Tsez Overview

7/29/2019 Tsez Overview

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Rajkumar S. Adukia 1

Special Economic Zones in India

- An overview of Statutory provisions

Rajkumar S. Adukia

09323061049/093221 39642

[email protected]

[email protected]

http://www.carajkumarradukia.com


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Agenda

Overview

Laws applicable

Important

definitions

Administrative setup

Monitoring of SEZ

and SEZ Units


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Overview

SEZ are delineated duty-free enclaves treated as a foreignterritory for the purpose of trade operations, Duties andtariffs

Developed in the public, private or joint sectors, or by theState Governments or any person for manufacture of goodsor rendering services or both or as a FTWZ

Import / export operations of the SEZ units on self-certification basis.

SEZ units have to be a net foreign exchange earner


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SEZ Framework

Integrated Infrastructure

Fiscal incentives

& regulatory

benefits

Thrust on self-

certification &

in-zone

empowerment

Self-contained &

Self-managed

SEZ


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Self certification for import

and export

Subcontracting permitted

Fiscal incentives

SEZ Units- positive net

foreign exchange in 5 years

Eligible activities

Manufacturing / trading

/services

Single window clearance

Minimum area

Sales in DTA permitted

Salient Features of SEZ


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Overview

Individual Undertaking Group of Undertakings

100% EOU

EHTP

BTP

FTZ

EPZ

FT &WZ

IFSC

SEZOBU

STP

Units

Units

Units

FT&WZ


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Overview contd..

EOU/EHTP/STP/BTP

Covered by Chapter 6

of Foreign TradePolicy (2004-09)

Can be located

anywhere in the India

FTZ/EPZ/SEZ

Earlier Covered by

Chapter 7 and 7A of

Foreign Trade Policy

(2004-09)

Chapter 7 and 7A relating

to SEZ and FT&WZ are

deleted w.e.f 07/04/2006

Can be Located in India

at those locations notified

by Government of India


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History

All 8 EPZs converted into SEZs :-

Kandla ( Gujarat) : 1965 (625 Acres) Seepz( Maharashtra) : 1975 (110 Acres)

Noida (U P) : 1986 (310 Acres)

Madras ( T N) : 1986 (262 Acres)

Cochin ( Kerala ) : 1986 (103 Acres)

Falta ( W B) : 1986 (280 Acres)

Visakhapatnam( AP) : 1994 (360 Acres)

Surat ( Gujarat ) : 1998 (103 Acres)


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Future SEZs

Petroleum, Chemicals

& Petrochemicals

investment regions

Manufacturing

Investment Regions

PCPIRS MIRS


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Statistics

Currently there are 948 units in operation in the 15functional SEZs.

The SEZ units provide employment to about 1.10 Lakhs

persons (out of which 40% are Females) Exports from SEZ

Year Export ( Rs Crores)

2003-04 13,854

2004-05 18,3092005-06 22,309


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Exports From SEZ

0

5000

10000

15000

20000

25000

2003-04 2004-05 2006-07

Rs in Crores


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Free Trade Warehousing Zones

Special category of SEZ with a focus on trading andwarehousing

Aims at creation of world class infrastructure for

warehousing of various products These Zones operate on the same lines as SEZ

The countrys First FTWZ at Haldia in West Bengal hasalready received in-principle clearance from centre as joint

venture between IL&FS and MMTC


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SEZ as Port

Central Government is empowered to notify a SpecialEconomic Zone as

port

inland container depot

land station

land customs stations

under section 7 of the Customs Act, 1962:

(Section 53(2) of SEZ Act , 2005)


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Customs Act,1962

As per section 7(a) of Customs Act ,1962 Central

Government can appoint ports or airports for Loading of

imported goods and loading of exported goods As per section 29(1) of Customs Act ,1962 vessel or

aircraft entering India from place outside India must land

only at custom port or a Custom Airport


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NO INTERMEDIARY

IMPORTED GOODS CAN BE TAKEN DIRECTLY

TO SEZ AND CLEARED FROM THERE

GOODS CAN BE EXPORTEDDIRECTLY FROM SEZ


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Self Certification

All inward or outward movement of goods into or from the

Zone by the Unit or Developer shall be based on self

declaration

No routine examination of these goods shall be made

unless specific orders of the Development Commissioner

or the Specified Officer are obtained.-( Rule 75 of SEZ

Rules 2006)


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A Director can be non-resident

As per Schedule XIII Part I clause (e) of Companies

Act,1956 one of the condition for appointments as a

Managing or Whole Time director is that he should be

resident In India

This is not applicable to Companies in SEZ Provided they

enter in India after obtaining proper Employment visa from

the concerned mission abroad and Such Person is required to furnish along with visa

application form Profile of the company ,Principal

Employer and terms and conditions for such employment


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Definition of Resident as per

