sez manual

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SEZ Manual SEZ Manual

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ContentsContents

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Key Stakeholders

Overview

SEZ – An overview

Note: Hyperlinks have been marked with blue text

Key Regulators

22 Benefits of SEZ

Condition for availing exemption

Nature of Benefits

Issues

Legislative Framework

Transition Provisions

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ContentsContents

Basic Concepts

33 Setting up of SEZ

Approval Process

Approval Criteria


44 Operation & Maintenance of SEZ

Role of Developer

Operation & Maintenance

Timelines

Issues

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ContentsContents


55 Import/ Procurement of Goods

Procedure for Importation

Removal of Goods

Monitoring Requirement

Procedure for procurement from DTA

Removal of Goods & Performance Monitoring66

Basic Concepts

General Conditions for importation/ procurement

7 Financial Modeling

Investment (with case of IT-ITeS SEZ)

Revenue (with a case study of IT-ITeS SEZ)

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ContentsContents


Annexure

Annexure 1: SEZ – An overview

Annexure 2: Benefits of SEZ

Annexure 3: Setting up of SEZ

Annexure 4: Operation & Maintenance of SEZ

Annexure 5: Import/ Procurement of Goods

Annexure 6: Removal of Goods & Performance Monitoring

8 Execution & Project Management

Implementation

Contracts

Approvals


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Section 1SEZ – An Overview

Section 1SEZ – An Overview

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OverviewOverview

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Overview

• Introduced by erstwhile Export Import Policy in April 2000 to provide internationally competitive and

conducive environment for exports

• Various fiscal/ non fiscal incentives/ benefits provided to developer and units in SEZ

• Earlier controlled by Foreign Trade Policy and Customs Act, 1962 and regulations notified there

under

• Special Economic Zone Act (‘SEZ Act’) enacted in 2005 to provide comprehensive legislation in

relation to SEZs

• SEZ – deemed to be territory outside the Customs territory of India in relation to authorized operation

• Can be set up by private / public / joint sector or State Government or its agencies, for manufacture of

goods or rendering of services or both or as a Free Trade Warehousing Zone

• Goods and services going into the SEZ from DTA treated as exports and goods and services coming

from the SEZ to DTA treated as imports

• SEZ deemed to be a airport, port, inland container depot, land customs station under the Customs Act

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Legislative FrameworkLegislative Framework

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Legislative FrameworkSEZ Act 2005SEZ Act 2005 SEZ Rules, 2006SEZ Rules, 2006

• Basic framework for setting up and operation of SEZs prescribed under the Act

• Rules lays down guidelines for giving effect to the SEZ scheme prescribed under the Act

SEZ Rules, 2006SEZ Rules, 2006SEZ Act, 2005SEZ Act, 2005

State SEZ PolicyState SEZ Policy

• Lays down guidelines for giving effect to the SEZ scheme prescribed under SEZ Act, 2005

• Policy provides for substantive and procedural benefits offered by the State to Developer/ Units

State SEZ PoliciesState SEZ Policies

SEZ Act, 2005 & SEZ Rules, 2006 notified on 10 February 2006

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• Chapter X-A of the Customs Act along with the SEZ Rules 2003 and SEZ (Customs Procedure) has been rescinded with effect from 10 February 2006

• All the rules and notification under other laws in relation to the SEZ shall remain in force to the extent they are not inconsistent with the SEZ Act 2005 and Rules made there under

• Provisions of the SEZ Act, 2005 override inconsistent provisions of any other law in force at the time of commencement of the SEZ Act, 2005

Legislative Framework

SEZ Act specifies exemption for the developer and units in the SEZ from Customs, Excise, Service Tax, Central Sales Tax etc. However, it is not

clear as to whether this would require specific notification under the respective legislations, or whether the specific exemption provided under

SEZ Act would suffice

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Key StakeholdersKey Stakeholders

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Key Stakeholders

DeveloperDeveloper

• Person who obtains Letter of Approval from the Central Government to establish the SEZ and undertake authorised operations

• SEZ Act also envisages ‘multiple developers’ for the SEZ. When one Developer does not possess minimum contiguous land to develop an SEZ, Central Government may approve more than one Developer

• Co-developer is a person who intends to provide infrastructural facilities in an SEZ along with a developer

• Co-developer enters into an agreement with Developer and obtain requisite permission as per the SEZ Act and Rules

Co-DeveloperCo-Developer

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Key Stakeholders

• Contractor can be appointed by developer / co-developer to undertake authorized operations in SEZ

• Contractor can avail all exemptions, drawbacks and concessions available to the Developer / co-developer

• All documents shall bear the name of developer/ co-developer along with the contractor

SEZ UnitsSEZ Units

Units in SEZ can undertake

• Manufacturing• Rendering of services • Trading • Warehousing

In relation to authorized operation of the SEZ

Units in SEZ can undertake

• Manufacturing• Rendering of services • Trading • Warehousing

In relation to authorized operation of the SEZ

ContractorContractor

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Key RegulatorsKey Regulators

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Considers proposals for setting up SEZ and Units in SEZ

Considers proposals for setting up of Units in SEZ, monitoring performance, and supervises import / procurement by Developer/ Units in SEZ

Development CommissionerDevelopment Commissioner

Board of ApprovalBoard of Approval

For administrative control of the SEZ

Approval CommitteeApproval

Committee

Key Regulators

SEZ AuthoritySEZ Authority

State GovernmentState GovernmentReceives and forwards the proposal with recommendations to the Board of Approval

Overall authority for governing, notifying the SEZ and granting the letter of approval

Central Government

Central Government

Undertakes measures for the development, operation and management of the SEZ

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Transition ProvisionsTransition Provisions

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Transition for existing SEZs

• Already existing SEZs required to submit details of proposed operation to the Development

Commissioner in order to avail benefits under the SEZ Scheme

• SEZ’s existing on or before 10 February 2006 to be deemed as notified and established in

accordance with SEZ Act 2005 (Section 4(1))

• Approval Committee and SEZ Authority will be set up for already existing SEZ’s within 6 months of

commencement of the Act

• Provisions of SEZ Act 2005 and SEZ Rules 2006 applicable to already existing SEZ’s

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Transition for recipient of BOA Approval

• Rules provide for specific minimum area requirement for SEZ, if -

– Approved by BOA and Central Government before commencement of the SEZ Act;

– Land for setting up of SEZ has already been acquired;

– Proposed SEZ is located in specified states

– SEZ is proposed to operate in specified sectors

Refer: Slide 89

No specific provision for other approvals

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Section 2Benefits of SEZ

Section 2Benefits of SEZ

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Nature of BenefitsNature of Benefits

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Benefits AvailableBenefits Available

Available to Developer Available to Suppliers

Central Benefits• Customs

• Other Miscellaneous Taxes and Levies

• Income Tax

• Dividend Distribution Tax

• Minimum Alternate Tax

State Benefits• Electricity

• Labour

Central Benefits• Central Excise

• Service Tax

• Central Sales Tax

• Drawback/ DEPB

State Benefits• Sales Tax/ VAT

• Entry Tax/ Octroi

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Benefits Available (Contd.)Benefits Available (Contd.)

• Under the provisions of the SEZ Act, 2005 and the SEZ Rules, 2006 exemptions are made available to Developer/ Unit and to their suppliers.

• The SEZ Rules, 2006 provide that state governments ‘shall endeavor’ to provide exemptions/ concessions with respect to sales tax/ VAT, electricity duty etc

• The exemption/ concession has to be refunded by developer if-

– Developer does not utilise the goods or services for authorised operations

– Unable to duly account for the goods and services for authorised operations

• Duty drawback or any other export entitlement on DTA supplies to be paid back by the developer in case of destruction of goods in a natural calamity

– Not required where payment made in foreign exchange

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Benefits to Developer Benefits to Developer

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Developer – Central LawsDeveloper – Central LawsCustoms Duty• All goods required for authorised operation exempted from all customs duty on import

• All goods exported from the SEZ to any place outside India exempted from all customs duty

Income tax holiday• 100% tax holiday for 10 years out of 15 years from the year in which the SEZ is notified

• Tax holiday in respect of profits and gains derived from development, operation and maintenance of the SEZ

• In case of transfer of operation and maintenance of SEZ, transferee eligible to tax holiday for balance unexpired period of the tax holiday

Dividend Distribution Tax• Exemption from DDT on profits distributed by developer as dividends

Minimum Alternate Tax• No Minimum Alternate Tax payable

Investment income exemption• Income derived by investors from investment in development company is tax exempt in their hands

(ie long term capital gains, interest on long term debt, etc)

Drawback/ DEPB• Developer can claim the drawback/ DEPB credit from Specified Officer/ Development Commissioner

Customs Duty• All goods required for authorised operation exempted from all customs duty on import

• All goods exported from the SEZ to any place outside India exempted from all customs duty

Income tax holiday• 100% tax holiday for 10 years out of 15 years from the year in which the SEZ is notified

