Laws and procedure relating to setting up of SEZ,unit in SEZ ,OBU,FT&WZ and IFSC

Laws and procedure relating to setting up of

SEZ,unit in SEZ ,OBU,FT&WZ and IFSC

2

Agenda

Introduction Procedure for Setting up SEZ Procedure for Setting up SEZ Unit Offshore Banking Unit IFSC FT&WZ

3

Some Definitions

Developer means a person who, or a State Government which, has been granted by the Central Government a letter of approval and includes a an Authority and a Co-Developer ( Section 2(g) of SEZ Act ,2005)

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

4

Definition of person “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) of SEZ Act, 2005)

Setting up SEZ

6

Procedure for setting up SEZ-Sec 15

Any person, who intends to set up a Special Economic Zone, may, after identifying the area make a proposal in Form A to either of the following

a)State Government concerned b) Board of Approval

25 Copies of Form A are to be given along with Project report outlining the economic and commercial viability of the project

No application fees

7

Suo moto set up of SEZ

Central Government may:-(a) after consulting the State Government

concerned;(b) without referring the proposal for setting up the

Special Economic Zone to the Board; and(c) after identifying the area;suo moto set up and notify the Special Economic Zone(Proviso to sub section 4 of section 3 of SEZ Act ,2005)

8

Flow Chart for Setting up SEZ

SEZ can be formed in two ways

By Applying to SG

By applying to Board of Approval

SG forward the Proposal to BOA

Obtain the concurrence

of SG

BOA approves the

proposal

SG=Sate Government

9

Flow Chart for Setting up SEZ contd..

Central Government shall issue letter of Approval to developer

Developer shall furnish to Central Government information about area

Central Government will notify the area as SEZ

10

Contents of Form A Location of SEZ Distance from the nearest Sea Port/Air Port/Rail or

Road Details of Lease of Land Proposed investment details Means of financing Equity holdings Details of areas (Processing areas and non-

processing area) used for various purposes in SEZ Activities Proposed in Processing and non-

processing area Details of employment likely to be generated

11

Area requirements

Requirement laid down in Rule 5 in the Special Economic Zones Rules

Due consideration given to whether SEZ is 1) Multi-product or sector specific 2) Located in special category states- Assam,

Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal, Sikkim, J&K, Goa or Union territory

3) For special sector- IT, Gems & Jewellery, Bio-tech, Non-conventional energy

12

Kinds of SEZ

Kinds of SEZ

SEZ for multi-product

SEZ for specific sector

SEZ in a port orairport

13

Definitions of Kinds of SEZ1) SEZ for multi-product means a SEZ 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(1)(za) of SEZ Rules,2006 )

2) SEZ for specific sector means a SEZ meant exclusively for one or more products in a sector or one or more services in a sector ( Rule 2(1)(zb) of SEZ Rules,2006 )

3) SEZ in a port or airport means a SEZ 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(1)(zc) of SEZ Rules,2006 )

14

Minimum Contiguous Area Requirement

Type Area for specific states/UT

Min.Processing Area

Multi-product 1000 hectares 200 hectares 25 % (old)

35% (new)

( may be relaxed to 25% by CG on Board recommendation)

Multi -services 100 hectares 100 hectares 25%

Sector specific 100 hectares 50 hectares 50%

Electronic Hardware and software

10 hectares( and min. built up area of 1 lakh sq.mtrs)

10 hectares and min. built up area of 1 lakh sq.mtrs)

50%

15

Minimum Contiguous Area

Requirement

Type Area for specific states/UT

Min.Processing Area

Bio- technology/ Non- conventional energy

10 hectares (old)

10 hectares( with a min. built up area of 40000 sq.m) (new)

10 hectares (old)

10 hectares( with a min. built up area of 40000 sq.m) (new)

50 %

Gems and jewellery sector

10 hectares (old)

10 hectares( with a min. built up area of 50000 sq.m) (new)

10 hectares (old)

10 hectares

( with a min. built up area of 50000 sq.m) (new)

