Quipo Report

8/3/2019 Quipo Report

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SEZ REGULATORY COMPLIANCE DOCUMENTATION

DEVELOPMENT PLAN FOR THE SEZ DEVELOPER

Special Economic Zones An Introduction

The SEZ scheme has its origin when Government of India (GoI) first introduced the concept of

SEZ in the Export -Import Policy 2000 with a view to provide an internationally competitive and

hassle free environment for exports. Special Economic Zones (SEZs) are hence specifically

delineated duty-free enclaves treated as a foreign territory for the purpose of industrial, service

and trade operations, with exemption from customs duties and a more liberal regime in respect

of other levies, foreign investment and other transactions

The main objectives of SEZ scheme can be briefly stated as:

1) Attract Foreign Direct Investment (FDI)

2) Earn foreign exchange and contribute to exchange rate stability

3) Boost the export sector, especially non-traditional exports

4) Create employment opportunities

5) Introduce new technology

6) Develop backward regions

7) Stimulate sectors such as electronics, information technology, R & D, tourism, infrastructure

and human resource development that are regarded as strategically important to the economy

8) Create backward & forward linkages to increase the output and raise the standard of local

enterprise that supply goods and services to the zone. Unlike most of the international instances

where zones are primarily developed by Governments, the Indian SEZ policy provides for

development of these zones in the government, private or joint sector. This offers equal

opportunity to both Indian and international private developers.

Legal Framework

Previously Special Economic Zones in India were governed by Chapter X-A of the Customs Act,

the Special Economic Zones Rules, 2003, and the Special Economic Zones (Customs Procedures)

Regulations, 2003 and Chapter 7 and 7A of Foreign Trade Policy.


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However, w.e.f. 10th February, 2006 the activities relating to Special Economic Zones are guided

by the provisions contained in the Special economic zones Act, 2005 and the Special Economic

Zones Rules, 2006. After the enactment of the SEZ Act, 2005 Chapter X-A of the Customs Act,the Special Economic Zones Rules, 2003, and the Special Economic Zones (Customs Procedures)

Regulations, 2003 are not in operation

Overview of the Special Economic Zones Act, 2005

The Special Economic Zones Act 2005 consists of 8 chapters, 58 sections and 3 schedules. The

provisions of this Act shall have effect notwithstanding anything inconsistent therewith

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. (Section 51)

The Act provides for the following:

1) Procedure for making proposal to establish SEZ( Sec 3)

2) Establishment of SEZ with the approval from Board of Approvals( Sec 4)

3) Notifying an area as SEZ by Central Government ( Sec 5)

4) Approval by Board of Approval for establishment of SEZ ( Sec 8 to 10)

5) Development Commissioner as administrative Authority for the SEZ ( Sec 11 and 12)

6) Approval Committee to approve setting up of an unit in SEZ( Sec 13 and 14)

7) Single window clearance by Approval Committee for setting up unit in SEZ, setting up an OBU

and setting up an IFSC.( Sec 15 to 20)

8) Enforcement officer or agency for notified offences( Sec 21 and 22)

9) Special civil courts and criminal courts to try notified offences and appeal to High Court (Sec

23 and 24)

10) Special Fiscal provisions for special economic zones( Sec 26 to 30)

11) Establishment of SEZ Authority( Sec 31 to 41)

12) Reference of dispute to arbitration( Sec 42 and 43)

13) Exemptions and relaxations from provisions of some Central Acts ( Sec 49 and 54)

14) Power of the Central Government to make rules and to remove difficulties( Sec 55 and 56)

Important Definitions in the Act


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Developer means a person who, or a State Government which, has been granted by the

Central Government a letter of approval and includes an Authority and a Co-Developer (Section

2(g))

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))

Export means

(i) taking goods, or providing services, out of India, from a Special 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 to another Unit or Developer, in the

same or different Special Economic Zone ;( Section 2(m))

Free Trade and Warehousing Zone means a Special Economic Zone wherein mainly trading

and warehousing and other activities related thereto are carried on; (Section 2(n))

Import means

(i) bringing goods or receiving services, in a Special Economic 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 from another Unit or Developer of the

same Special Economic Zone or a different Special Economic Zone( Section 2(o))

Infrastructure facilities means industrial, commercial or social infrastructure or other

facilities necessary for the development of a Special Economic Zone or such other facilities

which may be prescribed (Section 2(p))

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) )


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Manufacture means to make, produce, fabricate, assemble, process or bring into existence,

by hand or by machine, a new product having a distinctive name, character or use and shall

include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture,

pisciculture, poultry, sericulture, viticulture and mining; (Section 2(r))

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))

