EOUs

1
EOUs
2
Export Oriented Units EOUs

• Units undertaking to export their entire
  production of goods and services (except
  permissible sales in the DTA), may be set up
  under the Export Oriented Unit (EOU) Scheme, for
  manufacture of goods, including repair,
  re-making, reconditioning, re-engineering and
  rendering of services. Trading units, however,
  are not covered under these schemes.

3
Benefits of EOUs

• Exports all goods and services except
  prohibited items under ITC (HS)
• Duty free import/procurement of
• Raw materials
• Capital goods
• Second hand capital goods without age limit
• Except items prohibited under ITC (HS)
• An EOU can, on the basis of a firm contract
  between the parties, source the capital goods
  from a domestic/foreign leasing company without
  payment of customs/excise duties.

4
Benefits of EOUs

• The EOU units can sell in the DTA up to 50 of
  FOB value of exports registered by them in the
  preceding year. DTA sale includes sale of waste,
  rejects and finished products together.
• An EOU can export goods manufactured/software
  developed by it through a merchant
  exporter/status holder recognized under this
  Policy or any other EOU/EHTP/STP/BTP/SEZ unit.
• Inter-unit transfer is allowed.
• State trading regime does not apply to EOU
  manufacturing units.
• EOUs operate under system of no licence. Hence,
  there is no need of making separate application
  for Advance Authorisations, which ultimately
  results into hassle free operations.

5
Benefits of EOUs

• Exemption from payment of Income Tax as per the
  provisions of Section 10A and 10B of Income Tax
  Act.
• Exemption from industrial licensing for
  manufacture of items reserved for SSI sector.
• Export proceeds will be realized within 12
  Months.

6
Benefits of EOUs

• 100 retention of export earning in the EEFC
  account.
• The Units will not be required to furnish bank
  guarantee at the time of import or going for job
  work in DTA, where the unit has (i) a turnover of
  Rupees 5 crores or above, (ii) the unit is in
  existence for at least three years and (iii) unit
  having an unblemished track record.
• 100 FDI investment permitted through Automatic
  Route similar to SEZ units.

7
Benefits of EOUs

• Existing DTA units, can apply for conversion into
  an EOU unit, and Income Tax benefits under
  Section 10B will be available under the scheme
  for plant, machinery and equipment already
  installed.
• EOUs can export goods for holding exhibitions
  abroad with the permission of Development
  Commissioner.
• EOUs can export goods for display/sale in
  permitted shops set up abroad in the showroom of
  their distributors / agents. They can also set
  up showrooms / retail outlets at the
  international airports for sale of goods.

8
Benefits of EOUs

• Goods including free samples, can be
  exported/imported by airfreight or through
  Foreign Post Office or through courier, subject
  to the procedure prescribed by Customs. EOUs on
  prior intimation to customs can also supply or
  sell samples in DTA for display/market promotion
  on payment of applicable duties.
• FOB value of export of an EOU unit can be
  clubbed, with FOB value of export of a parent
  company in DTA for the purposes of Star Export
  House Status.
• EOU units, other than service units, can export
  to Russian Federation in Indian Rupees against
  repayment of State Credit/Escrow Rupee Account of
  the buyer subject to RBI clearance, if any.

9
Benefits of EOUs

• Procurement and export of spares/components upto
  1.5 of the FOB value of exports may be allowed
  to the same consignee/buyer of the export article
  within the warranty period.

10
DTA Sale

• DTA Domestic Tariff Area sales are permitted to
  the extent of 50 of physical exports in value
  terms. The DTA sales are permitted primarily to
  tide over the following difficulties /
  situations
• At the initial stage during trial production, the
  goods produced may not be export-worthy. Such
  goods need to be disposed off as otherwise
  inventory will rise substantially.
• By-products and rejects are also required to be
  disposed off.

11
DTA Sale

• By granting permission to selling in DTA, limited
  market access is given to EOU for selling the
  goods in home market. This is to tide over the
  difficulties arising out of weak demand.
• DTA sales also amount to an incentive as the raw
  materials required for DTA sales are allowed to
  be imported without payment of customs duty.
  Similarly, finished products when sold in DTA
  attract concessional duties.

12
DTA Sale

• Provisions for DTA Sale
• Subject to payment of concessional duties and
  fulfillment of positive Net Foreign Exchange
  NFE.
• Goods sold in DTA shall be similar to the goods
  exported or expected to be exported.
• Sale to Private Bonded Warehouses for which
  payment is received from EEFC account shall be
  taken into account for arriving at the FOB value
  of the exports.

13
DTA Sale

• Provisions for DTA Sale
• The DTA sale entitlement is determined in
  relation to the FOB value of Exports and not
  Deemed Exports.
• Sales to SEZ are included for calculating the FOB
  value of exports if the payment is made from the
  foreign exchange account.
• Goods sold in DTA shall be subject to all
  prohibitions / regulations as applied in respect
  of goods imported into the country.
• Sale to DTA would be subject to mandatory
  requirement of registration of pharmaceutical
  products (including bulk drugs).

14
DTA Sale

• An EOU may sell in the DTA goods upto 50 of the
  FOB value of exports subject to
• fulfilment of positive NFE
• and
• on payment of concessional duties.

