goods, production of goods, including
by-products, waste or scrap or remnants, disposal of goods manufactured or produced, by way
of exports, sales or supplies in the domestic tariff area or transfer to Special Economic Zone or
Export Oriented Unit or Electronic Hardware Technology Park or Software Technology Park Units
or Biotechnology Park Unit, as the case may be, and balance in stock
(iii) Unit and Developer shall maintain such records for a period of Seven years from the end of
relevant financial year
(iv) The Unit shall submit Annual Performance Reports in Form I, to the Development
Commissioner and the Development Commissioner shall place the same before the Approval
Committee for consideration.
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Utilization of goods
Rule 34 of The Special Economic Zones Rules, 2006
(i) The goods admitted into a Special Economic Zone shall be used by the Unit or the Developeronly for carrying out the authorized operations
(ii) if the goods admitted are utilized for purposes other than for the authorized operations or if
the Unit or Developer fails to account for the goods as provided under these rules, duty shall be
chargeable on such goods as if these goods have been cleared for home consumption
Movement of goods to and from non-processing area
Rule 40 of The Special Economic Zones Rules, 2006
The movement of goods to and from non-processing area to a processing area and from one
processing area of Special Economic Zone to a different processing area of the same Special
Economic Zone shall be under serially numbered challans pre-authenticated by the owner or
Managing Director or working partner or the company secretary or by any person duly authorized
in this behalf by the company or firm, as the case may be, and the challans shall contain
complete description of goods.
Monitoring of performance
Rule 54 of The Special Economic Zones Rules, 2006
(1) Performance of the Unit shall be monitored by the Approval Committee
(2) In case the Approval Committee finds that a Unit has not achieved positive Net Foreign
Exchange Earning or 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(without prejudice to the
action that may be taken under any other law for the time being in force)
Identity Cards
Rule 70 of the Special Economic Zones Rules, 2006
(i) The entry of persons to the processing area of the Special Economic Zone shall be regulated
by the Development Commissioner through issue of identity cards.
(ii) This identity card shall be valid up to a period of five years and shall be issued, in the format
given in Form K, to the entrepreneurs and regular employees of the Units:
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(iii) If any employee who has been issued an identity card ceases to be in employment of the
Unit or Developer, the said identity card shall be surrendered forthwith and shall be deemed to
be invalid from such date(iv) Temporary identity card may be issued by the Development Commissioner to the casual
visitors and contractors and a proper record of such entries shall be maintained at the Special
Economic Zone Gate;
Foreign Exchange Remittances
Rule 71 of the Special Economic Zones Rules, 2006
Export value of goods, software and services may be realized and repatriated as per instructions
of the Reserve Bank of India issued from time to time.
Facilities/ exemptions/ benefits to special economic zones
Exemption from Taxes, Duties or Cess Sec 7 & Sec 54 of the Special Economic Zones Act, 2005
Any goods or services exported out of, or imported into, or procured from the Domestic Tariff
Area by, -
(i) A Unit in a Special Economic Zone; or
(ii) A Developer;
Shall, subject to such terms, conditions and limitations, as may be prescribed, be exempt from
the payment of taxes, duties or cess under all enactments specified in the First Schedule
Direct Tax Incentives for SEZ Developers
100% tax holiday for the business of developing SEZ available for a period of any 10
consecutive years out of 15 years beginning from the year in which the SEZ is notified.-
Sec 80- IAB
Exemption from Minimum Alternate Tax (MAT) on income accruing or arising on or after
April 1, 2005 from business carried on or services rendered
No Dividend Distribution Tax (DDT) payable on dividends declared, distributed or paid
from April 1, 2005 onwards out of current income.- Sec 111 -O (6)
Exemption on interest and capital gains available to investors in SEZ developers- Sec 10
(23G).
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Investment income in the form of interest or long term capital gains, of an infrastructure
capital company from investments made in an enterprise engaged in the development,
operation or maintenance of a SEZ are exempt from tax The above benefits are also available in respect of co-developers providing infrastructure
facilities
Direct Tax Incentives for SEZ Units
15 year tax holiday (100% for first 5 years, 50% for next 5 years and up to 50% for next 5
years subject to creation of reserves) on export profits available to units commencing
business after April 1, 2005.-Sec 10AA
Exemption from capital gains arising on transfer of certain assets on shifting of
undertaking from a notified urban area to any SEZ.-Sec 54GA
Exemption from MAT on income accruing or arising on or after April 1, 2005 from
business carried on or services rendered.- Sec 115 JB (6)
Certain exemptions also available in respect of IFSC/OBUs located in SEZs- Sec 80LA
Indirect Tax Incentives for SEZ Developers/Units
Exemption from customs duty on goods/services imported or exported. [Supplies from
Domestic Tariff Area (DTA) to SEZ to be treated as exports while those from SEZ to DTA
to be treated as imports].
