Chapter7 Special Economic Zone

06 September 2004

Goods and services going into the SEZ area from DTA shall be treated as exports and goods and services coming from the SEZ area into DTA shall be treated as if these are being imported.

7.3.3

The Special Economic Zones may have areas, demarcated as,-

(a)	Processing areas for setting up of units for production of goods and rendering of services; and
(b)	non-processing areas, if any.

Setting up of SEZ in Private/ joint/State Sector

7.4.1

A SEZ may be set up in the public, private or joint sector or by State Government. Guidelines for setting up of Special Economic Zones in the public/ private/ joint Sector or by the State Government is given in Appendix-14-IIO.

7.4.2

Project proposal for setting up of SEZ, recommended by the concerned State Government, shall be considered by the Board of Approval in the Department of Commerce as given in Appendix 14-ID.

7.4.3

On approval of the proposal, a Letter of Permission shall be issued to the developer for development, operation and maintenance of SEZ as given in Appendix-14-IIP. Format of Letter of Permission for developers engaged in operation and maintenance of SEZ is given in Appendix-14-IIQ.

Registration of Developer

7.5.1

The developer shall obtain RCMC from the concerned Development Commissioner of SEZ.

Entitlements of SEZ Developer

7.5.2

For development, operation and maintenance of infrastructure facilities in SEZs, the developer shall be eligible for the following entitlements:

(a)	Income Tax exemption as per 80 IA of the Income Tax Act.
(b)	Import/ procure goods without payment of Customs/Excise duty.
(c)	Exemption from Service Tax
(d)	Exemption from CST.

7.6

Deleted.

Eligibility of SEZ units

7.7.1

SEZ units may be set up for manufacture of goods and rendering of services.

Application /Approval and Renewal of Approval

7.7.2

For setting up a unit in SEZ, three copies of the application in the form given in Appendix-14-IA. may be submitted to the Development Commissioner (DC) of the SEZ concerned

7.7.3

Applications for setting up a unit in SEZ other than proposals for setting up of unit in the services sector (except R&D, software and IT enabled services, trading or any other service activity as may be delegated by the BOA), shall be approved or rejected by the Units Approval Committee within 15 days as per the procedure indicated in Appendix-14-IB. In other cases, approval may be granted by the Development Commissioner after clearance by the Board of Approval. Sector specific conditions relating to the approval are given in Appendix-14-IC.

7.7.4

Proposals for setting up units in SEZ requiring Industrial Licence may be granted approval by the Development Commissioner after clearance of the proposal by the SEZ Board of Approval and Department of Industrial Policy and Promotion within 45 days on merits.

7.7.5

Letter of Permission (LOP)/Letter of Intent (LOI) issued to SEZ units as per standard format indicated at Appendix-14-IE. shall be valid for a period of 3 years for commencement of production. The LOP/LOI shall be valid for a period of five years from the date of commencement of production and would be construed as a licence for all purposes. On completion of 5 years operation, the approval may be renewed by the Development Commissioner concerned for a period of 5 years at a time on receipt of application for renewal from the unit.

7.7.6

Each LOP/LOI shall have separate ear-marked premises and shall specify the items of manufacture/service activity, annual capacity, projected annual export for the first five years in dollar terms, Net Foreign Exchange Earnings (NFE), limitations, if any, regarding sale of finished goods, by-products and rejects in the DTA and such other matter as may be necessary and also impose such conditions as may be required

7.7.7

In case of any change in approved activity or undertaking any new activity by SEZ units, the Development Commissioner shall issue amended LOP within six days on receiving intimation from the unit.

Legal Undertaking

7.8

The unit shall execute a legal undertaking with the Development Commissioner concerned in the form given in Appendix-14-IF.

Export

7.9.1

SEZ units may export goods and services including agro-products, partly processed goods, sub-assemblies and components except prohibited items of exports in ITC (HS). The units may also export by-products, rejects, waste scrap arising out of the production process. Export of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) shall be subject to fulfillment of the conditions indicated in the ITC (HS).

7.9.2

SEZ units, other than trading/service unit, may also export to Russian Federation in Indian Rupees against repayment of State Credit/Escrow Rupee Account of the buyer, subject to RBI clearance, if any.

7.9.3

At the time of export of jewellery, the shipping bill and the invoice presented to the Customs authorities shall contain the description of the items, its weight, purity of gold/ silver/platinum, type of Gem & Jewellery stone (diamond, ruby, sapphire, cubic zircon etc.) used for studding and studding weight in carats, FOB price rate of the jewellery item, quantity in pieces and total value.