Schedule XIII of Companies

Act,1956Resident in India includes a person who has been

staying in India for a continuous period of not less than

12 months immediately preceding the date of

employment as a managerial person and who has come

to stay in India

i. For taking up employment in Indiaii. For carrying on a business or vocation in India


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Maximum Limit of remuneration

raised in case of SEZ Companies In Schedule XIII Part II section II of Companies Act,1956 there

are maximum Limits for Maximum managerial remuneration in

case of companies having no profit or inadequate profitdepending on effective capital of the company with prior approval

of Central government

Maximum Limit is Rs.4,00,000 p.m for companies

This limit is raised to Rs 20,00,000 p.m in case of companies in

SEZ provided these companies have not raised money by public

issue and not made default in repayment of debt or interest


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Lawsapplicable to

SEZ


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Laws applicable to SEZ

Concept of SEZ was first introduced in EXIM Policy

( now termed as Foreign Trade policy) announced on 31st

March 2000 by Government of India

Chapter 7 of Foreign Trade policy and Chapter 7 of Handbook

of procedures ( as amended on 07/04/2006 w.e.f 01-04-2006)

state that policy relating to SEZ is governed by SEZ 2005 and

rules framed there under

The SEZ Act 2005 and SEZ Rules, 2006 came into effect from

10th February 2006


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Laws applicable to SEZ

Foreign trade (Development and Regulation) Act,1992

Foreign Exchange Management Act,1999

Special Economic Zones Act, 2005

Special Economic Zones Rules, 2006

Note: An amendment has been made in the Special

Economic Zones Rules by way of -The Special economic

Zones (Amendment) Rules, 2006 which came into force

on 10.08.2006


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Special Economic Zones

Act,2005

Chapter Sections Title

I 1-2 Preliminary

II 3-7 Establishment

of SEZIII 8-10 Constitution of

Board of

Approval

IV 11-12 DevelopmentCommissioner

V 13-25 Single Window

Clearance


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VI 26-30 Special Fiscal provisions for SEZ

VII 31-41 Special Economic Zone Authority

VIII 42-58 Miscellaneous

The First Schedule Enactments

The SecondSchedule

Modifications of the Income Tax Act-1961

The third

schedule

Part I Amendments to certain Enactments

Part II Amendments to the Banking RegulationAct,1949

Part III Amendments to the Indian Stamp

Act,1899


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Special Economic Zones

Rules,2006Chapter Rules Title

I 1-2 Preliminary

II 3-16 Procedure for establishment ofSEZ

III 17-21 Procedure for establishment of an

unit

IV 22-46 Terms and conditions subject towhich entrepreneur and developers

shall be entitled to exemptions,

drawbacks and concessions


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V 47-52 Conditions subject to which goods

may be removed from a SEZ to DTA

VI 53-54 Foreign Exchange earning-Requirements and Monitoring

VII 55-69 Appeal

VII 70-77 Miscellaneous


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Overriding Effect (Section 51

of Special Economic Zones

Act,2005)

The provisions of the Special Economic Zones Act ,2005

shall have effect notwithstanding anything inconsistenttherewith contained in any other law for the time being

in force or in any instrument having effect by virtue of

any law other than this Act

This was emphasized in the Instruction Number 6/2006

dated 03/08/2006 issued by SEZ Section Department of

commerce


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Certain Provisions not to

Apply to SEZAfter introduction of Special Economic Zones

Rules,2006 following are not applicable to SEZ

Chapter X-A Of The Customs Act, 1962

Special Economic Zones (Customs Procedure)

Regulations, 2003

Special Economic Zones Rules,2003

Section 52 states that these will be withdrawn by issue of

Notification.

Notification No SO 320(E)

Dated 14/03/2006


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State SEZ Policy

Some States have also come out with their own SEZ Policy

and /or SEZ Act

SEZ Policy Provide inter alia provide for

Exemption from state sales tax /VAT and other state

levies

Exemption from electricity duty

Single window approval for state level clearances Declaration of Development Commissioner as Labour

Commissioner under the Industrial Disputes Act.

Simplification of returns and inspection systems.


