This may be called the Special Economic Zones Scheme.
For the purposes of Special Economic Zone scheme, unless the context otherwise requires, the following words and expressions shall have the meanings attached to them as given in the Policy.
Status of SEZs
Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs.
Goods and services going into the SEZ area from DTA shall be treated as exports and goods and services coming from the SEZ area into DTA shall be treated as if these are being imported.
The Special Economic Zones may have areas, demarcated as,-
Processing areas for setting up of units for production of goods and rendering of services; and
non-processing areas, if any.
Setting up of SEZ in Private/joint/State Sector
A SEZ may be set up in the public, private or joint sector or by State Government. Guidelines for setting up of Special Economic Zones in the public/ private/ joint Sector or by the State Government is given in Appendix-14-IIO.
Project proposal for setting up of SEZ, recommended by the concerned State Government, shall be considered by the Board of Approval in the Department of Commerce as given in Appendix 14-ID.
On approval of the proposal, a Letter of Permission shall be issued to the developer for development, operation and maintenance of SEZ as given in Appendix-14-IIP. Format of Letter of Permission for developers engaged in operation and maintenance of SEZ is given in Appendix-14-IIQ.
Registration of Developer
The developer shall obtain RCMC from the concerned Development Commissioner of SEZ.
Entitlements of SEZ Developer
For development, operation and maintenance of infrastructure facilities in SEZs, the developer shall be eligible for the following entitlements:
(a) Income Tax exemption as per 80 IA of the Income Tax Act.
(b) Import/ procure goods without payment of Customs/Excise duty.
(c) Exemption from Service Tax
(d) Exemption from CST.
Eligibility of SEZ units
SEZ units may be set up for manufacture of goods and rendering of services.
Application /Approval and Renewal of Approval
For setting up a unit in SEZ, three copies of the application in the form given in Appendix-14-IA. may be submitted to the Development Commissioner (DC) of the SEZ concerned
Applications for setting up a unit in SEZ other than proposals for setting up of unit in the services sector (except R&D, software and IT enabled services, trading or any other service activity as may be delegated by the BOA), shall be approved or rejected by the Units Approval Committee within 15 days as per the procedure indicated in Appendix-14-IB. In other cases, approval may be granted by the Development Commissioner after clearance by the Board of Approval. Sector specific conditions relating to the approval are given in Appendix-14-IC.
Proposals for setting up units in SEZ requiring Industrial Licence may be granted approval by the Development Commissioner after clearance of the proposal by the SEZ Board of Approval and Department of Industrial Policy and Promotion within 45 days on merits.
Letter of Permission (LOP)/Letter of Intent (LOI) issued to SEZ units as per standard format indicated at Appendix-14-IE. shall be valid for a period of 3 years for commencement of production. The LOP/LOI shall be valid for a period of five years from the date of commencement of production and would be construed as a licence for all purposes. On completion of 5 years operation, the approval may be renewed by the Development Commissioner concerned for a period of 5 years at a time on receipt of application for renewal from the unit.
Each LOP/LOI shall have separate ear-marked premises and shall specify the items of manufacture/service activity, annual capacity, projected annual export for the first five years in dollar terms, Net Foreign Exchange Earnings (NFE), limitations, if any, regarding sale of finished goods, by-products and rejects in the DTA and such other matter as may be necessary and also impose such conditions as may be required
In case of any change in approved activity or undertaking any new activity by SEZ units, the Development Commissioner shall issue amended LOP within six days on receiving intimation from the unit.
The unit shall execute a legal undertaking with the Development Commissioner concerned in the form given in Appendix-14-IF.
SEZ units may export goods and services including agro-products, partly processed goods, sub-assemblies and components except prohibited items of exports in ITC (HS). The units may also export by-products, rejects, waste scrap arising out of the production process. Export of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) shall be subject to fulfillment of the conditions indicated in the ITC (HS).
SEZ units, other than trading/service unit, may also export to Russian Federation in Indian Rupees against repayment of State Credit/Escrow Rupee Account of the buyer, subject to RBI clearance, if any.