Services means such tradable services which,-

(i) Are covered under the General Agreement on Trade in Services annexed as IB to the

Agreement establishing the World Trade Organization concluded at Marrakes on the 15th day of

April, 1994;

(ii) May be prescribed by the Central Government for the purposes of this Act; and

(iii) Earn foreign exchange (Section 2(z))

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))

Overview of the Special Economic Zones Rules, 2006

The policy relating to special economic zones is contained in Special Economic Rules, 2006

notified in the Gazette of India, Extraordinary No. GSR 54 (E), dated 10.2.2006. The Rules

contain 8 chapters, 77 rules, 11 forms - A to K and 2 Annexures Amendment were made in the

Special Economic Zones Rules by way of

1) The Special economic Zones (Amendment) Rules, 2006 which came into force on 10.08.2006

(vide Notification NO G.S.R. 470(E), dated 10-8-2006)

2) The Special Economic Zones (Amendment) Rules, 2007 ( vide Notification dated 16.03.2007)

3) The Special Economic Zones ( Second Amendment) Rules, 2007 ( vide Notification dated

12.10.2007)


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The significant features of the: Special Economic Zones Rules 2006 are as follows:

1) Simplification of procedures for development, operation, and maintenance of the SpecialEconomic Zones and for setting up and conducting business in SEZs;

2) Single window clearance for setting up of an SEZ;

3) Single window clearance for setting up a unit in a Special Economic Zone;

4) Single Window clearance on matters relating to Central as well as State Governments;

5) Simplified compliance procedures and documentation with an emphasis on self-certification;

6) Documentation for various activities of the units has been reduced to the barest minimum

with an emphasis on self-certification.

7) No requirement for providing bank guarantees, thereby reducing transaction costs;

8) Contract manufacturing for foreign principals allowed;

9) Option to obtain sub-contracting permission at the initial approval stage

Important definitions in the Rules include:

Special Economic Zone for multi-product means a Special Economic Zone 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 (za))

Special Economic Zone for specific sector means a Special Economic Zone meant exclusively

for one or more products in a sector or one or more services in a sector (Rule 2(zb))

Special Economic Zone in a port or airport means a Special Economic Zone 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(zc))

Area requirements for different SEZ can be summarized as under

S.No SEZ Type Minimum Area Minimum Processing Area

1 Multi Product 1000 hectares but not

exceeding 5000 hectares

35%

2 Multi Service 100 hectares 25%


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3 Specific Sector 100 hectares 50%

4 Electronic Hardware

and Software

10 hectares (with 1 Lac square

meter built up area)

50%

5 Bio Technology/Non

conventional energy

10 hectares (with a minimum

built-up area of forty thousand

square meters)

50%

6 Gems and Jewellery

Sector

10 hectares (with a minimum

built-up area of fifty thousand

square meters)

50%

7 Free Trade and

warehousing Zone

40 hectares (with 1 Lac square


-

8 Stand alone 40 hectares (with 1 Lac square


50%

9 Specific Sector No minimum area requirement

but subject to max area not

exceeding 20% of the

processing area

-

Approval mechanism:

The Amended Rules now provide for a distinction between In-principle Approvals (to be given,

subject to acquisition of land, in the newly notified Form B 1), and a Formal Approval (in cases

where the land is in possession), to the Developer.

Besides, The Rules provide for the validity of In-principle Approvals for a period of one year,

extendable, upon request, to a further period not exceeding two years.

For the purpose of obtaining a Notification of the SEZ, the Developer has now to furnish also a

certificate from the State Government or its authorized agency, stating that the Developer has

legal possession and irrevocable rights to develop the identified area as an SEZ, and that the said

area is free from all encumbrances.

SITE IDENTIFICATION, LAND ACQUISITION, RESETTLEMENT & REHABILITATION:

The provisions of the Land Acquisition Act and the Resettlement and Rehabilitation Policy as

framed by the Ministry of Rural Development will be applicable for acquisition of land for SEZ

also. However, while identifying the location for setting up of Special Economic Zones, the SEZ

Developer may keep in view the following aspects:

(i) As far as possible, SEZs may be located outside an urban agglomeration/municipal limit.


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(ii) Sufficient land and water resources for the population envisaged in the SEZs should be

available.

(iii) Cultivable land should be considered only if adequate quantum of other land is notavailable. First preference should be for acquisition of waste and barren land, followed by single

crop land and double crop land necessary to meet the contiguity requirements.

(iv) Site shall have potential for development as a self-contained entity along with

environmental sustainability.

(v) As far as possible SEZs shall be self-contained with respect to basic facilities and

requirements.