15
DTA Sale

• Sale of Reject in DTA
• Permitted if rejects are not prohibited in LOP.
• Within an overall limit of 50.
• On payment of applicable duties.
• Prior intimation to the Customs Authorities.
• Counted against DTA Sale entitlement.
• Sale of rejects upto 5 of the FOB value of
  exports will not be subject to achievement of
  NFE.

16
DTA Sale

• Sale of Scrap/waste/remnants into DTA
• Sale of scrap/waste/remnants allowed as per
  SION/Ad-hoc norms-fixed by Development
  Commissioner.
• On the payment of concessional duties.
• Within an overall ceiling of 50 of FOB value of
  exports.
• Not subject to achievement of positive NFE.
• Sale of waste/scrap/remnants by units not
  entitled to DTA sale or sales beyond the DTA sale
  entitlement, shall be on payment of full duties.
• The scrap/waste/remnants may also be exported.
• There shall be no duties/taxes on
  scrap/waste/remnants in case the same are
  destroyed with the permission of Customs
  authorities.

17
DTA Sale

• Sale By-products into DTA
• By-products must be included in the LOP.
• Subject to achievement of positive NFE.
• On payment of applicable duties within the
  overall entitlement.
• Sale of by-products by units not entitled to DTA
  sales or beyond the DTA sale entitlements can
  also be permissible on payment of full duties.
• EOU units may sell finished products, which are
  freely importable under the Policy in the DTA
  under intimation to the Development Commissioner
  against payment of full duties provided they have
  achieved the positive NFE.

18
DTA Sale

• In case of DTA sale of goods manufactured by EOU,
  where basic duty and CVD is nil, such goods may
  be considered as non-excisable for the purpose of
  payment of duty.
• In case of new EOUs, advance DTA sale will be
  allowed not exceeding 50 of its estimated
  exports for the first year except the
  pharmaceutical units where this will be based on
  its estimated exports for the first two years.

19
Calculation of Duty in case of DTA Sales
Assessable Value 100.00 (A)
Basic Custom Duty _at_ 25 of 12.5 3.13 (B)
  103.13 (C )
CVD (Excise Duty) _at_ 16 16.50 (D)
Education Cess _at_ 2 on CVD 0.33 (E)
Excise Duty Payable (DE) 16.83 (F)
Custom (BDE) 19.96 (G)
Education Cess _at_ 2 0.40 (H)
Total Customs duty including cess (GH) 20.36 (I)
Add Customs duty _at_4 (SAD) 4.81  note
Grand total of Customs duty 25.17 (J)
20
Calculation of Duty in case of DTA Sales
Note
This (SAD) duty will be applicable in case of Sales Tax/Vat Exemption This (SAD) duty will be applicable in case of Sales Tax/Vat Exemption This (SAD) duty will be applicable in case of Sales Tax/Vat Exemption
Total duty 20.36
Cenvat () 16.83
Net duty Excluding Cenvat () 3.53
21
Local Procurement under EOU

• EOUs are allowed to source the materials, capital
  goods etc. from local supplier.
• The procedure to be followed is laid down in
  Excise Notification 22/2003-CE Dtd. 31.03.2003.
• EOU Unit will have to obtain CT-3 to procure
  excise duty free materials from DTA.
• The local supplier will get Deemed Export
  Benefits

22
Important Notifications

• Notification No. 52/2003-Cus. dtd. 31.03.2003
• Exemption to specified goods imported or procure
  from Public/Private warehouse or from
  International exhibitions held in India by EOU
  for production or packaging or job work for
  export of goods and services
• Notification No. 22/2006-Cus. dtd. 01.03.200
• Additional duty in lieu of Sales Tax/VAT
  Exemption to specified goods

23
Important Notifications

• Notification No. 22/2003-CE dtd. 31.03.2003
• Exemption to goods brought into EOU units
• Notification No. 23/2003-CE dtd. 31.03.2003
• Exemption to DTA Clearances of specified goods
  produced in EOU

24
Deemed Exports
25
Deemed Exports

• This is a special facility provided for supplies
  of indigenous products which can be consumed
  ultimately in the production of goods to be
  exported. The conditions are that supplied goods
  as it is do not leave the country but get
  consumed in the process of manufacture, payment
  for which is received in Indian Rupees or in
  foreign exchange.
• The categories eligible for deemed exports
  benefits are given in Para 8.2 of Foreign Trade
  Policy which are listed here below

26
Deemed Exports

• (a) Supply of goods against Advance
  Authorisation/Advance Authorization for Annual
  Requirement/DFRC/DFIA
• (b) Supply of goods to Export Oriented Units
  (EOUs) or Software Technology Parks (STPs) or
  Electronic Hardware Technology Parks (EHTPs) or
  Bio Technology Parks (BTP)

27
Deemed Exports

• Benefits for Deemed Exports
• Supply of goods against Advance Authorisation/
  Advance Authorization for Annual Requirement/
  DFRC/ DFIA.
• Deemed Export Drawback.
• Exemption from terminal excise duty where
  supplies are made against International
  Competitive Bidding. In other cases, refund of
  terminal excise duty will be given.

