Ms. Bargavi Natesan, Infosys Technologies Limited

A Brief Introduction.. The SEZ Act 2005, received the ascent of the President of India on 23 rd June 2005 The Rules got notified and thereafter came into force w.e.f It has 8 chapters and 3 Schedules Meaning of SEZ to include existing SEZs also A new concept of Co Developer formed Export 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- 29 th Aug 2007

Objective of SEZ Generation of additional economic activity Promotion of exports and services Promotion of Foreign and Domestic investment Creation of employment Development of Infrastructure facilities

Scenario of SEZs in India The Law :- Governed by the SEZ ACT and Rules Basic Profile: - Delineated, contiguous, Vacant area, deemed to be a foreign territory Types:- Multi product, Multi service, single product, Free trade and warehousing zone, Port/Airport based SEZs

Establishment of SEZ A 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 creation In Principle & Formal approvals in BOA ( land single crop/ double crop) Zone inspection by DC Law ministry verification & Gazette notification ( one single notif for all) UAC is formed ( Unit approval committee) under DC Unit can apply to DC concerned APR/ QPR / HPR for monitoring performance

Single Window clearance Central Govt will form a committee for every SEZ called the Approval committee Approval committee will approve the activities of Developers and units and also monitor the export performance Single enforcement officer for notified offences State 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 BOA Search,seizure, investigaiton after prior intimation to the DC incharge.

Fiscal Benefits Duty free goods for development of SEZs and also for setting up of units Exemption from customs duty Supply 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 Benefits Exemption from Securities Transaction tax as per 26(1)(f) of the SEZ Act Income tax exemption for 15 /10 years Existing units to get IT exemption for the balance period IT exemption extended to export of services, which includes trading as well International financial service centre to get IT exemption for 10 years Exemption from capital Gains for transfer of an undertaking from urban to SEZ Exemption from MAT for units and Developers SEZ Developers exempted from Dividend Distribution Tax

Fiscal Benefits – A brief outlook

Other Misc provisions Central 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 requirement 1. multi product 1000 hectares or more, but not exceeding 5000 hectares 2. multi services and sector specific 100 hectares 3. 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 Import Procedure for import and procurement of goods- Bond cum legal undertaking NO Bank guarantee required Consolidated 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 scenario pre & post SEZ rules.xls

EOU/STP Vs. SEZ Legislative back up Administrative control – MOC/ Min of Info Technology Fiscal Benefits for Units under construction Customs Procedure/ Bank Guarantee requirements/ Self assessment procedure Sales Tax & VAT / Service Tax Labour Administration Income Tax Benefit under Sec 10AA/ exemption from MAT/ Dividend Distribution Tax for Developers

EOU/STP Vs. SEZ Co Developer / Subcontracting Provisions Separate Customs Procedures Demarcated Foreign Territory/ Private Bonded Warehouse license under STPI Chapter II Rule 5(5) – State Govt fiscal benefits Single window clearance The Not withstanding Power

STP Vs. SEZ

Positive Aspects.. It is required to maintain only POSITIVE NFE No limitation on DTA Sales No separate Bank Account- Separate Books of Accounts need to be maintained Benefits 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 monitored Absence 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 09 Employment 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 Thank You!!