50 %

16

Minimum Contiguous Area Requirement Type Area for specific

states/UTMin.Processing Area

Bio- technology/ Non- conventional energy

10 hectares (old)

10 hectares( with a min. built up area of 40000 sq.m) (new)

10 hectares (old)

10 hectares( with a min. built up area of 40000 sq.m) (new)

50 %

Gems and jewellery sector

10 hectares (old)

10 hectares( with a min. built up area of 50000 sq.m) (new)

10 hectares (old)

10 hectares

( with a min. built up area of 50000 sq.m) (new)

50 %

17

Minimum Contiguous Area Requirement

SEZ Amendment Rules,2006( came into force on 10.08.2006)

1. Minimum processing area for multi- product shall be

at least thirty-five per cent of the area which may be

relaxed up to twenty-five per cent by the Central

Government on recommendations of the Board for

the reasons to be recorded in writing

NEW

18

SEZ Amendment Rules,2006…

SPECIAL SECTOR

1. the area shall be ten hectares or more with a minimum built-up area as under :

           (i)  forty thousand square meters in case of a Special Economic Zone proposed to be set up exclusively for bio-technology and non-conventional energy sectors including solar energy equipments/cells but excluding a Special Economic Zone set up for non-conventional energy production and manufacturing;

NEW

19

SEZ Amendment Rules,2006…

(ii) fifty thousand square meters in case of a Special

Economic Zone proposed to be set up exclusively for

the gems and jewellery sector.”

NEW

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SEZ Amendment Rules,2006…

FREE TRADE AND WAREHOUSING ZONES

In a stand alone Free Trade and Warehousing Zone

at least fifty per cent of the area shall be earmarked

for developing processing area :

“Provided further that a Free Trade and

Warehousing Zone may also be set up as part of a

Special Economic Zone for multi-product;”

NEW

21

SEZ Amendment Rules,2006…

Rule 5A. Infrastructure requirements relating to information technology

In case of a Special Economic Zone relating to information technology, the following facilities shall be ensured, namely :—

          (a)  twenty-four hours uninterrupted power supply at stable frequency in the zone;

          (b)  reliable connectivity for uninterrupted and secure data transmission;

          (c)  provision for central air-conditioning system and

      (d)  a ready to use, furnished plug and pay facility for end users.”.

NEW

22

Rule 18(4) (g)

No proposal shall be considered for:

“ the use of any plant or machinery

previously used for any purpose in

Domestic Tariff Area.”

NEW

23

Area conversion factors

1 Acre = 0.404686 Hectare

1 Hectare = 2.47109 Acres

1 Sq. Km. = 0.38610 Sq. Mile

1 Sq. Km. = 100 Hectares

1 Sq. Mile = 2.58999 Sq. Kms

24

Guidelines for Central Government for

notifying special Economic Zone –sec 5

a) generation of additional economic activityb) promotion of exports of goods and services;c) promotion of investment from domestic and foreign

sources;d) creation of employment opportunities;e) development of infrastructure facilities; andf) maintenance of sovereignty and integrity of India, the

security of the State and friendly relations with foreign States.

25

Specific requirements for SEZ-Rule 5(5)

Before recommending any proposal for setting up of a SEZ, the State Government endeavor that following are made available in the State to the proposed SEZ and Developer

a. exemption from the State and local taxes, levies and duties

b. exemption from electricity duty or taxes on sale, of self generated or purchased electric power

c. allow generation, transmission and distribution of power within a SEZ

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Specific requirements for SEZ – Rule 5(5) ….

d. providing water, electricity and such other services, e. Delegation of power to the Development

Commissioner under the Industrial Disputes Act, 1947 and other related Acts in relation to the Unit

f. Declaration of the Special Economic Zone as a Public Utility Service under the Industrial Disputes Act, 1947

g. Providing single point clearance system to the Developer and unit under the State Acts and rules

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Forms used

A Application for setting up SEZ

B Format for letter of approval for SEZ developers

C Format for Letter of approval for providing Infrastructure facilities in SEZ

D Bond-cum Legal Undertaking for developers

E Format for Quarterly and half-yearly report for SEZ developer/co-developer to be furnished to Development commissioner

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Forms used Contd..