28
Benefits Category wise
Category Benefits
Para 8.2 (a) Advance Authorisation/ Advance Authorization for Annual Requirement/ DFRC/ DFIA Supplies made to i) Advance Authorisation ii) ARO/Back to Back Letter of Credit issued against Advance Authorisation iii) ARO/Back to Back Letter of Credit issued against DFRC Advance Authorisation for Intermediate Supplies Deemed export drawback and Refund of Terminal Excise Duty whichever is applicable. Deemed export drawback
29
Benefits Category wise
Category Benefits
Para 8.2 (b) Supply of goods to Export Oriented Units (EOUs) or Software Technology Parks (STPs) or Electronic Hardware Technology Parks (EHTPs) or Bio Technology Parks (BTP) Advance Authorisation for Deemed Exports Or Deemed export drawback Or Refund of Terminal Excise Duty However exporter can either claim exemption or refund. They cannot claim both In case of EOUs, exemption from payment of terminal excise duty is available against CT-3 certificate issued by EOU unit in favour of deemed exporter. This equally applies to EHTPs/STPs and BTPs.
30
Special Economic Zones
31
Agenda

• Fundamentals of SEZ
• Highlights of SEZ Act, 2005
• Highlights of SEZ Rules, 2006
• Procedure for setting up of SEZ
• Procedure for Establishment of a SEZ unit
• Recipe for SEZs

32
Fundamentals of SEZs

• Fundamentals of SEZs
• SEZs (special economic zones) are fundamentally
  different from the traditional free zones.
• They are much larger in size offer broader range
  of activities such as
• a single-window management,
• streamlined procedures,
• and duty-free privileges,
• also access to the domestic market on a duty-paid
  basis.
• The revised Kyoto Convention of the World Customs
  Organisation defines free zone as outside the
  customs territory.

33
Fundamentals of SEZs

• Whether the enclave is termed an EPZ, FTZ or SEZ,
  the cardinal factor is the provision of
• appropriate infrastructure and transport
  facilities,
• low factor cost,
• flexible labour laws,
• a low degree of tariff protection,
• convertibility of currency,
• stable legal and administrative regime, and
• a commitment to the canons of an open economy

34
Fundamentals of SEZs

• Look at Chinese SEZ-Shenzhen SEZ
• Area 320 sq.km.
• Harbouring 3.5 million people
• Export volume in 2004 of 77.85 billion (about
  23.6 of overall Chinese exports),
• 30 billion in FDI,
• 3 million employment
• Equipped with the state-of-the-art infrastructure
  
• Effective port facilities,
• Simplified procedures,
• Fully flexible labour policy in terms of hiring
  and firing.

35
Fundamentals of SEZs

• Look at Jebel Ali Free Trade Zone in Dubai
• Area - 100 sq km
• Home to over 1,600 companies from 85 countries
• Triggered the economy and development of Dubai

36

• Let us now study about Indian SEZ Recent
  developments..

37
Highlights of SEZ Act, 2005
38
Highlights of SEZ Act, 2005

• THE SEZ ACT HAS 8 CHAPTERS AND 3 SCHEDULES
• Chapter 1 Title, definition etc.
• Chapter 2 Establishment of SEZ.
• Chapter 3 Constitution of Board of Approvals
• Chapter 4 Development Commissioner
• Chapter 5 Single Window Clearance
• Chapter 6 Special Fiscal Provisions for SEZs
• Chapter 7 Special Economic Zone Authority
• Chapter 8 Miscellaneous
• The First Schedule List 21 Acts, Tax duties or
  Cess under these enactments are not applicable to
  SEZs. The list is given in the next slide
• The Second Schedule Incorporates modification
  to the Income Tax Act, 1961, as applicable to
  SEZs.
• The Third Schedule Incorporates amendments to
  Insurance act, 1938, Banking Regulations Act,
  1949 and Indian Stamp Act, 1899

39
Highlights of SEZ Act, 2005

• THE FIRST SCHEDULE
• (See sections 7 and 54)
• Enactments
• 1. The Agricultural Produce Cess Act, 1940 (27 of
  1940).
• 2. The Coffee Act, 1942 (7 of 1942).
• 3. The Mica Mines Labour Welfare Fund Act, 1946
  (22 of 1946).
• 4. The Rubber Act, 1947 (24 of 1947).
• 5. The Tea Act, 1953 (29 of 1953).
• 6. The Salt Cess Act, 1953 (49 of 1953).
• 7. The Medicinal and Toilet Preparations (Excise
  Duties) Act, 1955 (16 of 1955).
• 8. The Additional Duties of Excise (Goods of
  Special Importance) Act, 1957 (58 of 1957).
• 9. The Sugar (Regulation of Production) Act, 1961
  (55 of 1961).
• Contd.