• Tax holiday in respect of profits and gains derived from development, operation and maintenance of the SEZ

• In case of transfer of operation and maintenance of SEZ, transferee eligible to tax holiday for balance unexpired period of the tax holiday

Dividend Distribution Tax• Exemption from DDT on profits distributed by developer as dividends

Minimum Alternate Tax• No Minimum Alternate Tax payable

Investment income exemption• Income derived by investors from investment in development company is tax exempt in their hands

(ie long term capital gains, interest on long term debt, etc)

Drawback/ DEPB• Developer can claim the drawback/ DEPB credit from Specified Officer/ Development Commissioner

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Developer are usually exempted / offered facilitation under various state laws, with respect to

– Registration of Immoveable Property

– Electricity Duty

– Provision for generation and transmission of electricity

– Delegation of powers with respect to state labour laws to the Development Commissioner

– Other benefits such as single window clearance and self certification

Developer are usually exempted / offered facilitation under various state laws, with respect to

– Registration of Immoveable Property

– Electricity Duty

– Provision for generation and transmission of electricity

– Delegation of powers with respect to state labour laws to the Development Commissioner

– Other benefits such as single window clearance and self certification

Developer – State LawsDeveloper – State Laws

For state wise details refer to Annexure 2 – Benefits to Developer For state wise details refer to Annexure 2 – Benefits to Developer

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Exemption from payment of taxes, duties or cess on any export or import of goods or services from the SEZ or on procurement of goods or services from the DTA, under the following legislations-Exemption from payment of taxes, duties or cess on any export or import of goods or services from the SEZ or on procurement of goods or services from the DTA, under the following legislations-

Agricultural Produce Cess Act, 1940

Coffee Act, 1942

Mica Mines Labour Welfare Fund Act, 1946

Rubber Act, 1947

Tea Act, 1953

Salt Cess Act, 1953

Medicinal and Toilet Preparations (Excise Duties) Act, 1955

Additional Duties of Excise (Goods of Special Importance) Act, 1957

Sugar (Regulation of Production) Act, 1961

Textiles Committee Act, 1963

Produce Cess Act, 1966

Marine Products Export Development Authority Act, 1972

Coal Mines (Conservation and Development Act, 1974

Oil Industry (Development) Act, 1974

Tobacco Cess Act, 1975.

Additional Duties of Excise (Textile and Textile Articles) Act, 1978

Sugar Cess Act, 1982

Jute Manufactures Cess Act, 1983

Agricultural and Processed Food Products Export Cess Act, 1985.

Spices Cess Act, 1986

Research and Development Cess Act, 1986

Miscellaneous Benefits – Central LawsMiscellaneous Benefits – Central Laws

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Benefits to SupplierBenefits to Supplier

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Excise

• Exemption from duty on supply of goods to SEZ for authorized operations

Service Tax • Exemption from the payment of service tax on rendering of a taxable service for authorized

operations

Central Sales Tax• Exemption from levy of tax on sale or purchase of goods (except newspapers) for authorized

operations

Drawback/ DEPB• Supplier eligible for duty drawback/ DEPB credit of duty paid, provided

– payments made from the Foreign Currency Account; and

– Developer gives a disclaimer to DTA supplier stating that no benefit would be claimed by the Developer

Export Promotion Schemes• Suppliers from DTA to SEZ for authorised operations can avail of specific schemes under the

Foreign Trade Policy

Excise

• Exemption from duty on supply of goods to SEZ for authorized operations

Service Tax • Exemption from the payment of service tax on rendering of a taxable service for authorized

operations

Central Sales Tax• Exemption from levy of tax on sale or purchase of goods (except newspapers) for authorized

operations

Drawback/ DEPB• Supplier eligible for duty drawback/ DEPB credit of duty paid, provided

– payments made from the Foreign Currency Account; and

– Developer gives a disclaimer to DTA supplier stating that no benefit would be claimed by the Developer

Export Promotion Schemes• Suppliers from DTA to SEZ for authorised operations can avail of specific schemes under the

Foreign Trade Policy

Supplier – Central LawsSupplier – Central Laws

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Suppliers are usually exempted under various state policies/ legislations from payment of

sales tax/ VAT,

entry tax/ octroi

other local taxes and cess

for supply of goods or services to SEZ

Suppliers are usually exempted under various state policies/ legislations from payment of

sales tax/ VAT,

entry tax/ octroi

other local taxes and cess

for supply of goods or services to SEZ

Supplier – State LawsSupplier – State Laws

For state wise details refer to Annexure 2 – Benefits to SupplierFor state wise details refer to Annexure 2 – Benefits to Supplier

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Conditions for Availing Exemptions


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Prior requirement for claiming exemption• Exemption is subject to

Notification of SEZ;

Approval of authorised operations;

Approval Committees approval of the list of goods to be imported;

Mandatory registration viz., Importer Exporter Code;

Execution of Bond-cum-Legal Undertaking

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IssuesIssues

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Issues• Is there a requirement to notify the exemptions as provided under the SEZ Act?

• Whether exemptions stated under the various state policies & acts, have to be notified?

• Is the provision of taxable services by the Developer to the Co- developer or the units liable to the levy of service tax?

• When is the Bond-cum-Legal Undertaking required to be executed?

• Who is required to keep track of excess imports under the Bond-cum-Legal Undertaking and when does the additional Bond-cum-Legal Undertaking have to be filed?

• Whether consolidated application Form F will be applicable to Developer?

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Section 3Setting up of SEZ

Section 3Setting up of SEZ

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Basic ConceptsBasic Concepts

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Key Concepts

Infrastructural Facilities

Infrastructural Facilities

Infrastructure facilities means industrial, commercial or social infrastructure or other facilities necessary for the development of a Special Economic Zone or such other facilities which may be prescribed

Infrastructure facilities means industrial, commercial or social infrastructure or other facilities necessary for the development of a Special Economic Zone or such other facilities which may be prescribed

InfrastructureInfrastructure

Infrastructure means facilities needed for development, operation and maintenance of a Special Economic Zone and includes industrial, business and social amenities like development of land, roads, buildings, sewerage and effluent treatment facilities, solid waste management facilities, port, including jetties, single point moorings, storage tanks and interconnecting pipelines for liquids and gases, Inland Container Depot or Container Freight Station, warehouses, airports, railways, transport system, generation and distribution of power, gas and other forms of energy, telecommunication, data transmission network, information technology network, hospitals, hotels, educational institutions, leisure, recreational and entertainment facilities, residential and business complex, water supply, including desalination plant, sanitation facility

Infrastructure means facilities needed for development, operation and maintenance of a Special Economic Zone and includes industrial, business and social amenities like development of land, roads, buildings, sewerage and effluent treatment facilities, solid waste management facilities, port, including jetties, single point moorings, storage tanks and interconnecting pipelines for liquids and gases, Inland Container Depot or Container Freight Station, warehouses, airports, railways, transport system, generation and distribution of power, gas and other forms of energy, telecommunication, data transmission network, information technology network, hospitals, hotels, educational institutions, leisure, recreational and entertainment facilities, residential and business complex, water supply, including desalination plant, sanitation facility

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Role of DeveloperRole of Developer

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Role of the DeveloperDeveloper required to undertake authorised operations in relation to –

Development of SEZ: Creation of infrastructure (such as roads, ports, electricity, water, etc.) and allocation of space / built up area for setting up and operating UnitsDevelopment of SEZ: Creation of infrastructure (such as roads, ports, electricity, water, etc.) and allocation of space / built up area for setting up and operating Units

Operation and Maintenance of SEZ: Day to day operation and maintenance of the SEZ and providing infrastructure facility to the Units set up in the SEZ to ensure their smooth functioningOperation and Maintenance of SEZ: Day to day operation and maintenance of the SEZ and providing infrastructure facility to the Units set up in the SEZ to ensure their smooth functioning

• Authorized operations not defined in SEZ Act or Rules

Mainly role of Developer is to undertake development, operation and maintenance of infrastructure and provision of infrastructure facilities

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Approval CriteriaApproval Criteria

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Who can be a SEZ developer

• SEZ can be set up jointly or severally by

– Central Government

– State government

– Any person (incl. Private / Public limited Company, Partnership or Proprietorship)

Section 3(1)

Approval Criteria – Applicant

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Authorised OperationsAuthorised Operations • Comprehensive

Approval Criteria – Multi product SEZ

SizeSize

• Minimum contiguous area of 1,000 hectares (200

hectares in specified states)

• Exclusive SEZ for Services to have a minimum

contiguous area of 100 hectares

Processing AreaProcessing Area • Minimum 25% of SEZ area to be demarcated as

processing area

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Authorised OperationsAuthorised Operations

Indicative Sectors-

Engineering, textile/ garments, pharmaceuticals/

chemicals, handicrafts, gems & jewellery, electronic

hardware and software (incl. ITES), bio tech and non

conventional energy

Approval Criteria – Sector specific SEZ

SizeSize

Processing AreaProcessing Area • Minimum 50% area for processing area (for export

related activities)

