Special Economic Zones Fiscal Benefits

1. SPECIAL ECONOMIC ZONES- FISCAL BENEFITSRajkumar S. Adukia 09323061049/093221 [email protected][email_address] http://www.carajkumarradukia.com

Special Fiscal Provisions relating to SEZ

Bond cum Legal Undertaking

Income Tax

Service tax

Chapter VI ofSpecial Economic ZonesAct ,2005(Section 26 to Section 30) relates to Special Fiscal Provisions for SEZ

Chapter IV of Special Economic Zones Rules, 2006 (Rule 22 to Rule 46) relates to Terms and conditions subject to which entrepreneur and developer shall be entitled to exemptions, drawbacks and concessions

Chapter V of Special Economic Zones Rules, 2006 (Rule 47 to Rule 52) relates to conditions subject to which goods may removed from Special Economic Zones to DTA

Exemptions, drawbacks and concessions on the goods and services allowed to a Developer or Co-developer will also be available to the contractors appointed by such Developer or Co-developer

All the documentsin such cases shouldbear the name of the Developer or Co-developer along with the contractor

Documents shouldbe filed jointly in the name of the Developer or Co-developer and the contractor:

Sec 7 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.

1.The Agricultural Produce Cess Act, 1940

2.The Coffee Act, 1942

3.The Mica Mines Labour Welfare Fund Act, 1946

4.The Rubber Act, 1947

5.The Tea Act, 1953 .

6.The Salt Cess Act, 1953 .

7.The Medicinal and Toilet Preparations (Excise Duties) Act, 1955 .

8.The Additional Duties of Excise (Goods of SpecialImportance) Act, 1957

9.The Sugar (Regulation of Production) Act, 1961

10.The Textiles Committee Act, 1963

11.The Produce Cess Act, 1966

12.The Marine Products Export Development Authority Act, 1972

13.The Coal Mines (Conservation and DevelopmentAct, 1974 .

14.The Oil Industry (Development) Act, 1974 .

15. The Tobacco Cess Act, 1975

16.The Additional Duties of Excise (Textile and TextileArticles) Act, 1978

17.The Sugar Cess Act, 1982

18.The Jute Manufactures Cess Act, 1983

19.The Agricultural and Processed Food ProductsExport CessAct, 1985

20.The Spices Cess Act, 1986

21.The Research and Development Cess Act, 1986

Act to make better financial provision for the Indian Council of Agricultural Research

It impose on certain articles a cess by way of customs duty at the rate of .5% on export, the proceeds of which shall be paid to the Council.(Sec 3)

It imposes cess on 21 items which are as under Bones,bristles,butter,cereals other than rice and wheat,drugs,fibre for brushes, fish, fruits, ghee, hides, manures,oilcakes,pulses,seeds,skins,spices,tobacco, vegetables,wheat,wheat flour,wool,

A duty of excise is levied at rate not exceeding Rs 6 per 100 weight as may be fixed by the Central Government on all coffee

A duty of customs is levied on all code produced in India and exported from India at rate not exceeding Rs 6 per 100weight as may be fixed by the Central Government (sec 11)

The proceeds of the duty of customs and of the duty of excise reduced by the cost of collection ispaid to the theIndian Coffee Market Expansion Board (Sec 13)

An Act to constitute a fund for the financing of activities to promote the welfare of labour employed in the mica mining industry.

A duty of customs is leviedon all mica exported at such rate, not exceeding 6.25 % ad valorem, as may from time to time be fixed by the Central Government (Sec 2)

Proceeds of the duty of customs recovered ispaid to the credit of Mica Mines Labour Welfare Fund (Sec 2)

Fund utilise the moneyto promote the welfare of labour employed in the mica mining industry

Act for the development of the rubber industry

A duty of excise is levied on all rubber produced in lndia at such rate not exceeding Rs 2 per kg of rubber as the Central Government may fix.(Section 12(1)

The proceeds of the duty of excise collected under this section reduced by the cost of collection is first credited to the Consolidated Fund of lndia

Amount collected Paid by the Central Government to the Rubber Board for being utilised for the purpose of this Act (Section 12(7)

An Act to Provide for the control by the Union of the tea industry, including the control, in pursuance of the International Agreement now in force, of the cultivation of tea in, and of the export of tea from, India and for that purpose to establish a Tea Board and levy a customs duty on tea exported from India.

Customs duty- on tea exported or taken outside India at such rate not exceeding Rs 2 per 100 pounds as the Central Government may notify in the Official Gazette (Sec 25)

The proceeds of the cess levied under is firstcredited to the Consolidated Fund of India and the Central Government may pay to the Tea Board (Sec 26)

A cess in the nature of excise duty is levied on all salt manufactured

in the case of salt manufactured in a private salt factory, at the rate of two annas per standard maund

in the case of salt manufactured in a salt factory solely owned or solely worked by the Central Government at the rate of three and a half annas per standard maund (Section 3)

It is used to meet the expenses incurred on the salt organisation maintained by Government and on the measures taken by Government in connection with the manufacture, supply and distribution of salt.