40
Highlights of SEZ Act, 2005

• 10.The Textiles Committee Act, 1963 (41 of 1963).
• 11.The Produce Cess Act, 1966 (15 of 1966).
• 12.The Marine Products Export Development
  Authority Act, 1972 (13 of 1972).
• 13.The Coal Mines (Conservation and Development
  Act, 1974 (28 of 1974).
• 14.The Oil Industry (Development) Act, 1974 (47
  of 1974).
• 15.The Tobacco Cess Act, 1975 (26 of 1975).
• 16.The Additional Duties of Excise (Textile and
  Textile Articles) Act, 1978 (40 of 1978).
• 17.The Sugar Cess Act, 1982 (3 of 1982).
• 18.The Jute Manufactures Cess Act, 1983 (28 of
  1983).
• 19.The Agricultural and Processed Food Products
  Export Cess Act, 1985 (3 of 1986).
• 20.The Spices Cess Act, 1986 (11 of 1986).
• 21.The Research and Development Cess Act, 1986
  (32 of 1986).

41
Highlights of SEZ Act, 2005

• DEFINITIONS
• Comprehensive definitions relating to SEZ
  incorporated.
• A SEZ is deemed to be a territory outside the
  custom territory of India for the purpose of
  undertaking the authorized operations.
• A new concept of co-developer recognition.
• Definition of manufacturing specifically
  incorporated.
• Definition of Services includes all tradable
  services as are covered under the General
  Agreement on Trade Services.
• Free Trade Warehousing Zones has been defined
  as Special Economic Zones for trading and
  warehousing and is thus a part of SEZ act.
• Concept of International Financial Services
  Centre introduced

42
Highlights of SEZ Act, 2005

• ESTABLISHMENT OF SEZs
• A SEZ can be established either jointly or
  severally by the Central Govt.,State Govt. or any
  person for manufacture of goods or rendering
  services or for both or as a FTWZ.
• Any person who intends to set up can make a
  proposal to the State Govt. concerned which in
  turns sends the proposal to Board of Approval.
• First time the option has been given to the
  developers to make a proposal directly to Board
  of Approval BoA also.
• Central Govt. can set up the SEZ suo-moto after
  consulting the State Govt. concerned.
• Central Govt. may prescribe the minimum area of
  land

43
Highlights of SEZ Act, 2005

• EXEMPTIONS FROM TAXES, DUTIES OR CESS
• Any goods or services exported out of or imported
  into or procured from the DTA by
• a unit in SEZ or
• a developer
• shall be exempt from payment of taxes, duties or
  Cess
• under all enactments specified in the First
  Schedule.
• First Schedule includes 21 enactments.
• This list includes The Agriculture Produce Cess
  Act, The Coffee Act, The Rubber Act, The Tea Act,
  The Mica Act, The Textile Committee Act, The
  MPEDA Act, The Agriculture Processed Food
  Export Cess Act, The Spices Act etc.

44
Highlights of SEZ Act, 2005

• SPECIAL PROVISION FOR SEZs
• Duty free goods for development of SEZs as well
  as for SEZ Units.
• Supply from DTA to SEZ treated as physical
  export.
• Exemption from Service tax.
• Exemption from CST.
• Exemption from Income Tax to SEZ units for 15
  years (555)
• Existing SEZ Unit to get Income tax exemption for
  the balance period. No Income Tax exemption if 10
  years IT benefit already availed.
• IT exemption extended to export of services which
  would include trading as well.
• SEZ developers given IT exemption for 10
  consecutive assessment years out first 15 years
  of its operations.
• OBU entitled for IT exemption for 10 years (55).
• Contd..

45
Highlights of SEZ Act, 2005

• SPECIAL PROVISION FOR SEZs
• Unit of an International Financial Service Centre
  entitled for IT exemption for a period of 10
  years (55).
• For the purpose of IT exemption manufacture shall
  have the same meaning as assigned in the SEZ Act.
• Exemption from Capital gains in case of transfer
  of undertaking from an urban / rural area to SEZ.
• Sale in the DTA on payment of full applicable
  duty.
• Exemption from MAT to SEZ Developers and SEZ
  Units.
• SEZ Units and Developers exempted from Dividend
  Distribution Tax.
• Exemption of interest Income of NRI in respect of
  deposits in OBUs

46
Highlights of SEZ Act, 2005

• SPECIAL ECONOMIC ZONE AUTHORITY
• Central Govt. shall constitute for every SEZ set
  up by the Central Govt. a SEZ Authority.
• Every authority shall be a body corporate to
  acquire, hold and dispose of property, both
  movable and immovable.
• SEZ Authority to take measure for the development
  of infrastructure in the SEZ, promotes exports
  from the SEZ, levy user or service charges or
  fees or rents etc.

47
Highlights of SEZ Rules, 2006
48
Highlights of SEZ Rules, 2006

• The SEZ Act, 2005 was enacted by the Government
  of India in June 2005. For making SEZ Act
  operational, draft SEZ Rules were prepared by
  Ministry of Commerce and the same were circulated
  to all member units. A large number of
  suggestions received from members on these draft
  rules were considered by the Ministry of
  Commerce. Now SEZ Rules have been announced and
  SEZ Act along with SEZ Rules have become
  operational from 10th February 2006. SEZ Act and
  SEZ Rules are available on the website
  www.sezindia.nic.in. In the SEZ Rules, certain
  changes have been affected for simplifying the
  procedures further.
• Some of these provisions which are different
  from the existing provisions/practices are as
  follows-