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Important Definitions

F ll i i t t d fi iti


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Following important definitions are

defined in Special Economic Zones

Act,2005S.No Definitions Section1 Developer 2(g)

2 Domestic Tariff Area 2(i)

3 Export 2(m)

4 Import 2(o)

5 International Financial Service Centre 2(q)

6 Manufacture 2(r )

7 Off Shore Banking Unit 2(u)

8 services 2(z)


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Definition of Developer and

DTA Developer means a person who, or a State Government

which, has been granted by the Central Government a

letter of approval under sub-section (10) of section 3 and

includes an Authority and a Co-Developer ( Section 2(g)

of Special Economic Zones ACT ,2005)

Domestic Tariff Area means the whole of India(including the territorial waters and continental shelf) but

does not include the areas of the Special Economic Zones (

Section 2(i) of Special Economic Zones ACT ,2005)


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Manufacture

Sec 2( r )

Manufacture means to

1. Make

2. Produce

3. Fabricate

4. Assemble

5. Process or bring into

existence, by hand or bymachine,

And include Processes

6. refrigeration

7. cutting

8. polishing

9. blending

10. repair

11. remaking12. re-engineering

a new product having a distinctive name character or use


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Services

Services means such tradable services which,-

(i) are covered under the General Agreement on Trade inServices annexed as IB to the Agreement

establishing the World Trade Organisation

concluded at Marrakesh on the 15th day of April,1994

(ii) may be prescribed by the Central Government for thepurposes of this Act and

(iii) earn foreign exchange(Section 2(z) of Special Economic Zones Act, 2005)


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Services-Rules 761. Trading

2. warehousing3. research and development

services

4. computer software services,including information enabled

services such as back-officeoperations

5. call centers

6. content development oranimation,

7. data processing, engineeringand design,

8. graphic information system

services9. human resources services,

10. insurance claim processing

11. legal data bases

12. medical transcription,

13. Payroll14. Remote Maintenance

15. revenue accounting,

16. support centers and web-siteservices


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Services-Rules 76

17. off-shore bankingservices18. professional services

(excluding legal services andaccounting)

19. rental/leasing services withoutoperators

20. other business services

21. courier services,

22. audio-visual services

23. construction and relatedservices (excluding retailservices)

24. educational services,

25. Distribution services

26. environmental services27. financial services

28. hospital services

29. other human healthservices

30. tourism and travel relatedServices

31. recreational

32. cultural and sportingservices

33. transport services34. services auxiliary to all

modes of transport

35. entertainment services,

36. pipelines transport.


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SEZ Amendment

Rules,2006In Rule 76, the followingExplanation shall be inserted at the

end:

The expression Trading, for the purposes of the Second

Schedule of the Act, shall mean import for the purposes of

re-export.

NEW


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Definition of Export

Export means

(i) taking goods, or providing services, out of India, from aSpecial 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 toanother Unit or Developer, in the same or different SpecialEconomic Zone (Section 2(m) of Special Economic ZonesAct ,2005)


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Definition of Import

Import means-

(i) bringing goods or receiving services, in a SpecialEconomic 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 fromanother Unit or Developer of the same Special EconomicZone or a different Special Economic Zone; (Section 2(o)

of Special Economic Zones Act ,2005)


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Administrative

set up for SEZs


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Administrative set up for

SEZs1) Board of approval is apex body in department

2) Each Zone is headed by Development Commissioner

who is also heading approval committee

3) Approval Committee at the Zonal Level dealing with

approval of units in SEZ and other related issues


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Board of approval

Board has the duty to promote and ensure orderly

development of SEZ

Special secretary to Government of India in Ministry ofCommerce and industry, Department of Commerce is

chairperson of Board

It consists of 18 members and a nominee of each state

government concerned ( Notification No SO(195(E) dated10/02/2006 and 314(E) dated 13/03/2006)


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Address of Board of approval

Board of Approval

SEZ Section

Department of Commerce

Ministry of Commerce and Industry

Udyog Bhavan

New Delhi 110011


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Approvals for Special economic

zones

Up to the end of October, 2006 the Board of Approval has

given formal approval to 237 special economic zones and

in principle approval to 166 special economic zones.


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CAP ON SEZs

The empowered Group of Ministers on Special

Economic Zones, headed by the Defence Minister,

Mr Pranab Mukherjee, decided on 23.08.2006 toremove the existing cap on the number of SEZs

that can be established within the country.