At the time of export of jewellery, the shipping bill and the invoice presented to the Customs authorities shall contain the description of the items, its weight, purity of gold/ silver/platinum, type of Gem & Jewellery stone (diamond, ruby, sapphire, cubic zircon etc.) used for studding and studding weight in carats, FOB price rate of the jewellery item, quantity in pieces and total value.
The SEZ unit may export jewellery on the basis of a notional rate certificate to be issued by the nominated agency. This rate will be based on the prevailing Gold/USD rate and the USD/INR rate in the notional rate certificate. The certificate issued by the nominated agency should not be older than 3 working days of the date of Shipment.
The exporter shall have the flexibility to fix the price and repay the gold loan within 180 days from the date of export. The price shall be communicated to the nominated agencies who will issue a certificate showing the final confirmation of the rate to the bank negotiating the document, to ensure export proceeds are realized at this rate.
Software units may undertake exports using data communication links or in the form of physical exports (which may be through courier service also), including export of professional services.
SEZ unit may import/procure from the DTA without payment of duty all types of goods and services, including capital goods, whether new or second hand, required by it for its activities or in connection therewith, provided they are not prohibited items of imports in the ITC(HS). However, if any permission is required for import under any other law, the same shall be allowed with the approval of the Board of Approval. Goods shall include raw material for making capital goods for use within the unit. The units shall also be permitted to import goods required for the approved activity, including capital goods, free of cost or on loan from clients.
In case of doubt as to whether the item is required by the unit for its activities or in connection therewith, the decision of the concerned Development Commissioner shall be final.
The import shall be subject to the following conditions:
(a) The goods shall be imported into the premises of the unit.
(b) The procedure as prescribed under Customs/ Excise rules for SEZ will be followed and general bond executed with Customs/Excise authority.
(c) Goods already imported/shipped/ arrived before the issue of Letter of Permission (LOP)/Letter of Intent (LOI) are also eligible for duty free clearance under the SEZ scheme provided customs duty has not been paid and the goods have not been cleared from customs.
SEZ units may procure goods required by it without payment of duty, from bonded warehouses in the DTA set up under the Policy and/or under Section 65 of the Customs Act from International Exhibitions held in India.
SEZ units, may import/procure from DTA, without payment of duty, all types of goods for creating a central facility for use by units in SEZ. The Central facility for software development can also be accessed by units in the DTA for export of software.
Gem and Jewellery units may also source gold/ silver/ platinum through the nominated agencies.
SEZ units obtaining gold/silver/ platinum from the nominated agencies on loan basis shall export gold/ silver/platinum jewellery within 60 days from the date of release. This shall not however apply to the outright purchase of precious metal from the nominated agencies.
SEZ units may import/procure goods and services from DTA without payment of duty for setting up, operation and maintenance of units in the Zone.
Goods, except capital goods and spares, shall be utilized within the approval period of 5 years.
Leasing of Capital Goods
SEZ unit may, on the basis of a firm contract between the parties, source the capital goods from a domestic/foreign leasing company. In such a case the SEZ unit and the domestic/ foreign leasing company shall jointly file the documents to enable import/procurement of the capital goods without payment of duty.
Capital goods procured from indigenous sources on the basis of lease agreement between the leasing company and the SEZ unit will be eligible for Central Excise exemption
The value of imported capital goods financed through leasing companies or obtained free of cost and/or loan basis shall also be taken into account for the purpose of calculation of Net Foreign exchange Earning (NFE).
Net Foreign Exchange Earnings (NFE)
SEZ unit shall be a positive Net Foreign Exchange Earner. Net Foreign Exchange Earnings (NFE) shall be calculated cumulatively for a period of five years from the commencement of production according to the following formula:
Positive NFE = A – B >0
A : is the FOB value of exports by the SEZ unit; and
B: is the sum total of the CIF value of all imported inputs and the CIF value of all imported capital goods, and the value of all payments made in foreign exchange by way of commission, royalty, fees, dividends, interest on external borrowings during the first five year period or any other charges. "Inputs" mean raw materials, intermediates, components, consumables, parts and packing materials.