• Minimum contiguous area of 100 hectares (50

hectares in specified states)• Electronic hardware and software including ITES – 10

hectares with min. built up processing area of

100,000 sq. meters• Bio tech, Non conventional energy (incl. solar energy

equipment) and Gems & Jewellery sector – 10

hectares

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Authorised OperationsAuthorised Operations Primarily trading and warehousing activities

Approval Criteria – Free Trade & Warehousing Zone

SizeSize

Processing AreaProcessing Area Not specified however minimum built up area

should be 100,000 sq meters

• Minimum 40 hectares • No minimum area limit for setting up the SEZ• Maximum area not to exceed 20 percent of

processing area

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Approval Criteria

• Area identified for SEZ to be contiguous and vacant with no public thoroughfare

(BOA may approve otherwise on a case to case on merits in case of Multi Product SEZ only)

Term ‘contiguous’ not defined under the SEZ Act, 2005 or SEZ Rules, 2006

Concise Oxford English Dictionary defines contiguous to mean- ‘sharing a common border; next or together in sequence’

• Additional area can be included in the existing SEZ. Minimum area of additional area not specified

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Approval ProcessApproval Process

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Application to State Government or Board of Approval (BOA)

Section 3(2) & 3(3)/ Rule 3

Approval Process

Forwards proposal to BOA with recommendations within 45 days of receipt of proposal

Section 3(6) and Rule 4

BOA approves proposal subject to such terms and conditions as it may specify

Section3(7) & 3(9) / Rule 5

Approval Communicates to the Central Government

In case proposal is directly submitted to BOA, applicant to obtain concurrence of the State Government within 6

months of approval by BOA (Rule 4)

State Government

Applicant*

Board of Approval

2

1 1

3

ModificationCommunicates to the

applicant

RejectionCommunicates the reasons to Central Government which

shall intimate the same to the applicant

*Applicant refers to applicant for the development of SEZ other than Central or State Government

4 Cont…

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Approaches DC for demarcation of

Processing / Non Processing Area

Applies to Approval Committee for permission of

procurement items

Submit details of proposed operations

Approves authorized operations

Board of Approval

Ministry of Commerce grants a Letter of Approval (LOA) to Developer

Section 4 / Rule 6

Central Government

Submit details of identified area to

Ministry of Commerce

Developer

Notification of SEZ by Central Government

(Ministry of Commerce)

4

5a

5b

6

7b

Approval Process – Post LOA

Developer

On agreement with Developers, to apply for an LOA

Co-Developer

7a

8b Cont…8a Cont…

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Approves import and procurement of goodsRule 10

Approval Committee8a

Approval Process – Post Notification

Demarcates Processing / Non Processing Area

Rule 11

DC8b

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Obtains IEC and executes Bond cum-Legal Undertaking and follows General Conditions of import

Rule 12 & 14

Developer

Avails duty concession on import / procurement and commence operation

Developer

For details refer to Annexure 3

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Approval Process – Co-developer

Action steps for Co-developer

• Enters into an agreement with developer to provide infrastructure facilities or undertake

authorized operations in SEZ

• Approaches BOA to seek approval for status as a Co-developer

• Follows the procedure of approval as applicable to developer to obtain LOA from Central

Government (Ministry of Commerce)

• However, state government recommendations not required

Developer may specify the requirement of Co-developer at the proposal stage. Although

SEZ Act and Rules are silent on this aspect, specifying co-developers requirement at

proposal stage may expedite the process of obtaining LOA for co-developer at a later

stage

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IssuesIssues

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Issues• Developer is required to commence operations within 3 years of issuance of LOA , accordingly

what is the period of validity of LOA once the operations of the SEZ have been commenced?

• Is the Developer required to furnish a commencement intimation?

• What is meant by ‘Vacant Land’ with respect to Rule 7(2)

• What is the fate of the SEZ after the period of land lease expires?

• Is there a requirement for developers to hold 26% stake in all entities creating, business,

recreational or residential facilities?

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Section 4Operation & Maintenance of SEZ

Section 4Operation & Maintenance of SEZ

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• A developer is authorized to Develop, Operate and Maintain the SEZ

• Operation and maintenance not defined in the Act / Rules

• Operation and maintenance can be for the infrastructural facilities in SEZ (as inferred from the

definition of infrastructure)

• Developer / Co-developer can appoint contractors for development, operation and maintenance

of SEZ

• Duty free material not available for operation and maintenance of educational institutions,

hospitals, hotels, residential and/or business complex, leisure and entertainment facilities or

any other facilities in the non-processing area of SEZ

• Goods for personal use/ consumption by officials, workmen, staff, owners or any other person

in relation to a Unit or Developer, not eligible for exemptions/ drawbacks/ concessions or any

other benefit

• If goods/ parts imported or procured from DTA are defective/ unfit for use/ damaged/ become

defective after import/ procurement, may be sent outside SEZ without payment of duty for

repairs or replacement, to the supplier or his authorized dealer or be destroyed

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Timelines Timelines

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TimelinesS No Description Prescribed Time

1 State Government forwards proposal to BOA along with recommendations

45 days (from receipt of proposal)

2 Concurrence of the State Government required (in case proposal submitted directly to BOA)

6 months (from date of approval by BOA)

3 Grant of LOA by Central Government (Ministry of Commerce) 30 days (of receipt of communication of

approval from BOA)

4 Acceptance of terms and conditions of LOA by the Developer 30 days (of the date of issuance of LOA)

5 Validity of LOA Developer required to fulfill the following within the validity period Submit details of proposed operations for BOA’s approval Submit details of identified area to Ministry of Commerce

for notification of SEZ Demarcation of processing/ non processing area Filing of project implementation progress report every 6

months from issuance of LOA Commencement of operations

3 years of issuance of LOA(BOA if satisfied may extend the period by upto 2 years)

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Timelines (Contd…)

S No Description Prescribed Time

6 BOA to approve authorised operations No time period prescribed

7 Notification of SEZ by Central Government No time period prescribed

8 Grant of approval by Approval Committee for procurement of goods and services

No time period prescribed

9 Demarcation of processing and non processing area by Development Commissioner

No time period prescribed

10 Deemed acceptance of the Bond- Cum-Legal Undertaking if no communication from the office of the Development Commissioner

7 working days (of submission of Bond- Cum-

Legal Undertaking)

11 Developer to submit half yearly certificate for periods ending 31st March & 30th September of every financial year from a Chartered Engineer to Development Commissioner and Specified Officer

30 days of the end of the period(i.e. by 30th April & 30th October)

12 Maintenance of records 7 years (from the end of the relevant

financial year)

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Section 5Import / Procurement of

Goods

Section 5Import / Procurement of

Goods

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Basic Concepts

ExportExport

• Taking goods or providing services out of India by any mode physically or otherwise; or

• Supplying goods or providing services from Domestic Tariff Area to a unit or developer; or

• Supplying goods or providing services from one unit to another unit or developer in same or different SEZ

• Taking goods or providing services out of India by any mode physically or otherwise; or

• Supplying goods or providing services from Domestic Tariff Area to a unit or developer; or

• Supplying goods or providing services from one unit to another unit or developer in same or different SEZ

ImportImport

• Bringing goods or receiving services from outside of India by any

mode physically or otherwise; or• Receiving goods or services by a unit or developer from another

unit or developer in same or different SEZ

• Bringing goods or receiving services from outside of India by any

mode physically or otherwise; or• Receiving goods or services by a unit or developer from another

unit or developer in same or different SEZ

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General Conditions for Importation/ Procurement

General Conditions for Importation/ Procurement

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General Conditions

Type of goods

Developer can import all types of goods* for undertaking authorized operations including

• Capital goods (new or second hand)

• Raw materials

• Semi finished goods

• Components, consumables and spares of capital goods

Source of importation / procurement

Developer can import / procure from

• Foreign countries

• Domestic Tariff Area

• Units in same or other SEZ

• Other SEZ developers

• EOU’s, STP Units, EHTP Units or BTP Units

* * Except goods prohibited under the Foreign Trade Policy (ITCHS Classification) Except goods prohibited under the Foreign Trade Policy (ITCHS Classification)

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General Conditions (Contd.)

