SEZ

Presented by

Manoj Shah - Shah & Modi

Structure of SEZ BILL• Chapter I - Preliminary

• Chapter II - Establishment of Special Economic Zone

• Chapter III - Board of Approval

• Chapter IV - Development Commissioner

• Chapter V - Approval Committee

• Chapter VI - Setting up of Units

• Chapter VII - Fiscal provisions relating to SpecialEconomic Zones

• Chapter VIII - Special Economic Zone Authority

• Chapter IX - Miscellaneous

Establishment of SEZ

• Proposal from Developer to State Govt.

• State Govt., may submit recommendation to Board of

Approval (A Central Govt.,body).

• Board of Approval may either accept or modify the

proposal on certain terms & conditions.

• After BoA’s communicating its approval, Central Govt.,

shall notify SEZ.

• Development Commissioner shall monitor the

performance of Developer.

Implications on Area getting Notified asSEZ

• SEZ shall be deemed to be a territory outside theCustoms territory of India for carrying out authorisedoperations

• SEZ shall be deemed to be a port or a land customsstation, as notified u/s 7 of Customs Act, 1962.

Areas within SEZ

May be demarcated as :

• Processing areas (for setting up of units for

manufacture of goods or rendering of services)

• Non processing areas

Definitions of Export & Import

Export means :

• taking out of India any goods or rendering any services

from India by land, sea or air or by any other mode

• Supply of goods or services from DTA into a SEZ

• Supply of goods and services by a unit to another unit

or Developer in the same or different SEZ

Defn. Continued….

Import shall mean:

• bringing into a SEZ any goods or rendering of any

services within such Zone from outside India

• receiving of goods and services by a unit or Developer

from another unit of the same SEZ or a different SEZ

Exemption from Taxes etc.

Subject to the conditions prescribed, any goods or

services exported out of or imported into a SEZ

shall be exempt from payment of :

• Central Taxes, Duties or Cess under the

Central Laws prescribed in First Schedule

List of Central Laws

• Customs Act, 1962

• Customs Tariff Act, 1975

• Central Excise Act, 1944

• Additional duty of Excise (Goods of SpecialImportance) Act, 1957

• Additional Duty of Excise (Textile and TextileArticles) Act, 1975

• Medicinal and Toilet Preparations (Excise Duties) Act,1957

List of Central Laws Contd…...

• Sugar (Special Excise Duty) Act, 1959

• Sugar Export Promotion Act, 1958

• Service Tax under Section 66 of Finance Act, 1994

• Central Sales Tax Act, 1956

• Mineral Products (Additional Duties of Excise andCustoms) Act, 1958

• Sugar (Special Excise Duty) Act, 1950

• Duty of Excise under the Sugar (Production andRegulation) Act, 1974

List of Central Laws Contd…...

• The Spices Cess Act, 1986

• The Agricultural & Processed Food Products Export CessAct, 1986

• The Rubber Act, 1947

• The Tobacco Cess Act, 1975

• The Marine Products Export Development Authority Act,1972

• The Tea Act, 1953

• The Agriculture Produce Cess Act, 1940 and 1966

List of Central Laws Contd…...• The Produce Cess Act, 1966

• The Textile Committee Act, 1966

• The Jute Manufacturers Cess Act, 1983

• The Industries (Development and Regulations) Act,1951

• The R&D Cess Act, 1986

• The Salt Cess Act, 1953

• The Coal Mines (Conservation and Development) Act,1974

• The Oil Industry (Development) Act, 1974

• The Sugar Cess Act, 1982

Benefits to Developer

• Exemptions from following duties/taxes on goods andservices brought into SEZ for Development, Operation &Maintenance thereof

• Customs Duty

• Excise duty

• Service Tax

• Sales Tax on sale or purchase from DTA or from Units ofSEZ

• Benefit of Drawback

Incentives/Benefits Contd...

• Goods & Services admitted from DTA shall be treated asExport

• Deduction in respect of Profits & Gains from Total Income

• Income by way of dividends or interest or long term capitalgains of an Infrastructure Capital Fund or Company frominvestments made in an Enterprise engaged wholly in thedevelopment operation & maintenance of SEZ

Benefits to Developer Contd..

• Exemption from Dividend Distribution Tax

• Benefits to Subscriber

• Subscription to equity shares/debentures for use

wholly and exclusively for development, operation &

maintenance of SEZ by Developer shall be treated as

“eligible issue of capital” for the purpose of Rebate

under Income Tax Act.

Benefits to Units in SEZ

• Exemption from duties & taxes on capital goods, rawmaterials, consumables, office equipment or such otheritems as may be required for setting up,operation &maintenance of units

– customs duty

– Excise duty

– Sales Tax (sale or purchase from DTA to SEZ units orsale/purchase between units of same or different SEZshall be considered as export and import for the purposeof Central Sales Tax,1956

Benefits to Units in SEZ Contd...

• Deduction in respect of profits & gains derived byowner of unit from Total Income of an entrepreneurunder Income Tax Act.

• 100% of profits for a period of 5 consecutiveAssessment years starting from previous year in whichunit begins to manufacture

• 50% of profits for further five assessment years andthereafter

• 50% of profits for next 10 consecutive assessmentyears, subject to creation of Reserve called “SEZ Re-investment Allowance Reserve”

Benefits to Units in SEZ Contd...• Conditions on Utilisation of Reserve:

• to be utilised within 3 years on purchase of machinery

• until the acquisition of machinery for the purpose ofbusiness ( but not for distribution of dividends or creationof assets outside India)

• Non fulfil lment of this condition will result in loss ofexemption in case where amount is util ised in violation ofconditions, in the year when it is so utilised and in casewhere amount is not util ised in the year immediatelyfollowing the period of 3 years

Benefits to Units in SEZ Contd...

• other conditions of present Sec.10A of new unit etc.,shall also apply to this new proposed Section 10AA

• Goods admitted from DTA or between same ordifferent units of SEZ shall be regarded as exportunder Income Tax Act

• exemption from capital gains on transfer of anindustrial unit from Urban area to SEZ in terms of newproposed Sec. 54GG

Benefits to SEZ Units Contd...

• Drawback on goods & services admitted from DTA

• Exemption from Service Tax

• Exemption from MAT under Income Tax Act

Misc. provisions relating to SEZ units

• Unit shall be entitled to clear the goods manufacturedin SEZ to the DTA upto 30% of the value of exportson payment of following duties

• -- basic customs duty, safeguards duty and antidumping duty leviable on imports

• -- Central Excise

• (This refers to only manufactured goods & not toservice activities)

Misc. provisions contd..

• Every person whether employed or residing in a SEZshall be issued a identity card

• Setting up of a special court for suits of civil natureand for speedy trial of specified economic offencescommitted in SEZ

• Central Government may authorise any agency orperson for investigation in respect of specifiedeconomic offences

Summary

• SEZ bill i s attempted at making it a selfcontained code.

• It encompasses within its ambit changes inIncome Tax Act, Indian Stamp Act, InsuranceAct & Banking Regulation Act