49
Highlights of SEZ Rules, 2006

• Rule 5(2) laid down the minimum area requirement
  for development of SEZ as under-
• a) Multi-product SEZ 1000 hectare
• b) Service SEZ 100 hectare
• c) Sector specific/port x-udd/ 100 hectare
• airport based SEZ
• except the following-
• (a) Electronic Hardware 10 hectare built
  up
• Software processing area of one lakh
• information technology square meters.
• enabled services
• (b) Bio-technology, 10 hectare
• non-conventional
• energy solar energy
• equipments/cell,
• or gem jewellery sectors

50
Highlights of SEZ Rules, 2006

• Rule 5(2) laid down the minimum are requirement
  for development of SEZ as under-
• d) SEZ for Free Trade 40 hectare built up
  area Warehousing Zone of not less than
• one lakh square meters.
• e) specified States (Assam, Meghalaya, Nagaland,
  Arunachal Pradesh, Mizoram, Manipur, Tripura,
  Himachal Pradesh, Uttranchal, Sikkim, Jammu and
  Kashmir, Goa or in a Union Territory.
• (i) Multi Product SEZ 200 hectare
• (ii) Sector Specific SEZ 50 hectare
• The area required shall be contiguous area.
  However, in respect of multi product SEZ Rule
  5(2)(a) has made a proviso that the fulfillment
  of the requirement of the contiguous area shall
  be considered and decided by the Board on a case
  to case basis on merits.

51
Highlights of SEZ Rules, 2006

• Rule 5(4) Developer or Co-developer shall have
  atleast 26 of the equity in the entity proposing
  to create business, residential or recreational
  facilities in a SEZ.
• Rule 5(5)(a) has sought a commitment from the
  state Government for providing exemption from the
  state or local taxes, levies and duties including
  stamp duty on goods required for authorized
  operations by a unit or developer and the goods
  sold by a unit in DTA.
• Rule 11(sub Rule 11) SEZ shall be deemed to be
  a port, airport, inland container depot, land
  customs station etc. In case these facilities are
  to be used for cargo meant for DTA units as well,
  storage for such cargo shall be in a separate
  enclosure.

52
Highlights of SEZ Rules, 2006

• Rule 12 The procedure for import and
  procurement of goods by the Developer is given in
  Rule 12. The developer is required to execute
  bond-cum-legal undertaking jointly with the
  Development Commissioner and specified officer.
  Goods are to be utilized by the developer within
  a period of 1 year.
• Rule 18(4) no proposal shall be considered for
  recycling of plastic scrap or waste provided that
  extension of Letter of Approval for a existing
  unit shall be decided by the Board.
• Rule 18(5) all transaction by a unit in FTWZ
  shall only be in convertible foreign currency.
• Rule 19(7) If an entrepreneur is operating both
  as a DTA unit as well as a SEZ unit, it shall
  have 2 distinct identities with separate books of
  accounts, but it shall not be necessary for the
  SEZ unit to be a separate legal entity.

53
Highlights of SEZ Rules, 2006

• Rule 22(iv)(d) There shall be no debit and
  credit. The Bond-cum-Legal Undertaking amount
  shall be monitored quarterly for the Developer
  and yearly for the SEZ units based on QPR or APR
  respectively. In case of any shortfall in
  Bond-cum-Legal Undertaking amount, a fresh or
  additional Bond-cum-Legal Undertaking shall be
  furnished.
• Rule 27(3) Import of duty free material for
  setting up of social and commercial
  infrastructure in non-processing area is
  permitted but import of no duty free material
  shall be permitted for operation and maintenance
  of such facility.

54
Highlights of SEZ Rules, 2006

• Rule 39(1) Destruction of goods within the SEZ
  has been allowed after advance intimation to the
  specified officer. Hence physical presence of the
  specified officer is not required. However, if
  destruction is to be carried out outside the SEZ
  then it can be carried out with the permission of
  the specified officer and in the presence of the
  authorized officer as per Rule 39(2).
• Rule 46(6)(viii) Personal carriage of spare
  parts by foreign bound passenger has been allowed
  now. The procedure for personal carriage of goods
  by authorized passengers is given in Rule
  46(6)(ix) and the procedure for personal carriage
  of gems jewellery is given in Rule 46(6)(x).

55
Highlights of SEZ Rules, 2006

• Rule 53 Significant changes have been carried
  out in Rule 53 for discharge of NFE. These are as
  follows-
• a) Rule 53(k) provides that service rendered by
  the Service unit in the DTA 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
  RBI shall be counted for NFE.
• b) Rule 53(n) provides that supplies of goods to
  DTA against payment in foreign exchange from the
  EEFC account of the DTA buyer or free foreign
  exchange received from overseas shall be counted
  for NFE. Hence SEZ Rules have accepted a major
  demand of the SEZ units.
• c) Rule 53(o) provides that supply of goods
  against free foreign exchange by a FTWZ unit
  shall be counted for NFE.