Mode of importation / procurement

• Developer can import goods directly into the SEZ or through

– Ports or airports

– Land Customs stations

– Inland container depots

– Foreign post offices

– Authorized couriers

– Personal baggage of person authorized by SEZ developer / unit

– Satellite communication links / Internet / Tele communication links (for import of ITES including software)

• Capital goods can be sourced under a lease agreement with a domestic or foreign leasing

company (lessor and lessee required to jointly file documents for import/ domestic procurement)

Period of utilization goods in SEZ

• Developer is required to utilize, export or dispose off goods entered into SEZ within a period of one

year or period as may be extended by the specified officer

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Pre Import conditions for Developer

• Applies to Approval Committee

– Application made through DC

– Furnish list of goods and services require for authorized operations to DC

– List to be certified by a Chartered Engineer

• Declares place of storage of goods to Specified Officer

• Inspection of goods

– Imported / Procured goods shall be inspected by Authorized Officer prior to utilization

– Such goods to be kept separately in a clearly demarcated area

• Executes Bond-cum-Legal Undertaking

• Obtains Importer Exporter Code (IEC) or amends existing IEC to include the address of importation

before importing any goods

General Conditions – Pre ImportGeneral Conditions – Pre Import

Goods imported/ shipped before issue of LOA eligible for duty exemption provided goods

are not cleared from Customs and duty is not paid

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General Conditions – Post ImportGeneral Conditions – Post ImportPost Import general compliances for Developer

Maintenance of Accounts

• Proper accounts to be maintained of import/ procurement / consumption and utilisation of goods (Rule 12(6))

Returns & Certificates

• Quarterly and half yearly returns to be submitted in Form E to the Development Commissioner

• Half yearly Certificate for the period ending 31st March & 30th September from an independent Chartered Engineer certifying that goods are utilized

• Certificate to be submitted to the Development Commissioner & Specified Officer within 30 days of the period ending 31st March & 30th September

Post Import general compliances for Developer

Maintenance of Accounts

• Proper accounts to be maintained of import/ procurement / consumption and utilisation of goods (Rule 12(6))

Returns & Certificates

• Quarterly and half yearly returns to be submitted in Form E to the Development Commissioner

• Half yearly Certificate for the period ending 31st March & 30th September from an independent Chartered Engineer certifying that goods are utilized

• Certificate to be submitted to the Development Commissioner & Specified Officer within 30 days of the period ending 31st March & 30th September

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Procedure for ImportationProcedure for Importation

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Import of goods by Developer

DeveloperDeveloper Authorized officerAuthorized officer AC/DC at PortAC/DC at Port

BoE in quintuplicate

Assessed BoE

Assessed BoE

Goods

Verification

Fifth copy of BoE

Goods (out of charge)

Endorsement

1

65

2

3

78

4

Procedure for import of goods without payment of customs duty

67

Import of goods by Developer (contd..)• Bill of Entry (BoE) to be filed by Developer in quintuplicate giving complete description of goods

and usage, along with stamped endorsement as “SEZ cargo”, bill of lading and airway bill, invoice, packing list and purchase order

• BoE assessed by Authorized Officer in SEZ, and assessed BoE shall be submitted to DC/ AC at place of import and shall be treated as permission for transfer of goods to zone

• Sealed FCL cargo to be transferred without customs escorts, otherwise goods move under escort or under transshipment procedure (but transshipment bond is not required, endorsement on 5 th copy of BoE would suffice)

• Goods subjected to verification on arrival and before admission to zone

• Developer required to obtain notional out of charge from proper officer of zone

• Copy of fifth copy of BoE bearing endorsement of customs as to goods received in zone submitted to officer of customs where goods imported within forty five days, else duty demanded

• Goods shall be deemed to be Out of Charge upon verification and endorsement by the authorized officer and receipt of goods by developer

Goods imported by Developer shall not be subject to detailed examination except in case of prior intelligence or information or to maintain an element of surprise

Goods imported by Developer shall not be subject to detailed examination except in case of prior intelligence or information or to maintain an element of surprise

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Procedure for Domestic Procurement

Procedure for Domestic Procurement

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Procurement of goods from DTAAlternatives available to Developer

Developer has the following options for procurement of goods from DTA:

• Developer may obtain goods required for authorized operations from DTA, without payment of excise duty/ CST; or

• Developer may obtain goods required for authorized operations from DTA, without claiming drawback/ DEPB by DTA unit

• Developer may obtain goods from DTA without availing exemptions, drawbacks and concessions on the basis of invoice / transport documents issued by DTA unit

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Procurement of goods from DTA (contd..)Procurement of goods from DTA without payment of duty

DeveloperDeveloper Authorized OfficerAuthorized Officer Officer at DTAOfficer at DTA

Bill of Export

Assessed Bill of ExportAssessed Bill of Export

Goods, Bill of Export & Form ARE - 1

Verification

Endorsement

DTA UnitDTA Unit

Bill of Export & Form ARE – 1

to Central Excise Superintendent

Goods

1

23

4

5

7

8

6

71

• DTA unit files Bill of Export complete with description and nature of goods and usage, with stamped endorsement goods are SEZ cargo, invoice, packing list and purchase order

• Bill of Export to be assessed by authorized officer of SEZ, and shall then submitted to the concerned officer in DTA

• Assessed Bill of Export shall be treated as permission for transfer of goods to SEZ

• DTA unit making sale shall remove the goods to SEZ on the cover of the assessed Bill of Export and Form ARE-I

• Copy Bill of Export duly endorsed (that goods have entered into SEZ) by authorized officer of SEZ to be forwarded to concerned Central Excise Superintendent in DTA within 45 days, otherwise demand of excise duty against DTA unit may be raised

• Assessment in SEZ by authorized officer in same manner as assessment of goods exported, entitling the DTA supplier to export incentive schemes such as DEPB/ Drawback if payment made in freely convertible foreign currency

• Developer to submit application to zone officer in charge for issuance of pre-authenticated domestic procurement certificate in cases where DEPB or drawback not availed by DTA unit


Procedure for DTA procurement of goods by Developer without payment of duty

Procurement of goods from DTA (contd..)

72

Procurement of goods from DTA without claiming drawback / DEPB by DTA unit

DeveloperDeveloper Zone officerZone officerCentral Excise SuperintendentCentral Excise Superintendent

Application for pre-authenticated domestic procurement certificate

Certificate

Certificate

Goods & Form ARE - 1

Verification

Endorsement

DTA UnitDTA Unit

Form ARE – 1

Goods

Procurement of goods from DTA (contd..)

2

4

3

1

5

6

7

8

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• Zone unit or Developer to submit application to proper officer for issuance of Pre-authenticated domestic procurement certificate (DPC)

• Superintendent of Central Excise allows removal of goods from DTA unit on the basis of DPC in cover of ARE - I

• Goods brought to zone allowed entry into SEZ on basis of Form ARE-I, with copies of the same being forwarded to Central Excise Superintendent having jurisdiction over area where DTA unit supplying is situated. Else Superintendent raise demand of excise duty against DTA unit


Procurement of goods from DTA (contd..)Procedure for DTA procurement of goods without claiming drawback/DEPB by DTA unit

74

Issues Issues

75

Issues• Whether a developer can procure from another SEZ without payment of duty? (refer rule 27)

76

Section 6Removal of Goods &

Monitoring Requirements

Section 6Removal of Goods &

Monitoring Requirements

77

Removal of GoodsRemoval of Goods

78

• Developer allowed remove goods from SEZ to DTA

– With permission from the specified officer, and – On payment of applicable duty

• Developer allowed to export or transfer the following to other SEZ developer or unit with approval of the specified officer

– Obsolete capital goods

– Surplus capital goods

– Spares (including construction equipments)

• Temporary removal of goods allowed for repair / testing / sub contracting or processing etc. to DTA with payment of duty

Removal of goods

79

• On what value Developer shall clear capital goods / other goods to DTA ?

• Whether depreciation norms under Rule 49 applicable to Developer ?

Issues

80

Monitoring RequirementMonitoring Requirement

81

Monitoring Requirements• Development Commissioner has been granted the power to monitor the performance of the

Developer and of the Units in the SEZ.

• Approval Committee has been granted the power to monitor

– the utilisation of goods/ services/ warehousing/ trading in the SEZ;

– the compliance of conditions subject to which the letter of approval or permission has been

granted

• Developer is required to maintain proper accounts in a suitable format* of goods imported or

procured from the DTA/ consumption or utilisation of goods/ production of goods etc

Records are to be maintained for 7 years

• SEZ Rules specify detailed requirements and compliance to be followed/ fulfilled for import of

goods by various means

* Refer - suggested format

82

Section 7 Financial Modeling

Section 7 Financial Modeling

83

Investment (Case study of IT-ITeS SEZ)Investment (Case study of IT-ITeS SEZ)

• Can be done either single owner, or multiple partners / stake holder.

• Partners can be State Govts. Or any foreign Institutions / private players etc

• DLF – Akruti Info Parks ltd is the case study we have considered.

• The debt equity ratio for this project is 3:1

• DLF and Akruticity Ltd has invested in 67 % - 33 % respectively.

• In over all investment 75 % is through debts and rest of the 25 % is share between DLF & Akruticity ( 67 % & 33 %).

• The BEP of the project is 9 years

• Hurdle matrix profit ratio is about 50 % for 9 years

• The total investment for the project is 1350 CR.

• Can be done either single owner, or multiple partners / stake holder.