Decided that approvals for new SEZs would

resume only after 75 SEZs were made operational

NEW


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Major Functions of Board-Sec

9(2) Granting of approval or rejecting proposal or modifying

such proposals for establishment of SEZ;

granting approval of authorised operations to be carried outin the SEZ by the Developer

granting approval to the Developers or Units

for foreign collaborations and foreign direct investments,in

the SEZ for its development, operation and maintenance

granting approval or rejecting of proposal for

providing infrastructure facilities in SEZ


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Development Commissioner

The Central Government may appoint any of its officersnot below the rank of Deputy Secretary to the Governmentof India as the Development Commissioner of one or more

Special Economic Zones.-Sec 11 of Special EconomicZones Act ,2005

Every Development Commissioner shall take all steps inorder to discharge his functions under this Act to ensurespeedy development of the Special Economic Zone and

promotion of exports there from.-Sec 12(1) of SpecialEconomic Zones Act ,2005


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Major functions of Development

Commissioner- Sec 12(2)

Guide the entrepreneurs for setting up of Units in

the Special Economic Zone;

Ensure and take suitable steps for effective promotion of

exports from the Special Economic Zone Ensure proper co-ordination with the Central

Government or State Government Departments concerned oragencies with respect to, or for the purposes specified above

monitor the performance of the Developer and the Units in aSpecial Economic Zone ;


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Approval Committee

Every SEZ has one approval committee

Approval Committee has 9 members

Development commissioner is Chairperson of Approval

Committee


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Major functions of approval

committee-Sec 14(1) Approve the import or procurement of goods from the

Domestic Tariff Area, in the SEZ for carrying on theauthorised operations by a Developer

Approve the providing of services by a service provider,from outside India, or from the Domestic Tariff Area, forcarrying on the authorised operations by the Developer, inthe SEZ

Monitor the utilisation of goods or services or warehousing

or trading in the SEZ Approve, modify or reject proposals for setting up Units

for manufacturing or rendering services or warehousingtrading in the SEZ


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Monitoring of

performance


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Performance reports- Rule

22(3) and (4) The unit shall submit Annual performance reports in Form

I to the development commissioner

The Developer shall submit Quarterly Report on import

and procurement of goods from the Domestic Tariff Area,utilization of the same and the stock in hand, in Form E tothe Development Commissioner and the Specified Officer

Development Commissioner shall

place both Form I and E

before the Approval Committee


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Form I

Form I contains inter alia following details

Cumulative value of exports for the five year period.

Total outflow of foreign exchange

Net Foreign Exchange Earning position at the end ofprevious year.

Cumulative Net Foreign Exchange Earning for the

five year period

Details of DTA Sales and Capital StructureDetails in Form I is to be certified by the Chartered Accountant

before the end of first quarter of the following financial year


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Monitoring of performance

Performance of the Unit shall be monitored by the

Approval Committee as per the guidelines given inAnnexure appended to the rules.

In case the Approval Committee come to the conclusionthat a Unit has not

achieved positive Net Foreign Exchange Earning

failed to abide by any of the terms and conditions of the

Letter of Approval or Bond-cum-Legal Undertaking the said Unit shall be liable for penal action under the

provisions of the Foreign Trade (Development and

Regulation) Act, 1992 ( Rule 54 of SEZ Rules 2006)

Contravention of Provision of


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Contravention of Provision of

Foreign Trade (Development

and Regulation), Act 1992Penalty amount

Rs 1000

5 times the value

of goods inrespect of which any

contravention is made

Which ever is more

G S O O O G O


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GUIDELINES FOR ANNUAL MONITORING OF

PERFORMANCE OF UNITS.(Annexure I of SEZ

Rules, 2006)

Number of year from date of

commencement of production

Monitoring

Less than 1 year Not be monitored

Less than 5 years monitored for the number of

completed years

More than 5 years undertaken for only such number

of years which fall in the

subsequent block/s of five years

CRITERIA FOR ANNUAL


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CRITERIA FOR ANNUAL

MONITORING(Annexure I of SEZ

Rules, 2006)

Number of years with

Negative Net Foreign

Exchange

Action

1st and 2nd Year Placed under the Watch List

to watch their performance.

3rd a Show Cause Notice shall

be issued.

5th year Development Commissioner

shall initiate penal action as

provided under the rule-25.


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Identity Cards

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. The 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:

Temporary identity card may be issued by the

Development Commissioner to the casual visitors and

contractors- (Rule 70 of Special Economic Zones ,2006)

F K


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Form K


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If an enterprise is

operating both as a

Domestic Tariff Area

unit as well as aSpecial Economic

Zone Unit, it shall

have two distinct

identities with separate

books of accounts but

it shall no t be

necessary for special

Economic Zone Unit

to be a separate Legal

Entity

Rule 19(7)


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Books of Accounts

Rule 22(2)Every Unit and Developer shall maintain proper accounts,financial year wise, and such accounts should clearlyindicate in value terms

the goods imported or procured from DTA consumption or utilization of goods

production of goods, including by-products, waste or scrapor remnants

Exports sales or supplies in the DTA

Transfer to SEZ or EOU or EHTP or STP or BPU

Balance in stock


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Sub Contracting


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Sub Contracting-Rule 41

A Unit, may subcontract a part of its production or anyproduction process, to

a unit(s) in the Domestic Tariff Area or

in a Special Economic Zone or Export Oriented Unit or

a unit in Electronic Hardware Technology Park or

Software Technology Park unit or

Bio-technology Park unitwith prior permission of the Specified Officer to be given on

an annual basis


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Conditions for sub-contracting