56
Highlights of SEZ Rules, 2006

• Chapter 7 prescribes a procedure for appeal
  against the rejection of the Unit Approval
  Committee. This entire procedure is a new
  addition to the SEZ Scheme.
• Rule 75 Rule 75 is a omnibus clause and
  provides as follows-
• Self Declaration.- Unless otherwise specified in
  these rules all inward or outward movement of
  goods into or from the Zone by the Unit or
  Developer shall be based on self declaration made
  and no routine examination of these goods shall
  be made unless specific orders of the Development
  Commissioner or the Specified Officer are
  obtained.
• This is a very important provision for the
  operation of the entire SEZ Scheme.

57
Highlights of SEZ Rules, 2006

• Rule 76 Rule 76 provides the list of services
  which are permissible under SEZ. This list of the
  services include specifically TradingR! also.
  As per Section 10AA of the SEZ Act as given in
  the Second Schedule of the Act, income tax
  exemption is available for export of goods
  manufactured or article produced or for providing
  any service. The list of the services permissible
  is given in Rule 76.
• Hence Rule 76 brings about a significant change
  for encouraging export of services from SEZ.
• The operationalization of the SEZ Act and
  formulation of the SEZ Rules considerable
  simplification in procedures would be affected
  and SEZ as an instrument for export promotion
  would play a significant role in employment
  generation, creation of infrastructure and
  increasing exports in the times to come.

58
Procedure for setting up of SEZ
59
Procedure for setting up of SEZ

• Incorporating provisions of SEZ Act, 2005 and
  SEZ Rules, 2006
• Who can make the Application for setting up of
  SEZ?
• A Special Economic Zone may be established under
  this Act, either jointly or severally by
• the Central Government,
• State Government, or
• any person
• for manufacture of goods or rendering services or
  for both or as a Free Trade and Warehousing Zone.
  
• Refer section 3, sub-section (1) of SEZ Act,
  2005

60
Procedure for setting up of SEZ

• Where to apply for setting up of SEZ?
• A). In case of Any Person
• i) Concerned State Government. The State
  Government then forwards the proposal with its
  recommendations to the Board of Approval within
  45 days of receipt of such proposal
• Or
• ii) Directly to the Board of Approval Board.
  However, in this case after receipt of approval
  from Board, applicant has to obtain the
  concurrence of the State Government within the
  six month from the date of such approval
• B). In case of State Government
• i) The Board of Approval Board
• Refer section 3, sub-section (2), (3), (4), (6)
  of SEZ Act, 2005 and Rule 4, sub-rule (1) of SEZ
  Rules, 2006

61
Procedure for setting up of SEZ

• Forms
• The application is to be made in Form-A.
• Refer section 3, sub-section (5) of SEZ Act,
  2005 and Rule 3 of SEZ Rules, 2006

62
Procedure for setting up of SEZ

• Procedure
• After receiving the proposal from a person or
  state government, the Board will approve the
  proposal subject to such terms and conditions as
  it may deem fit to impose, or modify or reject
  the proposal.
• Refer Section 3, sub-section (7), (8), (9),
  (10) of SEZ Act, 2005, Rule 6 of SEZ Rules, 2006

63
Procedure for setting up of SEZ

• Co-developer
• Any person who, or a State Government which,
  intends to provide any infrastructure facilities
  in the identified area, or undertake any
  authorised operation may, after entering into an
  agreement with the Developer, make a proposal for
  the same to the Board for its approval. The
  procedure to get approval of the Board and to get
  Letter of Approval by the Central Government will
  be the same of that of the Developer.
• Hence, Co-Developer is a person or state
  government as stated above and whose proposal has
  been approved by the Board and granted letter of
  approval by the Central Government shall be
  considered as co-developer of the SEZ.
• Refer section 3, sub section (11), (12) of SEZ
  Act, 2005

64
Procedure for setting up of SEZ

• Notification of SEZ
• The developer after getting letter of approval
  will submit the exact particulars of the
  identified area with proof of legal right and
  possession and a certificate from the state
  government or authorized agency that the
  identified area is free from all encumbrances to
  the Central Government. However, in case
  developer has lease hold right over the
  identified area, the lease shall be for a period
  not less than twenty years.
• The central government may after satisfying the
  following requirements notify the specifically
  identified area in the State as a Special
  Economic Zone

65
Procedure for setting up of SEZ

• Guidelines for notifying SEZ by Central
  Government
• The Central Government, while notifying any area
  as a Special Economic Zone or an additional area
  to be included in the Special Economic Zone and
  discharging its functions under this Act, shall
  be guided by the following, namely-
• (a) generation of additional economic activity
• (b) 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
  and
• f) maintenance of sovereignty and integrity of
  India, the security of the State and friendly
  relations with foreign States.
• Refer Section 5 of SEZ Act, 2005

66
Procedure for setting up of SEZ

• Processing and non-processing areas.
• The areas falling within the Special Economic
  Zones may be demarcated by the Central Government
  or any authority specified by it 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
  warehousing purposes
• or
• Cond.