• Partners can be State Govts. Or any foreign Institutions / private players etc

• DLF – Akruti Info Parks ltd is the case study we have considered.

• The debt equity ratio for this project is 3:1

• DLF and Akruticity Ltd has invested in 67 % - 33 % respectively.

• In over all investment 75 % is through debts and rest of the 25 % is share between DLF & Akruticity ( 67 % & 33 %).

• The BEP of the project is 9 years

• Hurdle matrix profit ratio is about 50 % for 9 years

• The total investment for the project is 1350 CR.

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Revenue (case Study IT – ITeS SEZ )Revenue (case Study IT – ITeS SEZ )• Leasing the space to the clients & Collecting the rentals for the leased space.

• Collecting the maintenance cost from the client on 24hr services basis with the special cost in the night service

• Security deposits for the extra power requirements, the deposits can be either in the form of refundable of non refundable.

• All the services to be charged, It should be charged in such a way that clients should not feel the burden on them.

• Leasing the parking space.

• Provision of given the plug & play facilities to clients with amortizing the invested money in to prolonged payments though rentals etc (XL showing Financial model)

• Leasing the space to the clients & Collecting the rentals for the leased space.

• Collecting the maintenance cost from the client on 24hr services basis with the special cost in the night service

• Security deposits for the extra power requirements, the deposits can be either in the form of refundable of non refundable.

• All the services to be charged, It should be charged in such a way that clients should not feel the burden on them.

• Leasing the parking space.

• Provision of given the plug & play facilities to clients with amortizing the invested money in to prolonged payments though rentals etc (XL showing Financial model)

85

Section 8Execution & Project Management

Section 8Execution & Project Management

86

Implementation Implementation • Implementation of SEZ projects is demand driven. And yet is has to be

completed with in the time line which has been given by the Govt. bodies

• The implementation will take place in Phases, either it is sector specific or an multi-product SEZ.

• We have to create all the infrastructure which is required by facilities which should be to the international standard and SEZ standards.

• The Infrastructure like, power, structures, Roads, HVAC , fire fighting, Power back up, Custom bonds in the SEZ area as well as in units, then amenities for the units like ATM’s , banks, food courts, retail shops etc. only 20 % of the SEZ area is allowable for amenities, Compound wall for the SEZ according to the SEZ guidelines etc

• All the services and structure should be as per the issued guidelines

• Implementation of SEZ projects is demand driven. And yet is has to be completed with in the time line which has been given by the Govt. bodies

• The implementation will take place in Phases, either it is sector specific or an multi-product SEZ.

• We have to create all the infrastructure which is required by facilities which should be to the international standard and SEZ standards.

• The Infrastructure like, power, structures, Roads, HVAC , fire fighting, Power back up, Custom bonds in the SEZ area as well as in units, then amenities for the units like ATM’s , banks, food courts, retail shops etc. only 20 % of the SEZ area is allowable for amenities, Compound wall for the SEZ according to the SEZ guidelines etc

• All the services and structure should be as per the issued guidelines

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ContractsContracts• Land contracts between state Govt. bodies of central Govt. bodies, if it

is a sector specific then it will be in owned by acquiring from owners.

• Usually the lease will be for about 95 year plus and again it can be extendable.

• Construction contracts are left to developers to decide, usually for construction the Item rate contract is used.

• For the erection of power plants / power backs up plant room and HVAC plant rooms turnkey contracts are used.

• The lease and sub lease contracts to the clients usually for 5 years + 5 years.

• Contracts with the local Govt. bodies for the supply for water and electricity from the SEB’s for GRID power.

• Land contracts between state Govt. bodies of central Govt. bodies, if it is a sector specific then it will be in owned by acquiring from owners.

• Usually the lease will be for about 95 year plus and again it can be extendable.

• Construction contracts are left to developers to decide, usually for construction the Item rate contract is used.

• For the erection of power plants / power backs up plant room and HVAC plant rooms turnkey contracts are used.

• The lease and sub lease contracts to the clients usually for 5 years + 5 years.

• Contracts with the local Govt. bodies for the supply for water and electricity from the SEB’s for GRID power.

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Approvals Approvals • Other than SEZ approvals we need lot of approvals are needed to

make the SEZ operational.

• the list of approvals (click here)

• Other than SEZ approvals we need lot of approvals are needed to make the SEZ operational.

• the list of approvals (click here)

89

Initiative

Community attitude

Cleaner & greener facilities


Labor safety & medical care


Zero tolerance for pollution

To maintain natural resources

Creating opportunity for local people

90

Thank YouThank You

91

AnnexureAnnexure

92

Annexure 1SEZ- An Overview

Annexure 1SEZ- An Overview

93

MembershipMembership

• Ministry of Commerce [Addl. Secretary rank and above] (Chairperson)

Joint Secretary Rank and above

• Department of Revenue

• Department of Economic Affairs

• Department of Industrial Policy and Promotion

• Department of Commerce

• Ministry of Science and Technology

• Ministry of SSI and Agro and Rural Industries

• Ministry of Home Affairs

• Ministry of Defence

• Ministry of Environment & Forests

• Ministry of Urban Development & Poverty Alleviation

• Ministry of Law & Justice

• Ministry of Urban Development & Poverty Alleviation

• Ministry of Overseas Indian Affairs

Nominee of State Government & DGFT

• Development Commissioner

• Professor at the IIM

• Officer dealing with Special Economic Zones (Deputy Secretary rank and above)

Powers/FunctionsPowers/Functions

• Granting approval/ rejecting/ modifying proposal for establishment of an SEZ

• Granting approval for authorised operations of the SEZ to be carried out by the Developer

• Granting approval for foreign collaborations by Developer or Unit for the development, operation & maintenance of SEZ

• Granting approval or rejecting proposal for providing/ modifying infrastructure facilities in the SEZ

• Grant licence to an industrial undertaking

• Suspension of the letter of approval

• Disposing of appeals

• Classification of activity as manufacture

Board of Approvals

No role of the developerNo role of the developer

94

MembershipMembership

• Officer of and nominated by the Central Government

• Department of Revenue

• Department of Economic Affairs

• Nominee of State Government

• Development Commissioner

• Representative of the Developer


• Approve the import/ procurement of goods from the DTA to the SEZ for authorised operations

• Approve provision of services from outside India/ DTA for authorised operations

• Monitoring the utilisation of goods/ services their warehousing or trading in the SEZ

• Approve/ modify/ reject proposal for setting up Units for manufacturing/ rendering services/ warehousing/ trading in SEZ

• Monitor and supervise compliance of conditions based on which the letter of approval or permission has been granted

Approval Committee

Representative of the Developer is appointed to the Committee

Representative of the Developer is appointed to the Committee

95

• Who can be the representative of the Developer ?

• Can the same representative be appointed for different SEZ’s?

Developers Rep. at Approval Committee

96

MembershipMembership Powers/FunctionsPowers/FunctionsSEZ Authority

No role of the developerNo role of the developer

• Development Commissioner of the SEZ (Chief Executive of the Authority)

• Officers nominated by the Central Government having knowledge/ experience of the matters relating to SEZ


• Entrepreneurs or their nominees nominated by the Central Government

• Development Commissioner of the SEZ (Chief Executive of the Authority)

• Officers nominated by the Central Government having knowledge/ experience of the matters relating to SEZ


• Entrepreneurs or their nominees nominated by the Central Government

• Duty of the Authority to undertake measures for the development, operation or maintenance of the SEZ. The measures include

Development of Infrastructure of the SEZ

Promotion of exports from SEZ

Review the functions and the performance of SEZ

Levy user / service charges/ fee/ rent for use of properties belonging to the Authority

• Duty of the Authority to undertake measures for the development, operation or maintenance of the SEZ. The measures include

Development of Infrastructure of the SEZ

Promotion of exports from SEZ

Review the functions and the performance of SEZ

Levy user / service charges/ fee/ rent for use of properties belonging to the Authority

97


• Ensure and take suitable action for effective promotion of exports from SEZ

• Monitor performance of the Developer

• Receives proposal for setting up Unit in SEZ to carry out authorised operations

• Development Commissioner grants letter of approval to the Unit

• Holds the position of Chief Executive of the SEZ Authority

• Grant approval for carrying out investigation, search & seizure in the SEZ

• Provides identity cards for persons entering the SEZ

• Demarcates the processing and the non processing zone of the SEZ

• Receives the quarterly & half yearly returns

• Receives a copy of the registered lease deed

Development Commissioner• The Development Commissioner is appointed by Central Government

• Development Commissioner is an officer not below the rank of Deputy Secretary to the Government of India

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Transition provision - ApplicantTransition provision - ApplicantName of the State Sector Minimum Area