If any goods are obtained from another SEZ/EOU/ EHTP/ STP unit or bonded warehouses or procured from an international exhibitions held in India or precious metals procured from nominated agencies or from advance licencing holder in fulfillment of his export obligation, the value of such goods shall be included under B.
If any capital goods imported duty free or leased from a leasing company, received free of cost and/or on loan basis or transfer, the CIF value of the capital goods shall be included pro-rata, under B for the period it remains with the unit.
For annual calculation of NFE, the value of imported capital goods and lumpsum payment of foreign technical know-how fee shall be amortized as under;
1st –10th Year : 10% each year
Maintenance of accounts
SEZ unit shall maintain proper account, and shall submit quarterly and annual report as prescribed in annexures to Appendix-14-IF to the Development Commissioner/Customs.
The unit shall be able to account for the entire quantity of each category of homogenous goods imported/procured duty free, by way of exports, sales/supplies in DTA or transfer to other SEZ/EOU/EHTP/STP units and balance in stock. However, at no point of time the units shall be required to co-relate every import consignment with its exports, transfer to other SEZ/ EOU/ EHTP/STP units, sales in the DTA and balance in stock. Any matter for clarification as to whether goods are homogenous or not shall be decided by the Unit Approval Committee. The unit approval committee shall also review imported/domestically procured goods not utilized within five-year period as part of annual performance review.
Monitoring of performance
The performance of SEZ units shall be monitored by the Unit Approval Committee as per the guidelines given in Appendix-14-IG.
Failure to ensure positive NFE or to abide by any of the terms and conditions of the LOP/LUT shall render the unit liable to penal action under the provisions of the Foreign Trade (Development & Regulation) Act, 1992 and the Rules and Orders made thereunder without prejudice to action under any other law/rules and cancellation or revocation of LOP.
DTA Sale and Supplies
SEZ unit may sell goods, including by-products, and services in DTA in accordance with the import policy in force, on payment of applicable duties.
DTA sale by service/trading unit shall be subject to achievement of positive NFE cumulatively. Similarly for units undertaking manufacturing and services/ trading activities against a single LOP, DTA sale shall be subject to achievement of NFE cumulatively.
Scrap/waste/remnants/rejects arising out of production process or in connection there with may be sold in the DTA on payment of applicable duty.
Scrap/dust/sweeping of gold/silver/platinum may be sent to the Government of India Mint/Private Mint from the SEZ units and returned to them in standard bars in accordance with the procedure prescribed by the Customs authorities or may be permitted to be sold in the DTA on payment of applicable Customs duty, on the basis of gold/silver/platinum content, as may be notified by Customs authorities.
DTA Supplies to count towards NFE
The following supplies effected in DTA by SEZ units will be counted for the purpose of fulfillment of positive NFE:
(a) Supplies effected in DTA to holders of advance licence for annual requirement/DFRC under the duty exemption/remission scheme/EPCG scheme.
(b) Supplies made to free trade Warehousing set up under the Policy and/or under Section 65 of the Customs Act where payment is received in free foreign exchange.
(c) Supplies against special entitlements of duty free import of goods.
(d) Supplies of goods and services to such organizations which are entitled for duty free import of such items in terms of general exemption notification issued by the Ministry of Finance
(e) Supply of services (by services units) relating to exports paid for in free foreign exchange or for such services rendered in Indian Rupees which are otherwise considered as having been paid for in free foreign exchange by RBI.
(f) Supplies of Electronic and IT Hardware items, having zero Customs duty provided the items are manufactured in the unit.
Supplies to other EOU/SEZ/ EHTP/STP/BTP units
Supplies to other EOU/SEZ/ EHTP/ STP/BTP units shall also be counted towards NFE provided that such goods or services are permissible to be procured/rendered by these units
Entitlement for Supplies from the DTA
DTA supplier to SEZ shall be entitled for:-
(a) Drawback/DEPB/DFRC/Advance Licence
(b) Discharge of export performance, if any, on the supplier.