F Consolidated Application Form

G Format for letter of approval for Unit

H Bond-cum Legal Undertaking for SEZ unit

I Annual Performance report for units

J Form for Appeal

K Permanent Identity Card

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Check list for the proposals to be taken up by BOA

1) Name of the Developer.2) Proposed area of the location of the SEZ.3) Status of recommendation of the proposal by the State Government

(if available). 4) Whether proposal is for formal or in-principle approval? (In case

land is in possession of the promoter, it is considered for formal approval)

5) Is it a multi-product SEZ?6) If it is a sector specific SEZ, the sector is.7) Whether it meets the area requirements.8) Area of the SEZ (in hectares)

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Check list for the proposals to be

taken up by BOA…9) Whether Form- A has been filed?10) Whether undertaking and affidavit has been submitted?11) Whether project report has been submitted?12) Whether land is owned/leased and is in possession of the Developer?13) Does the proposal meet the area requirements of the Rules?14) Whether the land has existing structures or is vacant?15) Whether the land is contiguous?16) Projected investment in the project.

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Check list for the proposals to be taken up by BOA….

17) Projected exports from the project.

18) Projected employment from the project.

19) Share capital and Reserves of the Developer Company.

20) Source of funds for the project.

21) Audited Accounts of the Developer for last 3 years (for all the constituents in case the Developer is a SPV).

22) Extent of FDI

23) Source of FDI

24) Whether provisions contained in the Press Note No. 5 (2005 Series), issued by the Ministry of Commerce and Industry have been followed in respect of Telecom/IT SEZ development?

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Processing and Non Processing area

The areas falling within the Special Economic Zones maybe demarcated by the Central Government as-(a) the processing area for setting up Units for activities,being the manufacture of goods, or rendering services; or(b) the area exclusively for trading or warehousingpurposes; or(c) the non-processing areas for activities other than thosespecified under clause (a) or clause (b) ( Section 6 of SEZ Act,2005)

The processing area and Free Trade and Warehousing Zone shall be fully secured by boundary wall with specified entry and exit points. – Rule 11(2) of SEZ Rules ,2006)

33

Usage of Land in SEZ-Rule 11

The developer holding land on lease basis shall assign lease hold right to the entrepreneur holding valid Letter of Approval.(Rule 11(6))

The lease period shall be co-terminus with the validity of the Letter of Approval.(Rule 11(5))

Developer may grant on lease land or built up space, for creating facilities such as canteen, public telephone booths, first aid centres, creche and such other facilities as may be required for the exclusive use of the Unit. .( Proviso to Rule 11(5))

34

Usage of Land in SEZ-Rule 11

The Developer may allot land in the processing area on lease basis to a person desiring to create infrastructure facilities for use by the prospective Units. (Rule 11(8))

The Developer shall not sell the land in a Special Economic Zone. (Rule 11(9))

35

New Rule11(10)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 and business

complexes, to any person except a co-developer

approved by the Board :

Provided that the developer or co-developer may lease

the completed infrastructure along with the vacant

land appurtenant thereto for such purposes

Provided further that infrastructure for business or

social purposes in the Special Economic Zone, as

may be approved by the Board, shall be eligible for

exemptions, concessions and drawback.”.

NEW

36

Environmental Clearance

Any person who desires to undertake any new project in any part of India or the expansion or modernization of any existing industry or project shall submit an application to the Secretary, Ministry of Environment and Forests, New Delhi.