Andhra Pradesh Information Technology 6 hectares

Delhi Information Technology 6 hectares

Gujarat Apparel 38 hectares

Pharmaceuticals 48 hectares

Haryana Information Technology 3 hectares

Jharkhand Automobiles and components 36 hectares

Karnataka Information technology 4 hectares

Kerala Information Technology 9 hectares

Food processing 12 hectares

Maharashtra Pharmaceuticals and biotechnology 21 hectares

Madhya Pradesh Information technology 8 hectares

Punjab Pharmaceuticals 32 hectares

Tamil Nadu Footwear 60 hectares

West Bengal Leather Products 44 hectares

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Annexure 2Benefits of SEZ

Annexure 2Benefits of SEZ

100

Benefits under State LawsBenefits under State Laws

Under the SEZ Rules, 2006 state governments ‘shall endeavor’ that the following benefits are available to the Unit/ Developer-

– Exemption from State and local taxes, levies and duties (including Stamp Duty) on goods required for authorized operations

– Exemption from Electricity duty and tax on sale of electricity for self generated and purchased power

– Allow generation, transmission and distribution of power within SEZ (subject to Electricity Act 2003)

– Water, electricity and other services to SEZ

– Delegation of power to DC under Industrial Disputes Act and other related Acts

– Declaration of SEZ as Public Utility Service under the Industrial Disputes Act

– Single point clearance system to units under State laws

– No Objection for SEZ activities if the proposed SEZ falls under a reserved or ecologically fragile area

Under the SEZ Rules, 2006 state governments ‘shall endeavor’ that the following benefits are available to the Unit/ Developer-









101

Benefit to DeveloperBenefit to Developer

102

• Immoveable Property

– Exemption from payment of stamp duty on all transactions of transfer of immoveable property or documents related to it, within the SEZ

(Section 11(2) of the Haryana SEZ Act, 2006)

• Electricity

Permitted to generate electricity inside or outside the SEZ for consumption in SEZ

Can obtain distribution license or a franchise for distribution of electricity in/ part of SEZ, unless exempted under the Electricity Act, 2003

Exemption from levy of duty/ cess on generation, transmission, distribution and consumption of electricity within the SEZ

(Section 10 of the Haryana SEZ Act, 2006)

• Labour

– Development Commissioner has been vested with the powers of the Labour Commissioner & Chief Inspector of Factories

• Other Benefits

The Haryana SEZ Act, 2006 provides for other benefits as well, such as pertaining to environmental clearances, inspection etc.


– Exemption from payment of stamp duty on all transactions of transfer of immoveable property or documents related to it, within the SEZ

(Section 11(2) of the Haryana SEZ Act, 2006)

• Electricity

Permitted to generate electricity inside or outside the SEZ for consumption in SEZ

Can obtain distribution license or a franchise for distribution of electricity in/ part of SEZ, unless exempted under the Electricity Act, 2003

Exemption from levy of duty/ cess on generation, transmission, distribution and consumption of electricity within the SEZ


• Labour

– Development Commissioner has been vested with the powers of the Labour Commissioner & Chief Inspector of Factories

• Other Benefits

The Haryana SEZ Act, 2006 provides for other benefits as well, such as pertaining to environmental clearances, inspection etc.

Developer – Haryana State LawsDeveloper – Haryana State Laws

103


– All industrial units and their expansions located in SEZs exempt from payment of Stamp Duty and Registration Charges towards land transactions

• Electricity– Exemption from payment of Electricity Cess– Tamil Nadu Electricity Board (TNEB) to ensure quality power supply to the SEZ units without

any power cut – Independent Power Plant (IPP) supplying power to the units permitted. – TNEB/ JV permitted by TNEB/ State Government to set up an exclusive power plant for the SEZ – If the State Government is setting up an IPP, SEZ permitted to generate power exclusively for

sale of power to units in the SEZ– Individual units within SEZ permitted to put up own captive power plants (CPP) not exceeding

25 MW for own captive use or 110% of their captive use.– SEZs free to fix tariff for its consumers for the power to be produced from their own CPP.– If TNEB's Transmission & Distribution lines are used for wheeling of power, standard charges as

applicable will be paid– The Collective Captive Power Plant capacity should be equal to the anticipated demand as far

as possible


– All industrial units and their expansions located in SEZs exempt from payment of Stamp Duty and Registration Charges towards land transactions

• Electricity– Exemption from payment of Electricity Cess– Tamil Nadu Electricity Board (TNEB) to ensure quality power supply to the SEZ units without

any power cut – Independent Power Plant (IPP) supplying power to the units permitted. – TNEB/ JV permitted by TNEB/ State Government to set up an exclusive power plant for the SEZ – If the State Government is setting up an IPP, SEZ permitted to generate power exclusively for

sale of power to units in the SEZ– Individual units within SEZ permitted to put up own captive power plants (CPP) not exceeding

25 MW for own captive use or 110% of their captive use.– SEZs free to fix tariff for its consumers for the power to be produced from their own CPP.– If TNEB's Transmission & Distribution lines are used for wheeling of power, standard charges as

applicable will be paid– The Collective Captive Power Plant capacity should be equal to the anticipated demand as far

as possible

Developer – Tamil Nadu State LawsDeveloper – Tamil Nadu State Laws

104

• Water Supply

– Developer along with Government agencies to ensure provision of adequate water supply, subject to water availability clearance from the authorities

• Labour

– Reporting System to be simplified.

– Inspection requirement shall be kept at minimum level self-certification, flexi time, working time for women etc to be introduced

– All industrial units in the SEZs declared as 'Public Utility Service'

• Other Benefits

The Tamil Nadu SEZ Policy, 2003 provides for other benefits as well, such as pertaining to environmental clearances, inspection etc.

• Water Supply

– Developer along with Government agencies to ensure provision of adequate water supply, subject to water availability clearance from the authorities

• Labour

– Reporting System to be simplified.

– Inspection requirement shall be kept at minimum level self-certification, flexi time, working time for women etc to be introduced

– All industrial units in the SEZs declared as 'Public Utility Service'

• Other Benefits

The Tamil Nadu SEZ Policy, 2003 provides for other benefits as well, such as pertaining to environmental clearances, inspection etc.

Developer – Tamil Nadu State Laws (contd.)Developer – Tamil Nadu State Laws (contd.)

105


50% exemption on Stamp Duty, Registration Fee on transfer of lands meant for Industrial use in SEZ

100% exemption of stamp duty and registration fee for loan agreements, credit deeds, mortgages and hypothecation deeds executed by the SEZ Units for assets in the SEZ in favour of banks or financial institutions

• Electricity

Exemption from Electricity Duty &Tax

Captive power production can be undertaken by the SEZ

The APSEZ will take necessary steps to make arrangements in respect of transmission, distribution and collection of bills

• Labour

Power of Labour Commissioner delegated to the Development Commissioner

100% EOU located in SEZ declared as Public Utility Service under Industrial Disputes Act, 1947

• Other Benefits

The Andhra Pradesh SEZ Policy 200 provides for other benefits as well, such as pertaining to environmental clearances


50% exemption on Stamp Duty, Registration Fee on transfer of lands meant for Industrial use in SEZ

100% exemption of stamp duty and registration fee for loan agreements, credit deeds, mortgages and hypothecation deeds executed by the SEZ Units for assets in the SEZ in favour of banks or financial institutions

• Electricity

Exemption from Electricity Duty &Tax

Captive power production can be undertaken by the SEZ

The APSEZ will take necessary steps to make arrangements in respect of transmission, distribution and collection of bills

• Labour

Power of Labour Commissioner delegated to the Development Commissioner

100% EOU located in SEZ declared as Public Utility Service under Industrial Disputes Act, 1947

• Other Benefits

The Andhra Pradesh SEZ Policy 200 provides for other benefits as well, such as pertaining to environmental clearances

Developer – AP State LawsDeveloper – AP State Laws

106

Benefit to SupplierBenefit to Supplier

107

• Goods & Services

Exempt from levy of tax on-

Export/ import of goods into/ out of the SEZ

Inter –unit transaction of goods within the SEZ

Goods sent to DTA and thereafter returned

Value addition services provided to a product within the SEZ



Exempt from levy of tax on-

Export/ import of goods into/ out of the SEZ

Inter –unit transaction of goods within the SEZ

Goods sent to DTA and thereafter returned

Value addition services provided to a product within the SEZ


Supplier – Haryana State LawsSupplier – Haryana State Laws

108

Supplier – Tamil Nadu State LawsSupplier – Tamil Nadu State Laws• Goods & Services

• Value addition services provided to a product within the SEZ

• Developers of SEZs/ industrial units/ other establishments within the SEZs exempted from all local taxes and levies, including

Sales Tax/ VAT/ Purchase Tax,

Turnover Tax,

Mandi Tax

Octroi,

Any kind of Cess or any other levy of the State Government

in respect of all transactions made between units / establishments within the SEZs, and in respect of the supply of goods and services from the Domestic Tariff Area to units / establishments in SEZs

• SEZ developer/ units exempt from taxes levied by the local bodies


• Value addition services provided to a product within the SEZ

• Developers of SEZs/ industrial units/ other establishments within the SEZs exempted from all local taxes and levies, including