Rule 41(a)the finished goods requiring further processing or semi-

finished goods including studded jewellery, taken outsidethe Special Economic Zone for sub-contracting shall be

brought back into Unit within 120 days or extended time(b) Wastage shall be permitted as per the wastage norms

admissible under the Foreign Trade Policy read with theHandbook of Procedures

(c) the value of the sub-contracted production of a Unit in any

financial year shall not exceed the value of goods producedby the Unit within its own premises in the immediatelypreceding financial year:


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Conditions for sub-contracting

abroad

Rule 41(2)

(a) sub-contracting charges shall be declared in the export

declaration forms and invoices and other relateddocuments;

(b) the export proceeds shall be fully repatriated in favour of

the Unit.

Conditions for sub contracting in


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Conditions for sub-contracting in

another unit within same SEZ

Rule 42(4)(i) the movement of goods shall be under serially numbered

challans and record of such movement of goods shall be

maintained by the Unit;(ii) raw material imported or procured by the Unit for

manufacture of capital goods may be transferred to another

unit for the purpose of manufacture or fabrication of

capital goods for use by the Unit which had imported orprocured the raw materials.

Conditions Sub contracting for


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Conditions -Sub-contracting for

Domestic Tariff Area unit for export.

Rule 43(a) all the raw material including semi-finished goods and

consumables including fuel shall be supplied by DomesticTariff Area exporter;

(b) finished goods shall be exported directly by the Unit onbehalf of the Domestic Tariff Area exporter

(c) export document shall be jointly in the name of DomesticTariff Area exporter and the Unit

(d) the Domestic Tariff Area exporter shall be eligible forrefund of duty paid on the inputs by way of brand rate ofduty drawback.


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Exit of Units

The SEZ Unit may opt out of Special Economic Zone with theapproval 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, theexit shall be subject to penalty that may be imposed under theForeign Trade (Development and Regulation), Act, 1992

The Unit shall continue to be treated a unit till the date of finalexit.(Rule 74 of Special Economic Zones, 2006)


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website : www.sezindia.nic.in


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About World export processing

zones Association ( WEPZA) Founded in 1978 by the United Nations

WEPZA is the private non-profit World Association of

Economic Processing Zones and Free Trade Zones. It is an independent association dedicated to the

improvement of the efficiency of all Economic Processing

Zones (EPZs)

www wepza org


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www.wepza.org


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WEPZA aims at improving the efficiency of the EPZs through:

Periodic exchange of information at WEPZA Conferences andWorkshops

Recruiting and training EPZ Management Research on markets and trade flows supplied to members as the

WEPZADB database

Creation and maintenance of the WEPZA Website on theInternet

Cooperative Transport arrangements to reduce costs

Networks of subcontracting and purchasing among zonefactories

Cooperative promotion of EPZs to manufacturers and services

providers worldwide Periodic discussions between EPZs and the

manufacturing/services community

Representing Free Zones and EPZs before international bodiesin defense of their interests and their freedoms


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Web-sites

Government

http://www.commerce.nic.in/

http://dgftcom.nic.in/-

http://www.sezindia.nic.in

http://dbtindia.nic.in/

http://www.mit.gov.in/


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Web-sites.

SEZ

www.seepz.com- seepz

www.kasez.com- kandla

www.csez.com- cochin

www.mepz.com- madras

www.vepz.com- vizag

www.fepz.com- falta,kolkatta

www.nepz.com- noida

www.riico.com- jaipur


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Web-sites

STPI

http://www.stpp.soft.net/site_map.htm

http://www.blr.stpi.in/index.htm- Bangalore

http://www.stpkol.soft.net/- Kolkatta

http://www.chennai.stpi.in/stpc.html- Chennai

http://www.hyd.stpi.in/index.html- Hyderabad

http://www.stpj.soft.net/- Jaipur http://www.stpmum.soft.net/- Mumbai

http://www.stpn.soft.net/- Noida


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Web-sites

BTP

http://www.ticelbiopark.com/

http://www.biotechcitylucknow.org/ http://www.iciciknowledgepark.com/icicikp/ind

ex.asp

http://www.ibpl.net/


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QUESTIONS/

SUGGESTIONS/

COMMENTS ???

Documents

Tsez Overview