The application will be accompanied by an Environmental Impact Assessment Report, Environment Management Plan

Public hearing is not required in respect of units in SEZ Only 30 categories of industries proposed to be established in

SEZ need to take EIA approval like drugs ,Pesticides , Nuclear power Projects, Petrochemicals,Paper Pulp etc

(Environment impact assessment notification S.O.60(E), dated 27/01/1994)

37

Equity Participation of developer

• The Developer or Co-Developer shall have at least 26% of the equity in the entity proposing to create business, residential or recreational facilities in a Special Economic Zone

• If such development is proposed to be carried out through a separate entity or a special purpose vehicle being a company formed and registered under the Companies Act, 1956 (Rule 5(4) of Special Economic Zones Rules,2006)

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Setting up a SEZ Unit

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Definitions in Special Economic Zones Act,2005

Definitions Section

Unit 2(zc)

Offshore Banking Unit 2(u)

International Financial Services Centre

2(q)

Entrepreneur 2(j)

Existing Unit 2(l )

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Definitions in Special Economic Zones Act,2005 1) "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) of Special Economic Zones Act ,2005)

2) “Offshore Banking Unit” means a branch of a bank located in a Special Economic Zone and which has obtained the permission under clause (a) of sub-section (1) of section 23 of the Banking Regulation Act, 1949 (Section 2(u) of Special Economic Zones Act ,2005)

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DEFINITIONS contd..

3) “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) of Special Economic Zones Act ,2005)

4) “entrepreneur” means a person who has been granted a letter of approval by the Development Commissioner under sub-section (9) of section 15 (Section 2(j) of Special Economic Zones Act ,2005)

5) “existing Unit” means every Unit which has been set up on or before the commencement of this Act (Section 2(l) of Special Economic Zones Act ,2005)

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New and Existing Unit

New Unit Any person, who intends to set up a Unit for carrying on the authorised operations in a Special Economic Zone, may submit a proposal to the Development Commissioner concerned

Existing Unit An existing Unit shall be deemed to have been set up in accordance with the provisions of SEZ Act,2005 and such Units shall not require approval under the SEZ Act, 2005 .

(Section 15(1) of SEZ Act,2005)

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Procedure for establishment of Unit ( if proposal not related to Foreign collaboration and FDI)

Application to Development Commissioner with a copy to developer

Development Commissioner shall scrutinise proposal and place before approval committee

Approval Committee approve the proposal

Development Commissioner will issue a letter of approval in Form G for setting up the unit

44

Procedure for establishment of Unit ( if proposal relates to Foreign collaboration and FDI)

Application to Development Commissioner with a copy to developer

Development Commissioner shall scrutinise proposal and place before Board

Board shall approve the proposal

Development Commissioner will issue a letter of approval in Form G for setting up the unit

45

Letter of Approval to a Unit-Rule 19(2) and (3) An entrepreneur holding Letter of Approval shall only

be entitled to set up a Unit in processing area of the Special Economic Zone or Free Trade and Warehousing Zone, as the case may be:

The Letter of Approval shall specify interalia

(i) items of manufacture

(ii)particulars of service, trading or warehousing activities

(iii) projected annual export for the first five years

(iv) projected Net Foreign Exchange Earning for the first five years of operations

46

Validity period of Letter of approval

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 .(Rule 19(4) of SEZ Rules ,2006)

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 upon a request by the entrepreneur.( Proviso to Rule 19(4) of SEZ Rules ,2006)

The Development Commissioner may grant further extension of one year subject to the condition that 2/3 rd of activities including construction, relating to the setting up of the Unit is complete and a chartered engineer’s certificate to this effect is submitted.(Proviso to Rule 19 of SEZ Rules ,2006)

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Validity period of Letter of approval after commencement of production The Letter of Approval shall be valid for five years from

the date of commencement of production or service activity

It shall be construed as a licence for all purposes related to authorized operations

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.(Rule 19(6) of SEZ Rules ,2006)

48

Foreign Companies in SEZ- Rule 19(7) Foreign companies can also set up manufacturing units as

their branch operations in the Special Economic Zones in accordance with the provisions of Foreign Exchange Management (Foreign exchange derivatives contracts) Regulations, 2000.