Exemption from excise duty on goods procured from DTA.
Drawback or any other admissible benefits on goods brought or services rendered by
DTA.
Exemption from service tax on taxable input services.
Exemption from Central Sales Tax on interstate sale or purchase of goods except for
newspaper.
Removal of goods into DTA also permitted subject to prescribed conditions and on
payment of all applicable customs duty leviable on importation of such goods into India
Other Incentives
State government shall
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Provide exemption from electricity duty or taxes on sale of self generated or purchased
electric power for use in processing area of an SEZ
Allow generation, transmission, distribution of power within a SEZ subject to theprovisions of the Electricity Act
With respect to each Special Economic Zone all such transactions between the Zones or within
the Zone or both, including the transactions of land acquisition for development of the Zone
between the developer or co-developer and land owners and land transactions between the
developers or co-developers and the units, carried out after declaration of the Zone by the
Government of India, shall be exempt from the following State taxes, cess and levies namely:
Purchase tax, Sales tax and Turnover tax
Specified sales (Lease tax) in respect of lease of goods
Stamp duty for the first transaction between the Developer or co-developer and the
land-owner and the first transaction between the Developer or co-developer and the
Units
Registration fee for the first transaction between the Developer or co-developer and the
land-owner and the first transaction between the Developer or co-developer and the
Units
Land assessment tax
Electricity duty and tax (Only for sales to Units in processing area)
Water pollution cess
Works Contract tax
Industrial Township:
State Governments have been asked to take appropriate steps to declare the SEZs as industrial
townships under Article 243Q of the Constitution with appropriate governing body giving suitable
representation to the SEZ developer, units and SEZ residents.
General:
The developer and State Government will have to take a longterm view for developing
infrastructure facilities within the Zone, particularly in case of multi-sector SEZs.
Exit route for units in SEZ
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The Approval Committee may, at any time, if it has any reason or cause to believe that the
entrepreneur has persistently contravened any of the terms and conditions or its obligations
subject to which the letter of approval was granted to the entrepreneur, cancel the letter ofapproval (Sec 16 (1)
The entrepreneur whose letter of approval has been cancelled shall remit, the exemption,
concession, drawback and any other benefit availed by him in respect of the capital goods,
finished goods lying in stock and unutilised raw materials relatable to his Unit, in such manner as
may be prescribed( Sec 16(3))
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)
After the overview and the guidelines to the SEZ Developer in setting up of the SEZ describing
the basic operations structuring and maintaining the notified zone, we now look into the specific
issues to be addressed.
1. TRANSFER OF DEVELOPMENT RIGHTS
QIEL holds the ownership of lands, current and future. QIEL is also the approved Developer of
the SEZ in discussion. QIEL has full rights to transfer the development rights of the SEZ notified
area including providing of the infrastructure to any person and the said person shall be the co-
developer. However the co-developer cannot hold management control over the ownership of
lands notified for the SEZ. The current shareholding of QIEL in MFSEZPL is 50% in the equity share
capital. Therefore QIEL needs to hold anything more than 51% in the equity share capital of
Mumbai Futuristic SEZ Private Limited, the SPV incorporated to be the co-developer and provider
of infrastructure to the units proposed to be located in the SEZ.
2. TRANSFER OF OWNERSHIP OF LANDS
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Lands owned/to be owned by QIEL have been acquired from the local people and there is no
government grant or lease hold land lying within the notified area for the SEZ. Therefore lands
so acquired can be transferred to the Co-Developer, MFSEZPL, but MFSEZPL cannot own morelands than QIEL, who is the approved developer under the SEZ in-principle approval of the GOI. It
is recommended that QIEL holds 76% ownership of the lands notified under the SEZ and transfer
24% of the ownership of lands to MFSEZPL. This can be done by way of a sale, but it would incur
stamp duty and registration fees. The better option would be to lease 49% of the land to
MFSEZPL and also transfer development rights to it. MFSEZPL would be a full fledged co-
developer with the functions of having to provide infrastructure in the notified area, operate and
maintain the same. MFSEZPL on its part can lease out the areas provided to it for setting up units
by other proposed industries.
3. EXIT ROUTE FOR SEZ DEVELOPERS
The SEZ Act and rules dont allow scrapping an SEZ after it is notified as a tax-free enclave by
the Centre. With the liquidity crunch and the demand slowdown threatening to make several
SEZs unviable, the Centre may come up with guidelines for partial or full denotification of SEZs.