(vi) The developer may also strive to create facilities such as industrial training centres, ITIs,

vocational training programmes and other such community development programmes for the

benefit of the people impacted by the establishment of the Zone in association with the

Government or Non-Governmental agencies as considered appropriate.

DEVELOPMENT PLAN FOR ENGINEERING SEZ:

The Developer of the SEZ shall make a Development Plan, keeping in view the following aspects:

(i) Site analysis and assessment of physical and natural resources

(ii) Broad spatial plan showing land use pattern, road and other infrastructure

(iii) Activity nodes for location of industrial, commercial, trade and commerce and other

employment generating activities serving as nucleus for development around which other

activities are likely to come up.

(iv) Sectoral infrastructure plan, including fast track and efficient linkages/provision of

transportation with the mother city and other urban centres of the region.

(v) Development Plan for SEZ be prepared with a perspective of 20-25 years and shall be broken

up into short term Action Plans of five years each;

(vi) The plans need to be adequately backed by investments plans/programmes for infrastructure

to be implemented in a phased manner.

(vii) Planning of SEZs may adopt different kind of development low-rise and low-density

development or high rise, medium density or high-rise and high-density urban form depending on

the availability of land requirement of the operating units

(viii) Developers of the SEZs would strive to address environmental aspects as prescribed by law,

planned green areas, ground water recharging areas and disaster mitigation aspects.


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Role of State Government: SEZs may be located in a regulated or any non-regulated area. For a

SEZ falling within the regulated area, the State Government may constitute an Empowered

Committee under the Chairmanship of Chief Secretary and consisting of representatives fromvarious Ministries/Departments to prepare the guidelines for the development of Special

Economic Zone with regard to land usage, floor space level, environmental provisions, safety

measures and such other matters as may be required. It may also ensure compliance of the

approved master plan and may approve any modification in the plan if required by the Developer

and provide the guiding principles for town planning and urban development standards to be

implemented by the developer.

In case of SEZ falling in a non-regulated area, the master plan should conform to the overall

urban development guidelines of the State Government if there are none by the State

Government.

The authority for approving the building plans must be delegated to the Approval Committee of

the Zone headed by the Development Commissioner. The Committee will also have nominee of

the concerned Department of the State Government to ensure compliance to the policy of the

State Government on the subject.

The Master Plan approval shall be granted by the State Government on a time bound basis within

45 days of submission of Draft Master Plan related documents. This would include clearance from

the land ceiling provisions. For this purpose, the guidelines circulated by the Department of

Commerce vide letter No:H.5/3/2007-EPZ dated 24.1.2008 to the State Governments on creation

of Empowered Committee for granting all kinds of State Governments approval may be kept in

view.

Processing area and Free Trade Warehousing Zone (FTWZ):

The provision relating to the height of the boundary wall / wire mesh fencing, etc. of the

relevant areas in an SEZ have been deleted. It is now provided that the entry and exit points

shall be fully secured by taking such measures as approved by the Board.

PHYSICAL INFRASTRCTURE:

(i) External Connectivity: External connectivity for SEZs being critical to the success of the SEZ,

Developer should evolve a development and create adequate external infrastructure for the SEZs

on a time bound basis.


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(ii) Water Supply: There should be planning for adequate provision for water supply to meet

both residential and nonresidential demand of water. Best practices should be adopted for

conservation and recycling of water. The Zone should be adequate facilities for rainwaterharvesting. If water is drawn in bulk from an existing water supply system, the storage reservoir

may suitably be sited.

(iii) Drainage: The drainage system shall be designed based on the soil conditions, ie. Water

absorption capacity of the soil, area of pen spaces and other non-residential uses. The storm

water drainage system shall be designed keeping in view the historical rainfall intensity of the

area.

(iv) Sewarage: Adequate and appropriate sewerage system should be put in place by the

Developer in accordance with the developmental plan. Sewerage treatment plant facilities may

be provided for the SEZ as a whole. The prevailing wind direction should also be considered

while orienting the development in the pockets adjoining sewerage treatment plant. For pockets

adjoinining sewerage treatment plants, think clusters of tress could be planted to act as a

buffer.

(v) Solid Waste management: Properly designed enclosures at suitable places in the SEZ shall be

provided for depositing segregated solid waste. Appropriate landfill sites away from the SEZ shall

be earmarked as per the National Urban Housing Policy 2007. These houses shall be provided to

the labour and staff of the developers and units in the Zone. The employers would take thee

houses on long-term lease and would rent out to the employees. Proper space for street vendors

in the commercial areas shall be provided keeping in view the National Policy on Urban Street

Vendors, 2009.

(vi) Medical & Food Facilities: Developers shall provide appropriate medical facilities in the

zone for use by the residents & employees. Developers should also provide low cost food

facilities for workers living in dormitories.