49

Some Contents of Project Report Overview of the entire project Details of Activities proposed Direct and indirect employment likely to be generated Project cost and means of finance Financial/Technical, etc. tie ups Details of Backward and Forward integrations Details of Past experience Infrastructure: About the Land, Factory premises,

Equipment, Office premises Risks associated with Project Implementation schedule

50

Matters that can be included in application- Rule 17(1)(a) Setting up of unit in a SEZ(b) Annual permission for sub-contracting(c) Allotment of Importer-Exporter Code number(d) Allotment of land/industrial sheds in the SEZ(e) Water connection(f) Registration-cum-Membership Certificate(g) Small Scale Industries Registration

51

Matters that can be included in application Rule 17(1) contd..

(h) Registration with Central Pollution Control Board

(i) Power connection

(j) Building approval plan

(k) Sales tax registration

(l) Approval from inspectorate of factories

(m) Pollution control clearance, wherever required;

(n) Any other approval as may be required from the State Government

52

53

54

55

Contents of Form F Nature of industrial undertaking Items of manufacture activity/service activity Investment in Plant and machinery Import and indigenous requirements of material and other

inputs Infrastructure requirements Details of Foreign collaboration Pattern of shareholding Foreign Exchange Balance sheet for the 5 years Details of Industrial license or LOI/LOA under SEZ/EOU

/STP/EHTP Scheme Details of sub-contracting in manufacturing operations

56

Annexures with Application (Form F) DD of Rs 5000 in favour of Pay and Accounts Officer of

the concerned SEZ Project report giving details of activities proposed Certificate of Incorporation, Articles of Association and

Memorandum of Association in case of Company Partnership deed in case of Partnerships firms Affidavit Proof of residence Income tax returns and audited Balance sheet for the last

three years

57

Consideration of proposals-Rule 18(2) 1) Positive net foreign exchange earning 2) Availability of space and other infrastructure support

applied for is confirmed by the Developer in writing, by way of a provisional offer of space

3) Applicant undertaking to fulfill the environmental and pollution control norms

4) Applicant submitting proof of residence 5) Applicant submitting the Income tax returns, along with

annexures, of the Proprietor or Partners, or in the case of a company, audited balance sheet for the last three years

58

Net Foreign Exchange Earnings- Rule 53 The Unit shall achieve Positive Net Foreign Exchange to

be calculated cumulatively for a period of five years from the commencement of production according to the following formula, namely:-

Positive Net Foreign Exchange = A – B >0

59

A Consists of

FOB value of exports including exports to Nepal and Bhutan against freely convertible currency, by the Unit and the value of following supplies of their products, namely: -

(a) supply of goods against Advance Licence or Duty Free Replenishment Certificate under the Duty Exemption or Remission Scheme or Diamond Imprest Licence

(b) supply of capital goods to holders of licence under the Export Promotion Capital Goods scheme

(c) supply of goods to projects financed by multilateral or bilateral agencies

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A Consists of

(d) supply of capital goods, accessories, tools, dies and such goods which are used for installation purposes till the stage of production and spares to the extent of ten per cent. of the free on rail value to fertilizer plants;

(e) supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty;

(f) supply of goods to the power projects and refineries

(g) supply to projects funded by United Nations Agencies;

(h) supply of goods to nuclear power projects through competitive bidding as opposed to International Competitive Bidding;

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A Consists of(i) supply made to bonded warehouses and free trade and

warehousing zones, where payment is received in foreign exchange;

(j) supply against special entitlements of duty free import of goods under the Foreign Trade Policy;

(k) export of services by services units including services rendered within Special Economic Zone or services rendered in the Domestic Tariff Area and paid for in free foreign exchange or such services rendered in Indian Rupees which are otherwise considered as having been paid for in free foreign exchange by the Reserve Bank of India;

(l) supply of Information Technology Agreement items and notified zero duty telecom or electronic items, namely, Color Display Tubes for monitors and Deflection components for colour monitors

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A Consists of

(m) supply to other units and Developers in the same or other SEZ/EOU/EHTP/STP/BTP provided that such goods and services are permissible for import or procurement by such units and Developers;

(n) supply of goods to Domestic Tariff Area against payment in foreign exchange from the Exchange Earners Foreign Currency account of the Domestic Tariff Area buyer or Free Foreign Exchange received from overseas;