Of the formally approved 531 SEZs, 271 have been notified. While a few Developers have asked
the Centre to denotify their IT SEZs, many others have sought an extension in the mandatory
timelines. Developers get a year to convert in-principle approval (without the required land) to
formal approval, as well as between formal approval and notification. A notified SEZ project
should be up and running in three years.
However, exiting developers wont be able to just pack up and leave, as any denotification
norms will have crucial riders. They would not only have to cite valid reasons for denotification,
but also prove that they have refunded all the tax benefits with interest. Moreover, a penalty
will be imposed on a case-by-case basis.
For SEZs where the land has been given on lease by state government, the state administrations
nod would also be necessary for considering denotification applications. If the zone has units and
is populated, then it can get more complicated as the developer will have to compensate all
those affected. After units set up shop in an SEZ, it would be unfair for the government and
developers to backtrack just because the project has become unviable.
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The easier option could be that SEZ Developer could be Special Purpose Vehicle so that as and
when the exit is contemplated, the Developer can look for a buyer for that SPV as an ongoing
business. We have to examine Company Law, Sales Tax and Income Tax complications involved insuch a transfer.
Steps involved as of now are as under:
All applicable customs and excise duties within the SEZ till that date should be paid, on the
imported and indigenous capital goods, components, consumables, spares in stock.
The penalty imposed by the appropriate authority, under the Foreign Trade (Development and
Regulation) Act, 1992 for non-fulfillment of the conditions of approval, should be paid.
Units located in the Special Economic Zones would be required to immediately vacate their
premises after approval for exit from the Scheme, for which the Developer may have to
bear the cost.
Application should be made to the government for denotification.
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Registers to be maintained by SEZ
Register.Sr.No.
Register To be Maintained by Consist Of
1 Bill of Entry Register- (Thoka Register) Customs Officer Developer, Unit,Contractor
2 Import-Gate Register Developer Developer, Unit,Contractor
3 Import Register Developer, Unit &Contractor
4 ARE 1 Gate Register Developer Developer, Unit,Contractor
5 ARE 1 Register Developer, Unit &Contractor
6 DTA/Indigenous Gate Register (WithoutBenefit)
Developer Developer, Unit,Contractor
7 Indigenous Procurement Register (WithoutBenefit)
Developer, Unit &Contractor
8 Outward Register- Gate Developer Developer, Unit,Contractor
9 Temperory Removal of Goods/Material Sent forRepairs & Received back Register- Gate
Developer Developer, Unit,Contractor
10 Temperory Removal of Goods/Material Sent forRepairs & Received back Register
Developer, Unit &Contractor
11 Returnable Material Register Developer Developer, Contractor
12 Material Inward Register (Contractor Register) Developer Developer, Contractor
13 Shipping Bill Export Register (Thoka Register) Customs Officer Unit
14 Visitors Register- Gate Developer Developer, Unit,Contractor
15 Visitors Register Unit
16 Benefit Claim Register Developer, Unit &Contractor
Registers to be maintained by SEZ- At Gate
Sr.No. Register To be Maintained by Consist O
2 Import-Gate Register Developer Developer,Unit,Contractor
4 ARE 1 Gate Register Developer Developer,Unit,
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Contractor
6 DTA/Indigenous Gate Register (Without Benefit) Developer Developer,Unit,
Contractor8 Outward Register- Gate Developer Developer,
Unit,Contractor
9 Temperory Removal of Goods/Material Sent forRepairs & Received back Register- Gate
Developer Developer,Unit,Contractor
11 Returnable Material Register-Gate Developer Developer,Contractor
12 Material Inward Register (Contractor Register) Developer Developer,Contractor
14 Visitors Register- Gate Developer Developer,Unit,Contractor
Registers to be maintained by SEZ- Developer,Unit, Contractor independently
Sr.No. Register To be Maintained by
3 Import Register Developer, Unit & Contractor
5 ARE 1 Register Developer, Unit & Contractor
7 Indigenous Procurement Register (Without Benefit) Developer, Unit & Contractor
10 Temperory Removal of Goods/Material Sent forRepairs & Received back Register
Developer, Unit & Contractor
11 Returnable Material Register Developer, Contractor12 Material Inward Register (Contractor Register) Developer, Contractor
15 Visitors Register Unit
16 Benefit Claim Register Developer, Unit & Contractor
Registers to be maintained at SEZ-Customs Officer
Sr.No. Register To be Maintained by Consist O
1 Bill of Entry Register- (Thoka Register) Customs Officer Developer,Unit,Contractor
13 Shipping Bill Export Register (Thoka Register) Customs Officer Unit