7.9.4

The SEZ unit may export jewellery on the basis of a notional rate certificate to be issued by the nominated agency. This rate will be based on the prevailing Gold/USD rate and the USD/INR rate in the notional rate certificate. The certificate issued by the nominated agency should not be older than 3 working days of the date of Shipment.

7.9.5

The exporter shall have the flexibility to fix the price and repay the gold loan within 60 days from the date of export. The price shall be communicated to the nominated agencies who will issue a certificate showing the final confirmation of the rate to the bank negotiating the document, to ensure export proceeds are realized at this rate.

7.9.6

Software units may undertake exports using data communication links or in the form of physical exports (which may be through courier service also), including export of professional services.

Import/domestic procurement

7.10.1

SEZ unit may import/procure from the DTA without payment of duty all types of goods and services, including capital goods, whether new or second hand, required by it for its activities or in connection therewith, provided they are not prohibited items of imports in the ITC(HS). However, if any permission is required for import under any other law, the same shall be allowed with the approval of the Board of Approval. Goods shall include raw material for making capital goods for use within the unit. The units shall also be permitted to import goods required for the approved activity, including capital goods, free of cost or on loan from clients.

7.10.2

In case of doubt as to whether the item is required by the unit for its activities or in connection therewith, the decision of the concerned Development Commissioner shall be final.

7.10.3

The import shall be subject to the following conditions:

(a)	The goods shall be imported into the premises of the unit.
(b)	The procedure as prescribed under Customs/ Excise rules for SEZ will be followed and general bond executed with Customs/Excise authority.
(c)	Goods already imported/shipped/ arrived before the issue of Letter of Permission (LOP)/Letter of Intent (LOI) are also eligible for duty free clearance under the SEZ scheme provided customs duty has not been paid and the goods have not been cleared from customs.

7.10.4

SEZ units may procure goods required by it without payment of duty, from bonded warehouses in the DTA set up under the Policy and/or under Section 65 of the Customs Act from International Exhibitions held in India.

7.10.5

SEZ units, may import/procure from DTA, without payment of duty, all types of goods for creating a central facility for use by units in SEZ. The Central facility for software development can also be accessed by units in the DTA for export of software.

7.10.6

Gem and Jewellery units may also source gold/ silver/ platinum through the nominated agencies.

7.10.7

SEZ units obtaining gold/silver/ platinum from the nominated agencies on loan basis shall export gold/ silver/platinum jewellery within 60 days from the date of release. This shall not however apply to the outright purchase of precious metal from the nominated agencies.

7.10.8

SEZ units may import/procure goods and services from DTA without payment of duty for setting up, operation and maintenance of units in the Zone.

7.10.9

Goods, except capital goods and spares, shall be utilized within the approval period of 5 years.

Leasing of Capital Goods

7.11.1

SEZ unit may, on the basis of a firm contract between the parties, source the capital goods from a domestic/foreign leasing company. In such a case the SEZ unit and the domestic/ foreign leasing company shall jointly file the documents to enable import/procurement of the capital goods without payment of duty.

7.11.2

Capital goods procured from indigenous sources on the basis of lease agreement between the leasing company and the SEZ unit will be eligible for Central Excise exemption

7.11.3

The value of imported capital goods financed through leasing companies or obtained free of cost and/or loan basis shall also be taken into account for the purpose of calculation of Net Foreign exchange Earning (NFE).

Net Foreign Exchange Earnings (NFE)

7.12.1

SEZ unit shall be a positive Net Foreign Exchange Earner. Net Foreign Exchange Earnings (NFE) shall be calculated cumulatively for a period of five years from the commencement of production according to the following formula:

Positive NFE = A – B >0

Where:

A : is the FOB value of exports by the SEZ unit; and

B: is the sum total of the CIF value of all imported inputs and the CIF value of all imported capital goods, and the value of all payments made in foreign exchange by way of commission, royalty, fees, dividends, interest on external borrowings during the first five year period or any other charges. "Inputs" mean raw materials, intermediates, components, consumables, parts and packing materials.

7.12.2

If any goods are obtained from another SEZ/EOU/ EHTP/ STP unit or bonded warehouses or procured from an international exhibitions held in India or precious metals procured from nominated agencies or from advance licencing holder in fulfillment of his export obligation, the value of such goods shall be included under B.

7.12.3

If any capital goods imported duty free or leased from a leasing company, received free of cost and/or on loan basis or transfer, the CIF value of the capital goods shall be included pro-rata, under B for the period it remains with the unit.

7.12.4

For annual calculation of NFE, the value of imported capital goods and lumpsum payment of foreign technical know-how fee shall be amortized as under;