(o) supply of goods against free foreign exchange by a Free Trade and Warehousing Zone Unit;

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B Consist of

(a) sum total of the CIF Value of all imported inputs used for authorized operations during the relevant period and the CIF value of all imported capital goods even though paid for in Indian Rupees and the value of all payments made in foreign exchange by way of export commission, royalty, fees, dividends, interest on external commercial borrowings during the first five year period or any other charges;

(b) value of goods obtained from other Unit or EOU/EHTP/STP/BTP or from bonded warehouses or procured from international exhibitions held in India or precious metals procured from nominated agencies;

64

B Consist of

(c) the CIF value of the goods and services, including prorata Cost Insurance Freight of capital goods, imported duty free or leased from a leasing company or received free of cost and or on loan basis or on transfer for the period they remain with Unit;

(d) for annual calculation of Net Foreign Exchange, value of imported capital goods and lump sum payment of foreign technical know-how fee shall be amortized at the rate of ten per cent. every year from the first year to tenth year.

65

Advance Licence

An Advance Licence is issued to allow duty free import of inputs, which are physically incorporated in the export product (making normal allowance for wastage

Advance Licences are issued on the basis of the inputs and export items given under Standard Input Output Norms (SION).

66

Funds notified by Department of Economic affairs 1. International Bank for Reconstruction and Development (IBRD) and the International Development Association

(IDA).2. International Fund for Agricultural Development

(IFAD).3. Asian Development Bank (ADB).4. Organisation of Petroleum Exporting Countries (OPEC)

Fund.5. Yen credit channelised through Japan Bank for

International Cooperation (JBIC). (Development component only).

6. Swedish International Development Agency (SIDA).

67

Sector specific requirements – Rule 18(3)1) Export of high-grade iron ore, that is sixty-four per cent.

Fe and above, except iron ore of Goa origin and Redi origin, which would be subject to approval of Board

2) No sub-contracting or job work of polyester yarn shall be permitted in Domestic Tariff Area or in Export Oriented Unit or Units in other Special Economic Zone:

68

Proposals not 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

69

Proposals not be considered-Rule 18(4) contd..e) Export of Special Chemicals, Organisms, Materials,

Equipment and Technologies (SCOMET) unless it fulfils 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.

g) the use of any plant or machinery previously used for any purpose in Domestic Tariff Area

70

SCOMET

The Director General of Foreign Trade specified a list of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET), the export of which is either prohibited or permitted only under license.

The grant of license inter alia depends upon end-use cum end-user certification.

The SCOMET List is notified in the Export Policy in Schedule 2 Appendix 3 of the Indian Tariff Classification (Harmonized System) - ITC(HS) Classifications of Export and Import Items

71

Units for services provided to overseas entities –Rule 18(6) Overseas Entity means a non-resident or a person of

foreign origin and includes a company not incorporated in India

Conditions1) Capital goods, raw materials including consumables sub-

assemblies,components, semi-finished goods shall be supplied by the Overseas Entity free of cost

2) Capital goods for setting up such facilities may also be supplied on loan or lease basis

72

Units for services provided to overseas

entities Rule 18(6) contd…3) Finished goods shall be exported out of the country or

transferred to the Customs Bonded Warehouse to be maintained by the Overseas entity

4) The Unit shall receive the consideration for its manufacturing services in convertible foreign exchange directly from the said overseas entity;

5) Separate accounts shall be maintained for the manufacturing and service activity in case the said manufacturing facility is used by the Unit for carrying out production on its own account

OFFSHORE BANKING UNITOFFSHORE BANKING UNIT

74

Setting up of Offshore Banking Unit-Rule 21 The application for setting up and operation of Offshore Banking Unit in Special Economic Zone shall be

made to the Reserve Bank of India in the Form VI prescribed under Banking Regulation (Companies) Rules, 1949 under section 23 of the Banking Regulation Act, 1949.