Sales Tax/ VAT/ Purchase Tax,

Turnover Tax,

Mandi Tax

Octroi,

Any kind of Cess or any other levy of the State Government

in respect of all transactions made between units / establishments within the SEZs, and in respect of the supply of goods and services from the Domestic Tariff Area to units / establishments in SEZs

• SEZ developer/ units exempt from taxes levied by the local bodies

109

Supplier – Andhra Pradesh State LawsSupplier – Andhra Pradesh State Laws• Goods & Services

Exemption from Sales Tax on inputs supplied from DTA & SEZ to units located at the SEZ

Exemption from the levy of tax on the entertainments held in SEZ

Exemption from the levy of tax on the luxuries provided in the hotels located in SEZ


Exemption from Sales Tax on inputs supplied from DTA & SEZ to units located at the SEZ

Exemption from the levy of tax on the entertainments held in SEZ

Exemption from the levy of tax on the luxuries provided in the hotels located in SEZ

110



111

Importer Exporter Code

• No export or import can be made by any person without a valid Import Export Code (IEC)

• IEC is usually issued by jurisdictional Joint Director General of Foreign Trade (Jt. DGFT) as per the

provisions of Foreign Trade Policy

• SEZ Rules provide for a prescribed format (Form F) for various approvals/ registrations including

IEC, to be made by a SEZ Unit to the Development Commissioner

• Rules not clear with respect to IEC application for developer

• Developer can approach jurisdictional Jt. DGFT for IEC or amendment of an existing IEC (to

include the address of SEZ in the IEC)

112

Bond-cum-Legal Undertaking• Bond-cum-legal Undertaking to be executed in prescribed format (Form D)

– by Developer / Co developer (signed by person specified under Rule 22(1)(iv)a)

– with Development Commissioner and Specified Officer

In order to undertake

Proper utilization and record of goods imported / procured (including those imported by contractor)

Movement of goods between port of import and SEZ

Temporary removal of goods

Re-import of exported goods

• Period for execution – One year (or extended period if any)

• Value – Amount of duty leviable on projected requirement of import / procurement of raw materials / capital goods for three months

• Developer is required execute a fresh or additional Bond-cum-Legal Undertaking in event import by developer exceeds the bond amount

113

Annexure 3Setting up of SEZ

Annexure 3Setting up of SEZ

114

Annexure“person” includes an individual, whether resident in India or outside India, a Hindu undivided family, co-operative society, a company, whether incorporated in India or outside India, a firm, proprietary concern, or an association of persons or body of individuals, whether incorporated or not, local authority and any agency, office or branch owned or controlled by such individual, Hindu undivided family, co-operative, association, body, authority or company

Section 2(v)

115

Annexure

Special Economic Zone for multi-product “means a Special Economic Zone where Units may be set up for manufacture of two or more goods in a sector or goods falling in two or more sectors or for trading and warehousing or rendering of two or more services in a sector or rendering of services falling in two or more sectors”

Rule 2(1)(zb)

116

Annexure

Special Economic Zone for specific sector “means a Special Economic Zone meant exclusively for one or more products in a sector or one or more services in a sector”

Rule 2(1)(zc)

Sector “means one or more products or one or more services falling under a category such as engineering, textiles and garments, pharmaceuticals and chemicals, handicrafts, gem and jewellery, electronics hardware and software, including information technology enabled services and bio-technology”

Rule 2(1)(x)

117

Annexure

Free Trade and Warehousing Zone “means a Special Economic Zone wherein mainly trading and warehousing and other activities related thereto are carried on”

Section 2(1)(n)

118

Annexureservices means such tradable services which,-

i. are covered under the General Agreement on Trade in Services annexed as IB to the Agreement establishing the World Trade Organisation concluded at Marrakes on the 15 th day of April, 1994;

ii. may be prescribed by the Central Government for the purposes of this Act; and iii. earn foreign exchange;

Section 2(z)

The “services” for the purposes of sub-clause (z) of section 2 shall be the following, namely: -

Trading, warehousing, research and development services, computer software services, including information enabled services such as back-office operations, call centers, content development or animation, data processing, engineering and design, graphic information system services, human resources services, insurance claim processing, legal data bases, medical transcription, payroll, remote maintenance, revenue accounting, support centers and web-site services, off-shore banking services, professional services (excluding legal services and accounting) rental/leasing services without operators, other business services, courier services, audio-visual services, construction and related services, distribution services (excluding retail services), educational services, environmental services, financial services, hospital services, other human health services, tourism and travel related services, recreational, cultural and sporting services, entertainment services, transport services, services auxiliary to all modes of transport, pipelines transport

Rule 76

119

Specified States

• Assam • Meghalaya

• Nagaland • Arunachal Pradesh

• Mizoram • Manipur

• Tripura • Himachal Pradesh

• Uttranchal • Sikkim

• Jammu and Kashmir • Goa

• Any Union Territory

120

Application for Development of SEZ

• Application to be made on the specified format (FORM – A) specifying:

– Details of applicant

– Location details of proposed SEZ

– Proposed financial / investment, share holding details

– Details of identified area (viz. Total Area of SEZ , Processing Area, Non Processing Area)

– Details of proposed activities in Processing / Non Processing Area

– Project report indicating economic and commercial viability of the proposal

– Undertaking to abide by the SEZ Act 2005

STEP 1 – Approval Process

121

STEP 2 – Approval ProcessSTEP 2 – Approval Process

Before recommending the proposal state governments ‘shall endeavor’ that following benefits are available to the Unit/ Developer –









Before recommending the proposal state governments ‘shall endeavor’ that following benefits are available to the Unit/ Developer –









122

STEP 3 – Approval Process

Approval by BOA

No prescribed format for approval by BOA

BOA ensures following while granting approval (Rule 5)

• Proposal meets minimum area requirement

• Developer / Co-Developer has 26% equity in the entity proposing to create infrastructural

facilities (in case Developer / co developer proposes undertake development though a

separate entity or SPV)

123

STEP 4 – Approval ProcessLetter of Approval

• LOA in a prescribed format (Form B) issued by Central Government (Ministry of Commerce) within 30 days of communication of approval from BOA

• Developer required to implement the proposal within 3 years of issue of LOA (subject to extension on case to case basis)

• LOA to specify the following:

– Location / area of SEZ

– Key terms and conditions for Developer

∙ Execute Bond-cum-Legal Undertaking

∙ Submit project implementation progress report every 6 months

• Suspension of LOA – BOA has powers to suspend the LOA and appoint an Administrator as per the provisions specified in the Act

• LOA can be issued for a joint developer under proviso to section 3(10) in case the one developer does not have minimum requisite area in its possession

• LOA shall also be issued by the Central Government to a Co-developer who intends to provide infrastructure facilities or undertake authorized operation and has entered into an agreement to that effect with the Developer

124

STEP 5– Approval Process

Action steps for Developer

• Upon the grant of Letter of Approval from the Central Government the Developer submits the

exact particulars of the identified area viz., details of area along with a indicating the SEZ duly

certified by the District Revenue Authority - Section 4(1)

• Developer submits the proof of legal right and possession of the identified area Rule 7

– Owned land – notarized copy of the sale deed / ownership document

– Leased land – notarized copy of the lease deed

In case of lease hold right, the lease period should be at least 20 years Rule 7

• Obtain certificate from the State Government to the effect that identified area is free from all the

encumbrances Rule 7 (to be discussed)

– Issuing authority / encumbrances not specified in the Act/ Rules

– Certificate may be issued by District / Sub Divisional Revenue Authority (viz., Collector,

Deputy Collector, SDM, Patwari or Tehsildar)

– Encumbrances may refer to state levies with respect to the land (viz., local land revenue,

development tax, municipal levy etc…)

125

STEP 5a – Approval Process

Authorization of OperationsAction steps for Developer

• Submit details of proposed operations to BOA

– At the time of submitting proposal for setting up of SEZ or

– Anytime thereafter, but before claiming exemptions / concessions

• BOA approves Authorized Operations of Developer after the notification of SEZ

• Developer may enter into an agreement with another entity to undertake Authorized Operations

• Such entity on the basis of the agreement may apply to the BOA for a Co-developer status

126

STEP 6– Approval ProcessNotification of SEZ

Central Government

• Satisfies itself that

– the identified area meets the criteria for establishment of the SEZ as per section 3(8) of the Act (i.e. minimum area requirement) Section 4(1)

– Developer has accepted the conditions of LOA

• Central Government is guided by the following while notifying the identified area Section 5(1) Generation of additional economic activity Promotion of exports of goods and services Promotion of investment from domestic and foreign sources Creation of employment opportunities Development of infrastructure facilities and Maintenance of sovereignty and integrity of India, the security of the State and friendly relations

with foreign States

• Notify the identified area as an SEZ Section 4(1) / Rule 8

• Notify any additional area which is to be included as a part of an already notified SEZ Proviso to section 4(1)