Notwithstanding the above, SEZ units/SEZ Developer shall, on production of a suitable disclaimer from the DTA supplier, be eligible for obtaining the entitlement of Drawback or DEPB in lieu of Drawback.
SEZ units shall be entitled for:-
(a) Exemption from Central Sales Tax;
(b) Exemption from payment of Central Excise Duty on all goods eligible for procurement.
(d) Reimbursement of Duty paid on fuels or any other goods procured from DTA as per the rate of drawback notified by the Directorate General of Foreign Trade from the date of such notification.
Supplier of precious and semi-precious stones, synthetic stones and processed pearls from Domestic Tariff Area to the units situated in SEZ shall be eligible for grant of Replenishment Licenses at the rates and for the items mentioned in the Handbook (Vol. I).
The procedure for submission of application for grant of Replenishment Licence for cut and polished diamonds, precious and semi-precious stones, synthetic stones and processed pearls shall be as contained in the Policy. However, the application shall be made to the Development Commissioner of the SEZ concerned.
The entitlements under paragraph 7.17.1 and 7.17.3 (b) above shall be available provided the goods supplied are manufactured in India.
Export through Status holder
SEZ unit may also export goods manufactured or software developed by it, through a merchant exporter/ status holder recognized under this Policy or any other EOU/SEZ/ EHTP/STP unit subject to following conditions:
(a) The goods/software shall be produced/developed in the SEZ unit concerned.
(b) The level of NFE or any other conditions relating to the imports and exports as prescribed shall continue to be discharged by the SEZ unit concerned.
(c) The export orders so procured shall be executed within the parameters of SEZ Scheme and the goods shall be directly transferred from the SEZ unit to the port of shipment.
(d) Fulfillment of positive NFE by SEZ unit in regard to such exports shall be reckoned on the basis of the price at which the goods and services are supplied by SEZ units to the status holder/merchant exporter or other EOU/ EPZ/SEZ/ EHTP/ STP unit.
(e) All export entitlements, including recognition as status holder would accrue to the exporter in whose name foreign exchange earnings are realized. However, such export shall be counted towards fulfillment of obligation under SEZ scheme only.
SEZ units may transfer goods, including partly processed/semi-finished goods and services from one SEZ unit to another SEZ/EOU/ EHTP/STP unit. However, trading units in SEZ may sell/transfer imported goods to another SEZ/EOU/EHTP/STP units.
Goods imported/procured by a SEZ unit may be transferred or given on loan to another unit within the same SEZ, which shall be duly accounted for, but not counted towards discharge of export performance.
Capital goods imported/procured may be transferred or given on loan to another SEZ/EOU/ EHTP/ STP unit with prior permission of the Development Commissioner and Customs Authorities.
Transfer of goods as per paragraphs 7.19.1 and 7.19.2 within the same SEZ shall not require any permission but the units shall maintain proper accounts of the transaction.
Units set up in SEZs established by the Government will be charged rent for lease of industrial plots and standard design factory buildings/ sheds as per rates fixed from time to time.
Exemption from Service tax.
Exemption from income tax as per the provisions of the Income Tax Act.
FOB Value of export of a SEZ unit can be clubbed with FOB value of export of its parent company in the DTA, or vice versa, for the purpose of according Star Export House Status;
Foreign Equity up to 100% is permissible for all manufacturing activities under automatic route except for the following:
(a) arms and ammunition, explosives and allied items of defence equipment, defence aircraft and warships
(b) atomic substances;
(c) narcotics and psychotropic substances and hazardous chemicals
(d) distillation and brewing of alcoholic drinks; and
( e) cigarettes/cigars and manufactured tobacco substitutes
Sectoral norms as notified by the Government shall apply to foreign investment in services and trading activities
SEZ units may retain 100% of their export proceeds in their EEFC account.
Export value of goods, software and services by SEZ units may be realized and repatriated to India as per the RBI instructions in the matter.