(vii) Mass Transportation: Developer shall provide mass transportation facilities in the Zone. The

State Government will provide appropriate connectivity for mass transportation from the nearby

towns to the Zone and the Developer will take appropriate steps for the same.

(viii) Training and Manpower: The developer shall be responsible for setting up technical

education facilities on need basis in non processing area which will include Polytechnics,

courses for higher education as well as facilities for evening

(ix) Power Supply: It would be appropriate that the SEZ shall be self-dependent on power supply

and the SEZs should be able to provide 7x24 hours uninterrupted quality power supply. The


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power supply should be based on multiple supply lines and not liable to single line point failures.

It would be desirable to plan for captive power plants. Overhead lines need to be minimized.

The Zone should adopt best practices in energy conservation, including use of LEDs.All buildings should have built in provisions for Solar Energy use and maximum use of solar energy

may be made through solar energy power systems for heating and lighting purposes for

industrial, institutional buildings and public buildings and places.

(x) Telecommunications: A Zone must have optical fibre connectivity to provide state-of-the-art

high speed communication link for audio and video to the users in the zone. There should be a

video conferencing facility in the office of the Developer and the DC in the Zone which should be

operational for use by the DC for reviews as well as for meeting with the State Government

Departments/Central Government Departments as well as investors.

(xi) Housing: Five per cent of the total area must be used for constructing low cost housing and

dormitories in all SEZs of a size of 100 hectares or more. In case of a SEZ of a size of less than

100 hectares, developers should provide low cost housing /dormitories to the employees

depending upon the need of the classes for the nearby areas of each Zone to provide qualified

manpower in the units coming up in the Zone.

(xii) Regional Development: SEZs being centres for economic activity, will have the influence of

developing township around it. State Governments have therefore been instructed to look at the

development of the area around the Zone in a planned manner in particular for SEZs around

which there is no commercial or industrial activity. Developers will work with the State

Government to achieve the same objective.

Infrastructure in Non-processing Area:

Incorporating the restriction indicated in the Notification dated 27 October 2006, the Rules now

provide that infrastructure for business or social purposes in an SEZ created in addition or excess

of those approved by the Board shall not be eligible for any exemptions, concessions or

drawback.

PROVISIONS RELATING TO THE FUNCTIONING OF THE SPECIAL ECONOMIC ZONES

Grant of Approval for authorized operations:


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All exemptions, drawbacks and concessions shall be available as per procedure laid down in Rule

12 after the SEZ has been notified in the Gazette (Rule 9 of The Special Economic Zones Rules,

2006). The normal time period for a SEZ to be notified is one month from date of approval

Permission for procurement of items: (Rule 10 of The Special Economic Zones Rules,2006 )

a) These benefits will also be available to the contractors appointed by the developer/

codeveloper and all the documents in such cases shall bear the name of the developer or co-

developer along with the contractor and these shall be filed jointly in the name of the developer

or co-developer and the contractor.

b) The developer or co-developer shall be responsible and liable for proper utilization of goods in

all cases.

Processing and Non-processing area:

a) The Development Commissioner of the SEZ shall be the authority for demarcating the areas

within the SEZ(Rule 3(1) of The Special Economic Zones Rules,2006)

b) Only authorised persons shall be allowed to enter the processing area of the SEZ(Rule 11(4) of

The Special Economic Zones Rules,2006)

c) The land or built up space in the processing area or FTWZ shall be given on lease only to the

entrepreneurs holding a valid Letter of Approval issued under Rule 19 and the lease period shall

not be less than five years but notwithstanding any other condition in the lease deed, the lease

rights would cease to exist in case of the expiry or cancellation of the Letter of Approval

(Amended Rule 11(5) of The Special Economic Zones Rules,2006)

d) The Developer may with the prior approval of the Approval committee grant on lease land or

built up space for creating facilities such as canteen, public telephone booths, first aid centres,

crche and such other facilities as may be requires for the exclusive use of the unit(proviso to

Rule 11(5) of The Special Economic Zones Rules,2006)

e) The developer may allot land in the processing area on lease basis to a person desiring to

create infrastructure facilities for use by prospective units.( Rule 11(8) of The Special Economic

Zones Rules,2006)

f) The developer shall not sell the land in a SEZ (Rule 11(9) of The Special Economic Zones

Rules,2006)

g) 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


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and business complexes, to any person except a co-developer approved by the Board. However,

the developer or co-developer may lease the completed infrastructure along with the vacant

land appurtenant thereto for such purposes (amended Rule 11(10) of The Special EconomicZones.

h) Infrastructure for business or social purposes in the Special Economic Zone, as may be

approved by the Board, shall be eligible for exemptions, concessions, drawback and any such

infrastructure created in addition or in excess thereof shall not be eligible for any exemptions

concessions and drawback (amended Rule 11(10) of The Special Economic Zones (Second

Amendment) Rules,2007)

Import and Procurement:

The Rules have been amended to extend exemption from payment of duty, taxes or cess,

drawbacks and concessions on all types of goods and services, required for setting up and

maintenance of factory buildings, also to contractors appointed by the SEZ Unit. The Unit shall

be held responsible and liable for the proper utilization of such goods and services.

