Hazira Jamnagar FEBRUARY 2007 SPECIAL ECONOMIC ZONE-CONCEPT,OPERATIONS,BENEFITS

2 SEZ-CONCEPT,OPERATIONS,BENEFITS CONTENT. Appraise ESSAR’s SEZ Program Concept of SEZ. Operational Aspects of SEZ. Benefits of SEZ-Developer/Units/Suppliers. Issues for ECL Global Procurement Team.

3 SEZ-CONCEPT,OPERATIONS,BENEFITS ESSAR Group is setting up 2 SEZ in the State of Gujarat. PlaceSectorArea(HA)Status HaziraEngineering2062Notification issued. JamnagarMulti-Product1125Notification under issuance Currently the Hazira SEZ is a sector specific SEZ for Engineering Sector and is in the process of being converted to Multi-Product SEZ.

4 SEZ-CONCEPTS,OPERATIONS,BENEFITS Special Economic Zone/Units are covered under “The Special Economic Zones Act,2005 and “The Special Economic Zones Rules,2006 enacted in February SEZ –Specifically delineated duty free enclave. Considered as “Foreign Territory” for the purposes of Trade Operations and Duties and Tariffs. Procedural and Operational aspects are less cumbersome. Legislation passed by the Parliament provides for various aspects for setting-up and operating of SEZ and units put up in SEZ. SEZ Act and Rules provide for fiscal and Tax related encouragement for investments by Domestic and Foreign Entities. SEZ Act was to provide for the “Establishment, Development and Management of the SEZ for the promotion of exports and for matters connected therewith or incidental thereto”. –Generation of Additional Economic Activity. –Promotion of Goods and Services. –Promotion of Investment from domestic and foreign sources. –Creation of Employment Opportunities. –Development of Infrastructural Facilities.

5 SEZ-CONCEPT,OPERATIONS,BENEFITS External Agencies (a)Govt. of India (BOA) Approval for SEZ Issuance of Notification Dispensation Additional Area inclusion/deletion Authorised operation approval General issues pertaining to Development Commissioners office (b)Macro Issues Policy Amendment / Changes (c) Environmental Clearance Govt. of Gujarat Development Committee Approval of SEZ proposal in State. Land Allotment,approval Review / Monitoring of SEZ progress State Issues (Sales Tax, VAT, Entry Tax etc) Development Commissioner’s office (Currently at Kandla) Appointment of “Specified Officer” Demarcation of Processing / non- Processing Area Unit Approvals All approvals/clearances for contracting / sub-contracting etc. Filing / Claims and export benefits by DTA on supplies to SEZ / SEZ units Returns – Monthly / Quarterly / Annual Appeal Matters Powers for import of CG, Broad banding, Diversification, change of name etc

6 SEZ-CONCEPT,OPERATIONS,BENEFITS Internal Aspects Unit Unit Formation. Unit Records. Sub-Contracting – Process / Formalities. Bond cum Legal undertaking for Developer / unit. Accounting issues – Separate accounts. Return. Record keeping/documentation process Sale of goods in DTA – payment of duties / documentation Import / Export / contracting/ documentation with “Specified Officer” Job Work / contracting documentation Accounting of I.T. benefits / corporate benefits / State Tax benefits Fencing of Units Disposal of waste/by-products-procedures etc Developer Provide amenities/infrastructure facilities,utilities. Lease charges Lease agreement with units Fencing of SEZ Security and other administrative aspects Overall responsibilities for Zone Environmental clearances for Zone I.T. Benefits / Corporate tax benefits-accounting/ Procedures/documentation. Regulatory aspects of the zone including labour related issues etc.

7 SEZ-CONCEPT,OPERATIONS,BENEFITS Benefits/Incentives SEZ Developer. Gross Total Income, including profits/gains will be exempt from Income Tax for 10 consecutive years. (This exemption can be claimed for any 10 consecutive years out of 15 years from the date of SEZ notification. Exemption from import duties/excise duties on Import/domestic procurement of all goods Exemption from state taxes/purchase tax/octroi Exemption from Service Tax. No Net Foreign exchange requirement SEZ exempt from Public hearing under the Environment Impact Assessment Notification. SEZ developer can source goods through Contractors/sub-contractors SEZ units 100% FDI permitted Should be net foreign exchange earner over 5 yrs. Exemption from import duties/excise duties on Import/domestic procurement of all goods Exemption from state taxes/purchase tax/octroi Exemption from Service Tax 100% of export profit exempt from IT and MAT for 5 Consecutive years, 50% of export profit exempted from IT/MAT exempted for next 5 years. Interest rate surcharge on import finance exempted. DTA units supplying goods to SEZ units eligible for DEPB/Advance license scheme. SEZ units have to source goods/services directly and not through contractors/sub contractors.

8 SEZ-CONCEPT,OPERATIONS,BENEFITS Benefits/Incentives SEZ Developer. DTA units supplying goods to SEZ Developer eligible For DEPB/Advance license scheme. SEZ Units Supplies permitted from one SEZ unit to another SEZ unit Domestic sale of manufactured goods subject to payment of applicable custom duty SEZ units permitted to sub-contract production Process with DTA units. DTA units also permitted to sub-contract in SEZ Unit.

SEZ-CONCEPTS,OPERATION, BENEFITS Supplies to SEZ Developers/Units. Supplies of Goods and Services by Domestic Tariff Area Units to SEZ Developers and Units in SEZ are considered as exports. Such Supplies are eligible for the following benefits to the Supplier or to the SEZ unit/Developer. Duty Free Entitlement Pass Book scheme or Duty Free Import of Raw materials as required for the manufacture of Goods supplied to SEZ unit/developer. No Central levies such as Central Sales Tax, exemption from service tax on taxable services provided to Developer/unit. Exemption from payment of excise duty on supplies to Developer/Unit. Exemption from local State Taxes-Sales Tax, Octroi, Entry Tax etc. All Imported Goods are exempt from total custom duties when imported by SEZ Developer or Units.

10 SEZ-CONCEPT,OPERATIONS,BENEFITS Supplies from Domestic Tariff Area to SEZ Developer/Units. –Issues to be considered by Procurement Team Product to be supplied. Consignee name in the documents-In the case of Developers, SEZ Rules permit procurement by Contractor/Sub-Contractor. Export Benefits applicable on the Product. (This will be an aspect for Commercial pricing negotiations). Procedure of supplies from DTA (with and without export benefit) Import Policy of the Product. Documentation Process –Documents required to be raised by Domestic vendors on SEZ unit. –Endorsement in Bill of Export by Vendors.

11 Thank you