Software units may, in addition, also be allowed to use the computer system for training purpose (including commercial training) subject to the condition that no computer terminal shall be installed outside the Zone premises for the purpose
Procurement of raw materials and export of finished products shall be exempt from Central levies.
Exemption from Industrial Licensing for manufacture of items reserved for SSI sector
State Trading Enterprises Policy shall not apply to SEZ manufacturing units. Export of iron ore shall however be subject to the decision of the Government from time to time. Requirements of other conditions like minimum export price/export in consumer pack as per Exim Policy shall apply in case the raw materials are indigenous and exported without further processing/manufacturing by the SEZ unit. Export of textile items shall be covered by bilateral agreements, if any. Wood based units shall comply with the direction of Hon'ble Supreme Court contained in its order dated 12.12.1996 in Writ (civil) No, 202 of 1995- T.N.Godavarman Thirrumulppad v/s Union of India and others with WP(Civil) no 171 of 1996 in regard to use of timber/other wood.
SEZ unit may install one fax machine at a place of its choice, outside the Zone, subject to intimation of its location to the concerned Customs/Central Excise authorities.
SEZ units may, temporarily take out of the Zone duty free laptop computers and video projection systems for working upon by persons authorised by unit
SEZ units may install personal computers not exceeding two in number imported/ procured duty free in the registered/administrative office subject to the guidelines issued by Department of Revenue in this behalf
For IT and IT enabled services, persons authorized by the software units may access the facility installed in the SEZ unit through communication links.
SEZ unit, including gem and jewellery units, may subcontract a part of their production or production process through units in the DTA or through other SEZ/EOU/EHTP/ STP units with the annual permission of Customs authorities. Subcontracting of part of production process may also be permitted abroad with the approval of the Development Commissioner.
All units, including gem and jewellery, may sub-contract part of the production or production process through other units in the same SEZ without permission of Customs authorities subject to records being maintained by both the supplying and receiving units
Sub-contracting by SEZ gems and jewellery units through units in other SEZ or EOUs or units in DTA shall be subject to following conditions:-
(a) Goods, finished or semi-finished, including studded jewellery, taken outside the zone for sub- contracting shall be brought back to the unit within 90 days.
(b) No cut and polished diamonds, precious and semi-precious stones (except precious/semi-precious stones and synthetic stones having zero duty) shall be allowed to be taken outside the zone for sub-contracting.
(c) Receive plain gold/silver/platinum jewellery from DTA/EOU/SEZ units in exchange of equivalent quantity of gold/silver/ platinum and the wastage thereon as may be notified, as the case may be, contained in the said jewellery.
(d) SEZ units shall be eligible for wastage as applicable for sub-contracting and against exchange
Scrap/waste/remnants generated through job work may be cleared from the job worker’s premises on payment of applicable duty or destroyed in the presence of Customs/Excise authorities or returned to the unit. Destruction shall not apply to gold, silver, platinum, diamond, precious and semi precious stones.
Export of finished goods from the job worker's premises may be permitted provided such premises are registered with the Central Excise authorities. Where the job worker is SEZ/EOU/EHTP/STP unit, no such excise registration is required and export may be effected either from the job workers’ premises or from the premises of the unit. Export of such products from the job worker's premises shall not be allowed through third parties as provided in the Policy.
SEZ units may, on the basis of annual permission from the Customs authorities, undertake jobwork for export, on behalf of DTA exporter, provided the finished goods are exported directly from SEZ units and export document shall jointly in the name of DTA/SEZ unit. For such exports, the DTA units will be entitled for refund of duty paid on the inputs by way of Brand Rate of duty drawback.
SEZ units may be permitted to remove moulds, jigs, tools, fixtures, tackles, instruments, hangers and patterns and drawings to the premises of sub-contractors, subject to the conditions that these shall be brought back to the premises of the units on completion of the job work within a stipulated period. The raw materials may or may not be sent along with these goods.
In case of sub-contracting of production process abroad, the goods may be exported from the sub-contractor premises subject to the conditions that job work charges shall be declared in the export declaration forms, invoices etc. and full repatriation of foreign exchange shall be ensured by the SEZ unit.