Sub-contracting by the Developer:

The amended Rules allow a Developer, Co-developer or Contractor on their behalf, to

temporarily remove the goods procured duty free for authorized operations, to a place in the

DTA, EOU, Unit in same or other SEZ, EOU, STP Units, etc. for sub-contracting a process with

prior permission and subject to prescribed conditions. The procedure for sub-contracting the

process has been prescribed.

Proposals not to 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, Reconditioning, repair and reengineering may be

permitted subject to the condition that exports shall have one to one correlation with imports

and all the reconditioned or repaired or re-engineered products and scrap or remnants or waste


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shall be exported and none of these goods shall be allowed to be sold in the Domestic Tariff Area

or destroyed;

(e) Export of Special Chemicals, Organisms, Materials, Equipment and Technologies unless itfulfils 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.

Cancellation of letter of approval to entrepreneur:

Sec 16 of The Special Economic Zones Act, 2005

(i) The approval Committee may at any time if it has any reason to believe that the entrepreneur

has persistently contravened any of the terms and conditions or its obligations subject to which

the letter of approval was granted to the entrepreneur, cancel the letter of approval

(ii) No such letter of approval shall be cancelled unless the entrepreneur has been afforded a

reasonable opportunity of being heard.

Monitoring

Rule 15 of the Special Economic Zones Rules, 2006

The utilization of the goods imported or procured from the Domestic Tariff Area by the

Developer shall be monitored by the Approval Committee.

Period of lease:

The period of lease of land or built-up space in the processing area / FTWZ by the Developer to

the Unit shall be subject to the following conditions:

- Shall not be less than 5 years

- Shall cease on expiry or cancellation of the Units letter approval

Letter of Approval to a unit

Rule 19 of The Special Economic Zones Rules, 2006

a) 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 and the Unit

shall intimate date of commencement of production or activity to Development Commissioner


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b) 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 on a request by the

entrepreneurc) The Development Commissioner may grant further extension of one year subject to the

condition that two-thirds of activities including construction, relating to the setting up of the

Unit is complete and a chartered engineers certificate to this effect is submitted by the

entrepreneur.

d) If the Unit has not commenced production or service activity within the validity period or the

extended validity period the Letter of Approval shall be deemed to have been lapsed with effect

from the date on which its validity expired.

e) The Letter of Approval shall be valid for five years from the date of commencement of

production or service activity and it shall be construed as a licence for all purposes related to

authorized operations, and, 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.

f) If an enterprise is operating both as a Domestic Tariff Area unit as well as a Special Economic

Zone Unit, it shall have two distinct identities with separate books of accounts, but it shall not

be necessary for the Special Economic Zone unit to be a separate legal entity:

Bond cum Legal undertaking

Rule 22 (1) of The Special Economic Zones Rules, 2006

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, including capital goods, spares, raw

materials, components and consumables including fuels, imported or procured duty free and

regarding achievement of positive net foreign exchange earning;

ii. Bond-cum-Legal Undertaking executed by the Unit or the Developer including Co-Developer

shall cover one or more of the following activities, namely: -

(a) The movement of goods between port of import or export and the Special Economic Zone;

(b) The authorized operations, as applicable to Unit or Developer;

(c) temporary removal of goods or goods manufactured in Unit for the purposes of repairs or

testing or calibration or display or processing or sub-contracting of production process or

production or other temporary removals into Domestic Tariff Area without payment of duty;

(d) Re-import of exported goods.