An Act for the levy and collection of duties of excise on medicinal and toilet preparations containingalcohol, opium, Indian hemp or other narcotic drug or narcotic.

Toilet preparation means any preparation which is intended for use in the toilet of the human body or in perfuming apparel of any description, or any substance intended to cleanse, improve or alter the complexion, skin, hair or teeth, and includes deodorants and perfumes (Section 2(k))

A duty of excise at the rate or rates specified in the First Schedule to this Act in respect of the following goods,namely, sugar, tobacco, cotton fabrics, rayon or artificial silk fabrics and woolen fabrics produced or manufactured in India

The duties of excise shall be in addition to the duties of excise chargeable on such goods under the Central Excises and Salt Act, 1944(Section 3)

Where the quantity of sugar produced in a factory during any year exceeds the permissible quota fixed for it for that year

there shall be levied and collected on the quantity of sugar which is produced in excess of the permissible quota

a special duty of excise at the rate at which the duty of excise is chargeable on sugar under the Central Excises Act

The special duty of excise shall be in addition to the duty of excise chargeable on sugar under the Central Excises Ac

An Act to provide for the establishment of a Committee for ensuring the quality of textiles and textile machinery and for matters connected therewith.

The Committee may levy such fees as may be

prescribed-- (a) For inspection and examination of textiles, (b) For inspection and examination of textile machinery, (c) for any other service which the Committee may render to the manufacturers of textiles and textile machinery(Section 12)

An Act that provides for the imposition of cess on certain produce for the improvement and development of the methods of cultivation and marketing of such produce and for matters connected therewith

A cess is levied for the purposes of this Act on every produce specified First Schedule, which is exported from any customs port to any port beyond the limits of India, a duty of customs at such rate, not exceeding the rate specified in the First Schedule

A cess is leviedfor the purposes of this Act, on every produce specified in the Second Schedule, a duty of excise at such rate, not exceeding the rate specified in Second Schedule (Section 3)

An Act to provide for the establishment of an Authority for the development of the marine products industry

A cessislevied on all marine products which are exported at rate not exceeding 3% as the Central Government decide (Sec 14(1))

The cess levied shall be in addition to any access or duty leviable on marine products under any other law for the time being in force. (Sec 14(2))

The proceeds of the cess is first credited to the Consolidated Fund of India and the Central Governmentpay to the Marine Products Export Development Authority from out of such proceeds, after deducting the expenses (Sec 15)

The Coal Mines(Conservation andDevelopment Act, 1974

An Act to provide for the conservation of coal and development of coal mines and for matters connected therewith or incidental thereto.

Excise Duty - on all coal raised and despatched, and on all coke manufactured and despatched, from the collieries in India at the rate not exceeding Rs 10 per tonne (sec 6)

Custom duty - on all coal (including soft and hard coke), imported or brought into India from any place outside India, a duty of customs at the rates equivalent to the rates of duty of excise (sec 7)

Amount collected shall be disbursed by the Central Government to the owners, agents or managers of coal mines (Sec 9)

The Oil Industry(Development) Act, 1974 .

An Act to provide for the establishment of a Board for the development of oil industry and for that purpose to levy a duty of excise on crude oil and natural gas and for matters connected therewith.

Excise duty- on every item specified in column 2 of the Schedule at such rate not exceeding the rate set forth in the corresponding entry in column 3 of the Schedule (Sec 15)

The proceeds of the duties of excise levied under shall first be credited to the Consolidated Fund of India and the Central Government pay to the Oil Industry Development Fund (sec 16)

The TobaccoCess Act, 1975

An Act to provide for the Levy and collection, by way of cess, of a duty of excise on virginia tobacco and a duty of customs on tobacco, for the development of tobacco industry

Excise duty-at the rate of 1 paisa per kg on virginia tobacco which is produced in India and sold at a registered auction platform. (Sec 3)

customs duty -at rate not exceeding 1% ad valorem, as the Central Government may specify on all tobacco which is exported.(Sec 4)

The proceeds shall first be credited to the Consolidated Fund of India and the Central Government may pay to the Board, for utilised for the purposes of the Tobacco Board Act, 1975 (Sec 5)

An Act to provide for the levy and collection of additional duties of excise on certain textiles and textile articles

Excise duty-Goods of the description mentioned in the Scheduleare chargeable to dutyequal to 10% of the total amount chargeable on such goods. (Sec 3)

Items in schedule are Man-made fibres , Cotton yarn , Woolen and acrylic spun yarn, Non-cellulosic spun yarn,Cotton fabrics, Silk fabrics, Woolen fabrics, Man-made fabrics, Wool tops.

