Ms. Bargavi Natesan, Infosys Technologies Limited

A Brief Introduction..The SEZ Act 2005, received the ascent of the

President of India on 23rd June 2005The Rules got notified and thereafter came into

force w.e.f 10-2-06It has 8 chapters and 3 SchedulesMeaning of SEZ to include existing SEZs alsoA new concept of Co Developer formedExport definition to include taking goods or

providing services out of India, supplying goods or services from DTA to a unit or Developer, supply of goods and services from one unit to another unit or Developer in SEZ.

Stats on SEZs- 29th Aug 2007

Objective of SEZGeneration of additional economic activityPromotion of exports and servicesPromotion of Foreign and Domestic

investmentCreation of employmentDevelopment of Infrastructure facilities

Scenario of SEZs in IndiaThe Law :- Governed by the SEZ ACT and

RulesBasic Profile: - Delineated, contiguous,

Vacant area, deemed to be a foreign territoryTypes:- Multi product, Multi service, single

product, Free trade and warehousing zone, Port/Airport based SEZs

Establishment of SEZA SEZ can be established either jointly or

severally by Central Govt/State Govt. or any person

Any person with an intent to establish SEZ, should make a proposal to State Government and they in turn scrutinize and send this to Board of Approvals.

Proposals can also be made directly to the Board of Approval.

Central Govt is empowered to prescribe minimum area required for SEZs and also to approve more than one Developer in SEZ.

Land can be owned or leased by Developer, but land cannot be sold to the Unit by the Developer

Logical process of Zone creationIn Principle & Formal approvals in BOA

( land single crop/ double crop)Zone inspection by DCLaw ministry verification & Gazette

notification ( one single notif for all)UAC is formed ( Unit approval committee)

under DCUnit can apply to DC concernedAPR/ QPR / HPR for monitoring

performance

Single Window clearanceCentral Govt will form a committee for every SEZ

called the Approval committeeApproval committee will approve the activities of

Developers and units and also monitor the export performance

Single enforcement officer for notified offencesState Govt will designate one or more courts

( with the consultation of chief Justice of High Court) to try all suits pertaining to SEZ ( of a civil nature)

Appeal against Approval committee lies with BOASearch,seizure, investigaiton after prior

intimation to the DC incharge.

Fiscal BenefitsDuty free goods for development of SEZs

and also for setting up of unitsExemption from customs dutySupply from DTA to SEZ treated as

exports. Hence all export entitlements like DEPB, Advance license, Duty drawback is available

Exemption from Service tax to unit as well as Developer

Exemption from CST against issue of form

Fiscal BenefitsExemption from Securities Transaction tax as per

26(1)(f) of the SEZ ActIncome tax exemption for 15 /10 yearsExisting units to get IT exemption for the balance

periodIT exemption extended to export of services, which

includes trading as wellInternational financial service centre to get IT

exemption for 10 years Exemption from capital Gains for transfer of an

undertaking from urban to SEZExemption from MAT for units and DevelopersSEZ Developers exempted from Dividend

Distribution Tax

Fiscal Benefits – A brief outlook

Other Misc provisionsCentral Govt may direct by way of notification

that any of the provisions of the central act or any rules or regulations made thereunder may not apply to SEZs or class of SEZs.

A SEZ shall deemed to be the Port, Airport, ICD, Land station, Customs station under Sec 7 of customs Act- No separate notif. From MOF is required

State Govt shall provide for exemption from electricity duty, providing water, electricity and such other services as being required, delegation of powers to the DC under Industrial Disputes Act.

States to provide for single point clearance system to developers and units

SEZ Rules Definition of Capital goods expanded to include

capital goods required for development of SEZ Consumable to include fuel, HSD, light diesel oil

and other petroleum products Minimum area requirement1. multi product 1000 hectares or more, but not

exceeding 5000 hectares2. multi services and sector specific 100 hectares3. Electronics hardware/software including IT 10

hectares ( min of 1 lakh sq mts for IT)4. Bio technology/non conventional energy incl solar

– 10 hectares with min built up 40,000sqmts and 50,000 in case of gems and jewellery

Procedure for ImportProcedure for import and procurement of goods-

Bond cum legal undertakingNO Bank guarantee requiredConsolidated application to the DC seeking

permission for setting up unit, allotment of IEC, SSI registration, pollution control clearance, sales tax, building plan approval, water connection etc.

There shall be no debit or credit in Bond cum LUT

Bond cum LUT shall be monitored quarterly for developers and for units on a yearly basis

Maintenance of records for 7 years – units and Developers

Quarterly performance report has been done away with

Assessment of import or DPC to be on a self declaration basis

No examination from customs on goods movement

Refund provision for duty paid on imports thru courier

Import of computer software thru data communication links, the unit shall file BOE within 3 working days from the closer of the month

Rule 30- simplification of procedure on procurement of goods from DTA

Service tax benefits for authorized operations in a SEZ.

Destruction of goods- within campus, physical presence is not required

Self declaration- all inward and outward movement of goods to be on self declaration basis and no routine examination required

Pre & Post SEZ Rules scenariopre & post SEZ rules.xls

EOU/STP Vs. SEZLegislative back upAdministrative control – MOC/ Min of Info

Technology Fiscal Benefits for Units under

constructionCustoms Procedure/ Bank Guarantee

requirements/ Self assessment procedureSales Tax & VAT / Service TaxLabour AdministrationIncome Tax Benefit under Sec 10AA/

exemption from MAT/ Dividend Distribution Tax for Developers

EOU/STP Vs. SEZCo Developer / Subcontracting ProvisionsSeparate Customs ProceduresDemarcated Foreign Territory/ Private

Bonded Warehouse license under STPIChapter II Rule 5(5) – State Govt fiscal

benefitsSingle window clearanceThe Not withstanding Power

STP Vs. SEZ

Positive Aspects ..It is required to maintain only POSITIVE NFENo limitation on DTA SalesNo separate Bank Account- Separate Books

of Accounts need to be maintainedBenefits reserved for Pre SEZ Scenario

Challenges ..Services Consumed within the Zone Vs.

Authorised operations ( Rule 26(e) and 31)Income tax – 10AA

Made applicable on the entire revenue of Assessee rather than specific Business Income

Expenses incurred in foreign currency for rendering specified services ( incl computer software) outside India

Discrimination of Manufacturing Industry as against Service sector

Only Physical export being considered- SEZ to SEZ sale is not allowed for IT benefits

Challenges ….Movement of Assets Plant & Mach from

STP to SEZs – 20% to be monitoredAbsence of Provision for duty refund for

Units and Developers- Only exemptions available ( during initial set up and also during the course of operations)

Exemption from State prone taxes for subcontractors (VAT etc)

Non alignment of VAT exemptions across states

Drawback and DEPB are not available for Developers on account of lack of foreign exchange earnings

SEZ – Gain or Loss?Investment of 46,705 cr and projected

Investment of Rs.2.83 lac crore by Dec 09Employment of 40,153 direct and

projected employment of 21 lacs by Dec 09

Approx 500 zones across And with Multiplier effect and the

growing GDP with the above impact, we will surely be the Super Power ‘

SEZ Act and Rules are available in

www.sezindia.nic.in

Thank You!!