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iii. The Bond-cum-Legal Undertaking, where the entrepreneur or Developer is a company shall be

executed by the Managing Director of the company or the Director(s) or any person who has or

have been duly authorized for this purpose by a resolution of the Board of Directors of thecompany and shall be affixed with the common seal of the company

iv. The value of the Bond-cum-Legal undertaking shall be equal to the amount of effective duties

leviable on import o 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 as applicable but which will not be levied on account of admission of

such goods into the Unit or the amount of effective duties leviable on import or procurement

from Domestic Tariff Area of the projected requirements of goods for the authorized operation

by the developer but will not be levied on account of admission of such goods into the Special

Economic Zone;v. If the value of Bond-cum-Legal undertaking executed falls short on account of requirement of

additional goods, the Unit or the Developer shall submit additional Bond-cum-Legal Undertaking;

vi. If no communication is received within seven working days from the date of its submission,

the duly completed Bond-cum-legal undertaking executed by the Unit or Developer, in

accordance with the rules above, as the case may be, shall be deemed to have been accepted,

Maintenance of accounts and submission of performance report

Rule 22(2) of The Special Economic Zones Rules, 2006

(i) Every Unit and Developer shall maintain proper accounts, financial year wise,

(ii) Such accounts which should clearly indicate in value terms the goods imported or procured

from Domestic Tariff Area, consumption or utilization of goods, production of goods, including

by-products, waste or scrap or remnants, disposal of goods manufactured or produced, by way

of exports, sales or supplies in the domestic tariff area or transfer to Special Economic Zone or

Export Oriented Unit or Electronic Hardware Technology Park or Software Technology Park Units

or Biotechnology Park Unit, as the case may be, and balance in stock

(iii) Unit and Developer shall maintain such records for a period of Seven years from the end of

relevant financial year

(iv) The Unit shall submit Annual Performance Reports in Form I, to the Development

Commissioner and the Development Commissioner shall place the same before the Approval

Committee for consideration.


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Utilization of goods


(i) The goods admitted into a Special Economic Zone shall be used by the Unit or the Developeronly for carrying out the authorized operations

(ii) if the goods admitted are utilized for purposes other than for the authorized operations or if

the Unit or Developer fails to account for the goods as provided under these rules, duty shall be

chargeable on such goods as if these goods have been cleared for home consumption

Movement of goods to and from non-processing area


The movement of goods to and from non-processing area to a processing area and from one

processing area of Special Economic Zone to a different processing area of the same Special

Economic Zone shall be under serially numbered challans pre-authenticated by the owner or

Managing Director or working partner or the company secretary or by any person duly authorized

in this behalf by the company or firm, as the case may be, and the challans shall contain

complete description of goods.

Monitoring of performance


(1) Performance of the Unit shall be monitored by the Approval Committee

(2) In case the Approval Committee finds that a Unit has not achieved positive Net Foreign

Exchange Earning or 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(without prejudice to the

action that may be taken under any other law for the time being in force)

Identity Cards


(i) 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.

(ii) This 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:


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(iii) If any employee who has been issued an identity card ceases to be in employment of the

Unit or Developer, the said identity card shall be surrendered forthwith and shall be deemed to

be invalid from such date(iv) Temporary identity card may be issued by the Development Commissioner to the casual

visitors and contractors and a proper record of such entries shall be maintained at the Special

Economic Zone Gate;

Foreign Exchange Remittances


Export value of goods, software and services may be realized and repatriated as per instructions

of the Reserve Bank of India issued from time to time.

Facilities/ exemptions/ benefits to special economic zones

Exemption from Taxes, Duties or Cess Sec 7 & Sec 54 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

Direct Tax Incentives for SEZ Developers

100% tax holiday for the business of developing SEZ available for a period of any 10

consecutive years out of 15 years beginning from the year in which the SEZ is notified.-

Sec 80- IAB

Exemption from Minimum Alternate Tax (MAT) on income accruing or arising on or after

April 1, 2005 from business carried on or services rendered

No Dividend Distribution Tax (DDT) payable on dividends declared, distributed or paid

from April 1, 2005 onwards out of current income.- Sec 111 -O (6)

Exemption on interest and capital gains available to investors in SEZ developers- Sec 10

(23G).


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Investment income in the form of interest or long term capital gains, of an infrastructure

capital company from investments made in an enterprise engaged in the development,

operation or maintenance of a SEZ are exempt from tax The above benefits are also available in respect of co-developers providing infrastructure

facilities

Direct Tax Incentives for SEZ Units

15 year tax holiday (100% for first 5 years, 50% for next 5 years and up to 50% for next 5

years subject to creation of reserves) on export profits available to units commencing

business after April 1, 2005.-Sec 10AA

Exemption from capital gains arising on transfer of certain assets on shifting of

undertaking from a notified urban area to any SEZ.-Sec 54GA

Exemption from MAT on income accruing or arising on or after April 1, 2005 from

business carried on or services rendered.- Sec 115 JB (6)

Certain exemptions also available in respect of IFSC/OBUs located in SEZs- Sec 80LA

Indirect Tax Incentives for SEZ Developers/Units

Exemption from customs duty on goods/services imported or exported. [Supplies from

Domestic Tariff Area (DTA) to SEZ to be treated as exports while those from SEZ to DTA

to be treated as imports].

Exemption from excise duty on goods procured from DTA.