67
Procedure for setting up of SEZ

• Processing and non-processing areas.
• (c) the non-processing areas for activities
  other than those specified under clause (a) or
  clause (b). The Developer may allot the land in
  the non-processing area for business and social
  purposes such as educational institutions,
  hospitals, hotels, recreation and entertainment
  facilities, residential and business complexes
  Provided 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.
• Refer Section 6 of SEZ Act, 2005 and Rule 11,
  sub Rule (10) of SEZ Rules, 2006

68
Procedure for setting up of SEZ

• Exemption from taxes, duties or cess.
• 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.
• Refer Section 7 of SEZ Act, 2005

69
Procedure for setting up of SEZ

• Import and procurement of goods by the
  Developer.-
• (1) The Developer may import or procure goods
  from the Domestic Tariff Area, without payment of
  duty, taxes and cess for the authorized
  operations.
• Refer Rule 12 of SEZ Rules, 2006

70
Procedure for Establishment of SEZ Unit
71
Procedure for Establishment of SEZ Unit

• Proposal for approval of Unit
• Consolidated application in Form F is to be made
  to the Development Commissioner in five Copies
  with a copy to Developer with the following.
• Setting up of unit in Special Economic Zone
• Annual permission for Sub Contracting
• Allotment copy of Importer Exporter Code
• Allotment copy of Land/Industrial Sheds in SEZ
• Water Connection approval from the local
  authority
• Allotment of Registration Cum Membership
  Certificate
• Small Scale Industrial registration

72
Procedure for Establishment of SEZ Unit

• Proposal for approval of Unit
• Registration with Central Pollution Control Board
• Power connection from State Electric Authority
• Approved Plan layout (Building)
• Sales tax registration certificate
• Approval from inspectorate of factories
• Pollution control clearance, wherever required
• Any other approvals required from the Central
  Government
• Development Commissioner scrutinizes the proposal
  and get it place before the Approval Committee
  for consideration.
• The proposals received under clauses (c) and (e)
  of sub-section (2) of section 9 shall be placed
  before the Board by the Development Commissioner
  for its consideration.

73
Procedure for Establishment of SEZ Unit

• Proposal for approval of Unit
• Clauses (c ) and (e) of sub-section (2) of
  section 9 of SEZ Act 2005
• (c) granting of approval to the Developers or
  Units (other than the Developers or the Units
  which are exempt from obtaining approval under
  any law or by the Central Government) for foreign
  collaborations and foreign direct investments,
  (including investments by a person resident
  outside India), in the Special Economic Zone for
  its development, operation and maintenance
• Contd..

74
Procedure for Establishment of SEZ Unit

• Proposal for approval of Unit
• (e) granting, notwithstanding anything contained
  in the Industries (Development and Regulation)
  Act, 1951, a licence to an industrial undertaking
  referred to in clause (d) of section 3 of that
  Act, if such undertaking is established, as a
  whole or part thereof, or proposed to be
  established, in a Special Economic Zone
• Refer Rule 17 of SEZ Rules, 2006

75
Procedure for Establishment of SEZ Unit

• Proposal for approval of Unit
• Consideration of proposals for setting up of Unit
  in a Special Economic Zone
• Within 15 days of the receipt of the
  application, the approval Committee shall approve
  or approve with modification or reject the
  proposal.

76
Procedure for Establishment of SEZ Unit

• Proposal for approval of Unit
• Units may also be setup for providing services
  or manufacturing services to Overseas Entities
  subject to following conditions, namely-
• (a) Capital goods, raw materials including
  consumables sub-assemblies, components,
  semi-finished goods shall be supplied by the
  Overseas Entity free of cost
• (b) Capital goods for setting up such facilities
  may also be supplied on loan or lease basis,
  provided the notional value of such capital goods
  shall be taken into account for calculation of
  Net Foreign Exchange Earnings under rule 53.
• Contd.

77
Procedure for Establishment of SEZ Unit

• Proposal for approval of Unit
• (c) finished goods shall be exported out of the
  country or transferred to the Customs Bonded
  Warehouse to be maintained by the Overseas
  entity
• Provided that any supplies of finished goods
  shall be as per the instructions of the Overseas
  entity.
• (d) the Unit shall receive the consideration for
  its manufacturing services in convertible foreign
  exchange directly from the said overseas entity
• Contd..

78
Procedure for Establishment of SEZ Unit

• Proposal for approval of Unit
• (e) in case the said manufacturing facility is
  used by the Unit for carrying out production on
  its own account, separate accounts shall be
  maintained for the manufacturing and service
  activity.
• Explanation - Overseas Entity means a
  non-resident or a person of foreign origin and
  includes a company not incorporated in India.
• Refer Rule 18 of SEZ Rules, 2006

79
Procedure for Procurement from DTA
80
Procedure for procurement from DTA

• Procedure for Procurement from DTA is covered
  under Rule 30 of the SEZ Rules 2006
• The following points are noteworthy
• a) It is similar to physical exports except in
  place of Shipping bill, one has to use Bill of
  export
• b) The procedure provides for supplies by
  manufacturers as well as merchants
• c) Drawback DEPB are allowed only against
  payment made by SEZ unit from its Foreign
  Currency Account.
• Contd..