The terms and conditions subject to which an Offshore Banking Unit may be set up and operated in a Special Economic Zone shall be as specified in the Notification number FEMA 71/2002-RB dated 7th September, 2002 by the Reserve Bank of India, as amended from time to time.

75

Foreign Exchange Management (Offshore Banking Unit) Regulations, 2002

The Offshore Banking Unit shall not be regarded as an authorised dealer

An offshore Banking Unit may undertake foreign exchange transactions with any authorised dealer in India only on principal-to-principal basis.

An Offshore Banking Unit may undertake transaction in foreign exchange with a unit located in Special Economic Zone to the extent the latter is eligible to enter into or undertake such transaction, within the ceilings and subject to the conditions specified in the Regulations governing such transaction.

76

Scheme for Setting up OBU in SEZ The parent bank would be required to provide a minimum

of US$ 10 million to its OBU. OBUs would be exempt from CRR, SLR Deposits of OBUs will not be covered by deposit

insurance. The OBUs would be required to scrupulously follow

"Know Your Customer (KYC)" and other anti-money laundering instructions issued by RBI from time to time.

OBUs will be regulated and supervised by RBI through its Exchange Control Department, Department of Banking Operations and Development and Department of Banking Supervision.

IFSC AND FT&WZ

78

International Financial Services Centre (IFSC)- Sec 18

The Central Government may approve the setting up of an International Financial Services Centre in a Special Economic Zone and may prescribe the requirements for setting up and operation of such Center:

The Central Government shall approve only one International Financial Services Centre in a Special Economic Zone.

The Central Government may, subject to such guidelines as may be framed by the Reserve Bank, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and such other concerned authorities, as it deems fit, prescribe the requirements for setting up and the terms and conditions of the operation of Units in an International Financial Services Centre.

79

Free Trade and Warehousing Zones- Rule 5(2)(c) Special Economic Zone for Free Trade and Warehousing

shall have an area of forty hectares or more with a built up area of not less than one lakh square meters

A Free Trade and Warehousing Zones may also be set up as part of a Special Economic Zone for multi-products

In a Special Economic Zone for a specific sector, Free Trade and Warehousing Zone may be permitted with

no minimum area requirement but subject to the condition that the maximum area of such Free Trade and Warehousing Zone shall not exceed 20% of the processing area.

80

Conditions applicable to FT&WZ- Rule 18(5) Units in FT&WZ shall be allowed to hold the goods on

account of the foreign supplier for dispatches as per the owner’s instructions and shall be allowed for trading with or without labeling, packing or repacking without any processing:

These Units may also re-sell or re-invoice or re-export the goods imported by them

All transactions by a Unit in Free Trade and Warehousing Zone shall only be in convertible foreign currency

81

Recent developments in Special economic Zones

82

List of authorised operations eligible for approval by the Board of Approval   The Board of Approvals in its meeting held on 21st September, 2006

discussed and decided the procedure to be adopted by the Board of

Approval while approving infrastructure in the non-processing area of

the Special Economic Zones.  

In this regard, the Central Government has notified a list of authorised

operations

This list would be used by the Board of Approval for authorizing

operations which only would qualify for exemptions, concessions and

drawback.  

83

Criteria to be followed by the Board for approval of SEZ Developers 

1.  Minimum Investment or Net worth of the Promoter Company & all Group companies & Flagship companies as follows 

a)   Sector specific SEZs:    

Minimum investment of Rs.250 crores or net worth of Rs.50 crores  

b)   Multi product SEZs:  

Minimum investment of Rs.1000 crores or net worth of Rs.250 crores            

2) Proposals not meeting the above minimum investment or net worth criteria with enough justification for the same, to be considered on merits by the Board of Approvals.  

84

No SEZ on prime agriculture Land

The Centre has directed the states that mainly waste and barren land

and if necessary single crop agricultural land alone should be acquired

for the SEZ.

It has been further clarified that if perforce a portion of double-

cropped agricultural land has to be acquired to meet the minimum area

requirements, the same should not exceed 10% of the total land

required for the SEZs.