Drawback or any other admissible benefits on goods brought or services rendered by

DTA.

Exemption from service tax on taxable input services.

Exemption from Central Sales Tax on interstate sale or purchase of goods except for

newspaper.

Removal of goods into DTA also permitted subject to prescribed conditions and on

payment of all applicable customs duty leviable on importation of such goods into India

Other Incentives

State government shall


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Provide exemption from electricity duty or taxes on sale of self generated or purchased

electric power for use in processing area of an SEZ

Allow generation, transmission, distribution of power within a SEZ subject to theprovisions of the Electricity Act

With respect to each Special Economic Zone all such transactions between the Zones or within

the Zone or both, including the transactions of land acquisition for development of the Zone

between the developer or co-developer and land owners and land transactions between the

developers or co-developers and the units, carried out after declaration of the Zone by the

Government of India, shall be exempt from the following State taxes, cess and levies namely:

Purchase tax, Sales tax and Turnover tax

Specified sales (Lease tax) in respect of lease of goods

Stamp duty for the first transaction between the Developer or co-developer and the

land-owner and the first transaction between the Developer or co-developer and the

Units

Registration fee for the first transaction between the Developer or co-developer and the

land-owner and the first transaction between the Developer or co-developer and the

Units

Land assessment tax

Electricity duty and tax (Only for sales to Units in processing area)

Water pollution cess

Works Contract tax

Industrial Township:

State Governments have been asked to take appropriate steps to declare the SEZs as industrial

townships under Article 243Q of the Constitution with appropriate governing body giving suitable

representation to the SEZ developer, units and SEZ residents.

General:

The developer and State Government will have to take a longterm view for developing

infrastructure facilities within the Zone, particularly in case of multi-sector SEZs.

Exit route for units in SEZ


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The Approval Committee may, at any time, if it has any reason or cause to believe that the

entrepreneur has persistently contravened any of the terms and conditions or its obligations

subject to which the letter of approval was granted to the entrepreneur, cancel the letter ofapproval (Sec 16 (1)

The entrepreneur whose letter of approval has been cancelled shall remit, the exemption,

concession, drawback and any other benefit availed by him in respect of the capital goods,

finished goods lying in stock and unutilised raw materials relatable to his Unit, in such manner as

may be prescribed( Sec 16(3))

The SEZ Unit may opt out of Special Economic Zone with the approval 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, the exit shall be subject to penalty

that may be imposed under the Foreign Trade (Development and Regulation), Act, 1992

The Unit shall continue to be treated a unit till the date of final exit.(Rule 74 of Special

Economic Zones, 2006)

After the overview and the guidelines to the SEZ Developer in setting up of the SEZ describing

the basic operations structuring and maintaining the notified zone, we now look into the specific

issues to be addressed.

1. TRANSFER OF DEVELOPMENT RIGHTS

QIEL holds the ownership of lands, current and future. QIEL is also the approved Developer of

the SEZ in discussion. QIEL has full rights to transfer the development rights of the SEZ notified

area including providing of the infrastructure to any person and the said person shall be the co-

developer. However the co-developer cannot hold management control over the ownership of

lands notified for the SEZ. The current shareholding of QIEL in MFSEZPL is 50% in the equity share

capital. Therefore QIEL needs to hold anything more than 51% in the equity share capital of

Mumbai Futuristic SEZ Private Limited, the SPV incorporated to be the co-developer and provider

of infrastructure to the units proposed to be located in the SEZ.

2. TRANSFER OF OWNERSHIP OF LANDS


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Lands owned/to be owned by QIEL have been acquired from the local people and there is no

government grant or lease hold land lying within the notified area for the SEZ. Therefore lands

so acquired can be transferred to the Co-Developer, MFSEZPL, but MFSEZPL cannot own morelands than QIEL, who is the approved developer under the SEZ in-principle approval of the GOI. It

is recommended that QIEL holds 76% ownership of the lands notified under the SEZ and transfer

24% of the ownership of lands to MFSEZPL. This can be done by way of a sale, but it would incur

stamp duty and registration fees. The better option would be to lease 49% of the land to

MFSEZPL and also transfer development rights to it. MFSEZPL would be a full fledged co-

developer with the functions of having to provide infrastructure in the notified area, operate and

maintain the same. MFSEZPL on its part can lease out the areas provided to it for setting up units

by other proposed industries.

3. EXIT ROUTE FOR SEZ DEVELOPERS

The SEZ Act and rules dont allow scrapping an SEZ after it is notified as a tax-free enclave by

the Centre. With the liquidity crunch and the demand slowdown threatening to make several

SEZs unviable, the Centre may come up with guidelines for partial or full denotification of SEZs.