81
Procedure for procurement from DTA

• Procedure for Procurement from DTA is covered
  under Rule 13
• d) Sub rule(12) covers procedure for procurement
  from Warehouse
• e) Sub rule(13) covers procedure for procurement
  from International Exhibitions held in India
• f) Sub rule(14) covers procedure for procurement
  from EOU/STPI/BTP
• g) Sub rule(15) covers procedure for procurement
  from Units located in same or other SEZ

82
Recipe for SEZ
83
Recipe for SEZ

• Inspite of all these provisions, in order to make
  any SEZ successful, the following should be borne
  in mind.
• Government support particularly for creation of
  infrastructure and utilities
• Capacity to attract FDI
• Proximity to port
• Flexible labour laws
• Attitude towards establishment of Greenfield SEZs
  particularly that of State Government and
• Removal of all related bottlenecks including the
  bottleneck due to mindset.

84
Recipe for SEZ

• Another point to remember is that SEZs are medium
  to long terms projects. Mere approvals cannot
  guarantee the operationalisation within short
  period say 18 months or so.
• One should not totally depend on governmental
  support, industry also has to participate whole
  heartedly.

85
List of Important Customs Notifications
86
List of Important Customs Notifications
Sl. No. Notification No.and date Subject Refers to which Export Promotion Scheme
(1) 43/2002-CUSTOMS, dated 19th April, 2002. Customs exemption Notification on Advance Licences of EXIM Policy 2002-2007 Advance Licences
(2) 45/2002-CUSTOMS, dated 22nd April, 2002. Customs exemption notification for DEPB DEPB
(3) 46/2002-CUSTOMS, dated 22nd April, 2002. Customs Exemption Notification for DFRC of EXIM Policy 2002-2007 DFRC
87
List of Important Customs Notifications
(4) 47/2002-CUSTOMS, dated 22nd April, 2002. Exemption to materials imported for manufacture of final goods under Advance Licence for Deemed Exports Advance Licence for Deemed Exports
(5) 53/2003-CUSTOMS, dated 1st April, 2003 Exempts goods when imported into India against a duty free entitlement credit certificate Duty Free Entitlement Credit Certificate DFCE
88
List of Important Customs Notifications
(6) 55/2003-CUSTOMS, dated 1st April, 2003. EPCG - Additional duty and special additional duty leviable EPCG
(7) 56/2003-CUSTOMS. dated 1st April, 2003. Exempts materials imported into India against an Advance License for Annual Requirement Annual Advance Licence
(8) 90/2004-CUSTOMS dated 10th September, 2004. Duty Free Replenishment Certificate or Duty Free Replenishment Certificate for Intermediate Supply DFRC
89
List of Important Customs Notifications
(9) 91/2004-CUSTOMS dated 10th September, 2004. Exempts materials against Advance Licence for deemed export Advance Licence for Deemed Exports
(10) 93/2004-CUSTOMS dated 10th September, 2004. Materials Against an Advance Licence Advance Licence
90
List of Important Customs Notifications
(11) 94/2004-CUSTOMS dated 10th September, 2004. Materials Against an Advance Licence for Annual Requirement Annual Advance Licence
(12) 97/2004-CUSTOMS dated 17th September, 2004. Export Promotion Capital Goods Scheme Customs Duty Exemption Notification EPCG
(13) 32/2005-CUSTOMS dated 8th April, 2005. Exempts goods when imported into India against a duty credit certificate issued under the Target Plus Scheme Target Plus Scheme
91
List of Important Customs Notifications
(14) 96/2004-CUSTOMS dated 17th September, 2004 Duty Entitlement Pass Book Customs Duty Exemption Notification DEPB
(15) 89/2005-CUSTOMS dated 4th October, 2005. Duty Entitlement Pass Book (DEPB) - extended upto 31st day of December, 2005 DEPB
92
List of Important Customs Notifications
(16) 40/2006-CUSTOMS dated 1st May, 2006 Duty free import authorisation duty exemption DFIA
93
List of Important Excise Notifications
94
List of Important Excise Notifications

• Excise Rebate
• Notification No. 19/2004 CE (NT) Dtd. 06.09.2004
  and Notification No. 20/2004 CE (NT) Dtd.
  06.09.2004 Rebate of duty on export of
  goods-Procedure
• Notification No. 21/2004 CE (NT) Dtd. 06.09.2004
  Rebate of duty on material used in the
  processing or manufacture of export
  goods-Procedure
• Excise Bond
• Notification No. 42/2001 CE (N.T.) Dtd.
  26.06.2001 Export under bond of all excisable
  goods except to Nepal and Bhutan-procedure
• Notification No. 43/2001 CE (N.T.) Dtd.
  26.06.2001 Export under bond-procurement of
  excisable goods without payment of duty for use
  in manufacture of export goods-procedure

95
List of Important Excise Notifications

• Excise Bond
• Notification No. 44/2001 CE (N.T.) Dtd.
  26.06.2001 Export under Bond-Removal of
  intermediate goods without payment of duty, for
  manufacture and export by holder of DEEC and
  Advance Licence-Procedures
• Notification No. 45/2001 CE (N.T.) Dtd.
  26.06.2001 Export under bond to Nepal or
  Bhutan-Procedure
• Warehousing
• Notification No. 46/2001 CE (N.T.), Dtd.
  26.06.2001 Warehousing of goods for export
• Notification No. 17/2004 CE (N.T.), Dtd.
  04.09.2004 Warehousing-removal of specified
  excisable goods from factory to warehouse to
  another warehouse without payment of duty

96
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