An Act to provide for the imposition of a cess on sugar for the development of sugar industry and for matters connected therewith

A cess is leviedfor the purposes of the Sugar Development Fund Act, 1982, a duty of excise on all sugar produced any sugar factory in India, at such rate not exceeding Rs 15per quintal of sugar (Sec 3)

The proceeds of the duty of excise levied under section 3 shall be credited to the Consolidated Fund of India

(Sec 4)

An Act to provide for the levy and collection, by way of cess, of a duty of excise on jute manufactures for the purpose of carrying out measures for the development of production of jute manufactures

Cessis levied on every article of jute manufacture specified in column 2 of the Schedule and produced in India by a duty of excise at such rate not exceeding the rate specified in the corresponding entry in column 3 thereof (Sec 3)

The proceeds of the duty of excise levied shall first be credited to the Consolidated Fund of India and the Central Government may pay to the Jute Manufactures Development Council for the purposes of the Jute Manufactures Development Council Act, 1983(Sec 4)

An Act to provide for the levy and collection, by way of a cess, of a duty of customs on the export of certain agricultural and processed food products for the development and promotion of their export

Custom duty- at a rate not exceeding 3% by way of a cess on all Scheduled products, which are exported. (Sec 3)

The proceeds of the duties of customs levied shall first be credited to the consolidated Fund of India and the Central Government may pay to the Agricultural and Processed Food Products Export Development Authority (Sec 4)

An Act to provide for imposition of cess on all spices which are exported for the purposes of carrying out measures for the development of export of spices.

customs duy-on spices at such rate not exceeding 5% , ad valorem (Sec 3)

proceeds of the duty of customs levied credited to the consolidated Fund of India and the Central Government maypay for the purposes of the Spices Board Act, 1986(Sec 3)

An Act to provide for the levy and collection of a cess on all payments made for the import of technology for the purposes of encouraging the commercial application of indigenously developed technology and for adapting imported technology to wider domestic application

a cess is levied at such rate not exceeding five per cent, on all payments made towards the import of technology (Sec 3)

The proceeds of the cess levied and collected shall first be credited to the Consolidated Fund of India and the Central Government may pay to the Technology Development Board constituted under the Technology Development Board Act, 1995 for the purposes of the Board (Sec 4)

(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 and regarding achievement of positive net foreign exchange earning;

(ii)The Developer and Co-Developer shall execute the Bond-cum-Legal Undertaking in Form D with regard to their obligations regarding proper utilization andaccountal of goods

(iii)The Bond-cum-Legal Undertaking shall be jointly acceptedby Development Commissioner and by the SpecifiedOfficer:

the movement of goods between port of import or export and the Special Economic Zone;

the authorized operations, as applicable to Unit or Developer;

temporary removal of goods or goodsmanufactured in Unit for the purposes of repairs or testing or calibration or display or processingor sub-contracting of production process or production or other temporary removals into Domestic Tariff Area without payment of duty

re-import of exported goods.

Equal to the amount of effective duties leviable on import or 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

The Bond-cum-Legal Undertaking

amount shall be monitored quarterly

or yearly on the basis of Quarterly

Progress Report or Annual Progress Report

Any goods for the personal use of or consumption by officials,workmen, staff, owners or any other person in relation to a Unit or Developer, shall not be eligible for exemptions, drawbacks and concessions or any other benefit

Exemption to newly established

Units in SEZ

- Section 10AA

Exemption to Unit who begins to manufacture or produce articles or things or provide any services during the PY relevant to any AY commencing on or after 01.04.2006

Deduction Total 15 Years

100% of Profits from export

for 5 consecutive years

50% of Profits from exports

for further 5 assessment years

50% of Profits for as credited to Special Economic Zone Re-investment Reserve Account for next 5years

Absence of restrictive proviso in new Sec. 10AA dealing with Reconstruction, reconstitution of business in existence

Acquiring machinery or plant

Until the acquisition of the machinery or plant for the purposes of the business of the undertakingother than

for distribution by way of dividends or profits or

for remittance outside India as profits or

for the creation of any asset outside India;

If the Special Reserve Account is misutilised, then the deduction would be taken back in the year in which the Special Reserve Account is misutilised.

If the Special Reserve Account is not utilised for acquiring new plant and machinery within three years as stated above then the deduction would be taken back in the year immediately following the period of three years.

Where an undertaking is transferred to another company under a scheme of amalgamation or demerger, the deduction under section 10AA shall be allowable in the hands of the amalgamated or the resulting company.

However, no deduction shall be admissible under this section to the amalgamating company or the demerged company for the previous year in which amalgamation or demerger takes place.

Exemption of Capital Gain

on Shifting to SEZ

-Sec 54GA

Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to any Special Economic Zone.

The exemption is availableto all categories of assesses on capital gain arising on the transfer of certain capital asset of industrial undertaking from urban area to SEZ. (whether developed in an urban area or not)

The Asset transferred should be machinery or plant or building or land or any rights in building or land

The capital gain should be utilized within one year before or three years after the date of transfer for the specified purpose.

( i)purchased machinery or plant

(ii) acquired building or land or constructed building

(iii)shifted the original asset and transferred the establishment of such undertaking to the Special Economic Zone; and

(iv) incurred expenses on such other purposes as may be specified in a scheme framed by the Central Government for the purposes of this section.

The amount of capital gain which is not so utilised for the specific purposes should be deposited in an account with any specified bank or institution and utilised in accordance with the scheme notified by the Central Government

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Special Economic Zones Fiscal Benefits