Of the formally approved 531 SEZs, 271 have been notified. While a few Developers have asked

the Centre to denotify their IT SEZs, many others have sought an extension in the mandatory

timelines. Developers get a year to convert in-principle approval (without the required land) to

formal approval, as well as between formal approval and notification. A notified SEZ project

should be up and running in three years.

However, exiting developers wont be able to just pack up and leave, as any denotification

norms will have crucial riders. They would not only have to cite valid reasons for denotification,

but also prove that they have refunded all the tax benefits with interest. Moreover, a penalty

will be imposed on a case-by-case basis.

For SEZs where the land has been given on lease by state government, the state administrations

nod would also be necessary for considering denotification applications. If the zone has units and

is populated, then it can get more complicated as the developer will have to compensate all

those affected. After units set up shop in an SEZ, it would be unfair for the government and

developers to backtrack just because the project has become unviable.


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The easier option could be that SEZ Developer could be Special Purpose Vehicle so that as and

when the exit is contemplated, the Developer can look for a buyer for that SPV as an ongoing

business. We have to examine Company Law, Sales Tax and Income Tax complications involved insuch a transfer.

Steps involved as of now are as under:

All applicable customs and excise duties within the SEZ till that date should be paid, on the

imported and indigenous capital goods, components, consumables, spares in stock.

The penalty imposed by the appropriate authority, under the Foreign Trade (Development and

Regulation) Act, 1992 for non-fulfillment of the conditions of approval, should be paid.

Units located in the Special Economic Zones would be required to immediately vacate their

premises after approval for exit from the Scheme, for which the Developer may have to

bear the cost.

Application should be made to the government for denotification.


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Registers to be maintained by SEZ

Register.Sr.No.

Register To be Maintained by Consist Of

1 Bill of Entry Register- (Thoka Register) Customs Officer Developer, Unit,Contractor

2 Import-Gate Register Developer Developer, Unit,Contractor

3 Import Register Developer, Unit &Contractor

4 ARE 1 Gate Register Developer Developer, Unit,Contractor

5 ARE 1 Register Developer, Unit &Contractor

6 DTA/Indigenous Gate Register (WithoutBenefit)

Developer Developer, Unit,Contractor

7 Indigenous Procurement Register (WithoutBenefit)

Developer, Unit &Contractor

8 Outward Register- Gate Developer Developer, Unit,Contractor

9 Temperory Removal of Goods/Material Sent forRepairs & Received back Register- Gate

Developer Developer, Unit,Contractor

10 Temperory Removal of Goods/Material Sent forRepairs & Received back Register

Developer, Unit &Contractor

11 Returnable Material Register Developer Developer, Contractor

12 Material Inward Register (Contractor Register) Developer Developer, Contractor

13 Shipping Bill Export Register (Thoka Register) Customs Officer Unit

14 Visitors Register- Gate Developer Developer, Unit,Contractor

15 Visitors Register Unit

16 Benefit Claim Register Developer, Unit &Contractor

Registers to be maintained by SEZ- At Gate

Sr.No. Register To be Maintained by Consist O

2 Import-Gate Register Developer Developer,Unit,Contractor

4 ARE 1 Gate Register Developer Developer,Unit,


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Contractor

6 DTA/Indigenous Gate Register (Without Benefit) Developer Developer,Unit,

Contractor8 Outward Register- Gate Developer Developer,

Unit,Contractor

9 Temperory Removal of Goods/Material Sent forRepairs & Received back Register- Gate

Developer Developer,Unit,Contractor

11 Returnable Material Register-Gate Developer Developer,Contractor

12 Material Inward Register (Contractor Register) Developer Developer,Contractor

14 Visitors Register- Gate Developer Developer,Unit,Contractor

Registers to be maintained by SEZ- Developer,Unit, Contractor independently

Sr.No. Register To be Maintained by

3 Import Register Developer, Unit & Contractor

5 ARE 1 Register Developer, Unit & Contractor

7 Indigenous Procurement Register (Without Benefit) Developer, Unit & Contractor

10 Temperory Removal of Goods/Material Sent forRepairs & Received back Register

Developer, Unit & Contractor

11 Returnable Material Register Developer, Contractor12 Material Inward Register (Contractor Register) Developer, Contractor

15 Visitors Register Unit

16 Benefit Claim Register Developer, Unit & Contractor

Registers to be maintained at SEZ-Customs Officer

Sr.No. Register To be Maintained by Consist O

1 Bill of Entry Register- (Thoka Register) Customs Officer Developer,Unit,Contractor

13 Shipping Bill Export Register (Thoka Register) Customs Officer Unit

Quipo Report

Documents