127

Step 8bProcessing/ Non processing area

Step 8bProcessing/ Non processing area

128

Processing / Non Processing AreaAction steps for Developer

• Developer specifies area of Processing / Non Processing area in proposal for setting up of SEZ as

submitted to BOA

• Procedure for demarcation not specified in the Act / Rules

• Developer post obtaining LOA and notification of SEZ may approach DC for demarcation

• Layout of Processing / Non Processing area required to comply with specified provisions

129

DemarcationDemarcation of Processing / Non Processing Area

Development Commissioner responsible / authorized for :

• Demarcation of SEZ into:

– Processing Area

– Exclusive area for Trading or Warehousing

– Non Processing area (area in SEZ other than above)

130

Non Processing Area

Processing Area(25% - Multi product SEZ 50% - Sector Specific SEZ

1 Lakh sq mts – IT/ ITES/Electronics hardware and software)

Entry

Exit

Processing Area IIProcessing Area II

Entry

Exit

SEZ is demarcated into Processing and Non Processing area as per the provisions of Section 6 and

Rule 11

Entry

Exit

Controlled entry / exit

Fencing Dimensions

(Processing Area)

Height: 2.4 Meters

(incl. 60 cms barbed wire topping)

Construction: Wall / Wire Mesh

Whether permitted or not?

Approval Criteria – Demarcation

131

Processing AreaProcessing Area

• An area in the SEZ demarcated by Development Commissioner for setting up Units for activities of

manufacturing of goods or rendering of services and includes Free Trade and Warehousing Zone

Boundary requirement

• Fully secured by a boundary wall or mesh wire fencing

• The fence should be at least 2.4 meters above the plinth level

• Top 60 centimeters of the fence should be barbed wire fencing with mild steel angle• Specified entry and exit points• Restricted entry and exit into processing area

(DC to ensure the compliance of the above)

Other Requirements

• Land/Built up area can be leased only to entrepreneurs having LOA for Units

• Prior approval of Approval Committee for leasing land / built up area in Processing Area for

creating exclusive facilities for exclusive use of Units (e.g. canteen, telephone booths, crèche

etc…)

• Identity cards to be issued by DC for entry of person to Processing Area

132

Processing Area II• Act & Rules are silent on multiple Processing Area

• Provision of multiple Processing Area can be inferred from Rule 40

• Rule 40 allows movement of goods from one processing area in a SEZ to a different processing

area in the same SEZ

133

Non Processing AreaNon Processing Area

• Area in SEZ other than Processing Area and Free Trade / Warehousing area

Boundary requirement

• Not specified (to be discussed )

Other Requirements

• Developer not allowed to sell the land in a SEZ

• Valid LOA with the entrepreneur necessary for Lease / Sub lease

• Developer allowed to allot land in Non Processing Area for business and social purposes (e.g. Educational Institutions, Hospitals, recreation & entertainment facility, residential and business complexes)

• Only approved infrastructure for business / social facilities shall be entitled for eligible for exemptions / concessions (to be discussed – whether non approved facilities can be created in NPA)

134

Processing & Non processing AreaMovement of Goods

• The movement of goods allowed from / to

– Non - Processing Area to Processing Area

– One Processing Area to another Processing Area of same SEZ

• Movement shall be under cover of serial numbered challans complete with description of the goods

• Challan to be pre – authenticated by the owner/ Managing Director/ working partner/ company secretary/ any person duly authorised by company or firm

• General permission of specified officer necessary for goods not used in authorized operations but require frequent entry into and exit from SEZ

135

Processing & Non processing Area (contd..)Movement of Persons

Identity Cards

• To be issued by the Development Commissioner and to be valid for 5 years

• Movement of persons to processing area to be regulated by the identity cards

• Identity card to be issued in Form K

• If recipient of identity card ceases to be in employment of Unit / Developer the card is to be surrendered and is invalid

Temporary Identity Cards

• May be issued to casual visitors & contractors by the Development Commissioner

• Proper record of such entry to be maintained at the SEZ gate

136

Annexure 4Operation & Maintenance of SEZ

Annexure 4Operation & Maintenance of SEZ

137

Annexure 5Import/ Procurement of Goods

Annexure 5Import/ Procurement of Goods

138

Place of StoragePlace of Storage

• Developer required to declare a place of storage within SEZ

• If place of storage is outside processing area:

– Developer shall comply with safeguards as prescribed by the Specified officer

(to discussed – would such area be treated as bonded warehouse ???)

Rule 12(3)

• Developer required to declare a place of storage within SEZ

• If place of storage is outside processing area:

– Developer shall comply with safeguards as prescribed by the Specified officer

(to discussed – would such area be treated as bonded warehouse ???)

Rule 12(3)

139

AnnexureAnnexure

Specified Officer in relation to a Special Economic Zone means Joint or Deputy or

Assistant Commissioner of Customs for the time being posted in the Special Economic

Zone

Rule 2(zd)

Authorised Officer means an Inspector or Preventive Officer or Appraiser or

Superintendent of Customs posted in the Special Economic Zone and authorized by the

Specified Officer to discharge any of his functions under these rules

Rule 2(c)

Specified Officer in relation to a Special Economic Zone means Joint or Deputy or

Assistant Commissioner of Customs for the time being posted in the Special Economic

Zone

Rule 2(zd)

Authorised Officer means an Inspector or Preventive Officer or Appraiser or

Superintendent of Customs posted in the Special Economic Zone and authorized by the

Specified Officer to discharge any of his functions under these rules

Rule 2(c)

140

Annexure 6Removal of Goods &

Performance Monitoring

Annexure 6Removal of Goods &

Performance Monitoring

141

AnnexureSection 6 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

(c) the non-processing areas for activities other than those specified under clause (a) or clause (b).

142

AnnexureRule 11 Processing and non-processing area –

(1) The Development Commissioner of the concerned Special Economic Zone shall be the authority for demarcating the areas falling within the Special Economic Zone under the provisions of section 6.

(2) The processing area and Free Trade and Warehousing Zone shall be fully secured by boundary wall or wire mesh fencing having a height of at least two meters and forty centimeters above plinth level with top sixty centimeters being barbed wire fencing with mild steel angle with specified entry and exit points.

(3) The Development Commissioner shall ensure compliance of the requirements of sub-rule (2).

(4) The authorized persons shall only be allowed to enter the processing area of a Special Economic Zone.

(5) The land or built up space in the processing area or Free Trade and Warehousing Zone shall be given on lease only to the entrepreneurs holding a valid Letter of Approval issued under rule 19 and the lease period shall be co-terminus with the validity of the Letter of Approval:

143

AnnexureRule 11(Cont…)

Provided that the Developer may, with the prior approval of the Approval Committee, grant on lease land or built up space, for creating facilities such as canteen, public telephone booths, first aid centres, creche and such other facilities as may be required for the exclusive use of the Unit.

(6) The developer holding land on lease basis shall assign lease hold right to the entrepreneur holding valid Letter of Approval.

(7) Any transfer by way of sub-lease or any other mode by the Developer shall be valid only if the same is made to a person holding a valid letter of approval issued by the Development Commissioner.

(8) The Developer may allot land in the processing area on lease basis to a person desiring to create infrastructure facilities for use by the prospective Units.

(9) The Developer shall not sell the land in a Special Economic Zone.

(10) 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:

144

AnnexureRule 11(Cont…)

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.

(11) The Special Economic Zone shall be deemed to be a port, airport, inland container depot, land customs station under section 7 of the Customs Act in accordance with the provisions of section 53 from the date notified in this behalf:

Provided that Specified Officer may designate any area or area(s) in the Special Economic Zone as an area for loading and unloading of import or export cargo:

Provided further that in case the said port, airport, inland container depot, land customs station area is to be used for loading and unloading of import or export cargo meant for Domestic Tariff Area importers and exporters also, storage for such cargo shall be in a separate enclosure and deliveries for such cargo shall be allowed by the Authorized Officer of the Special Economic Zone based on Bill of Entry, assessed by the Assistant or Deputy Commissioner of Customs having jurisdiction over the said Customs Station.

145

AnnexureRule 40

Movement of goods to and from non-processing area

The movement of goods to and from non-processing area to a processing area and from one processing area of Special Economic Zone to a different processing area of the same Special Economic Zone shall be under serially numbered challans pre-authenticated by the owner or Managing Director or working partner or the company secretary or by any person duly authorized in this behalf by the company or firm, as the case may be, and the challans shall contain complete description of goods.

146

AnnexureRule 70

Identity Cards

(1) The entry of persons to the processing area of the Special Economic Zone shall be regulated by the Development Commissioner through issue of identity cards.

(2) The identity card shall be valid upto a period of five years and shall be issued, in the format given in Form K, to the entrepreneurs and regular employees of the Units:

Provided that when any employee who has been issued an identity card ceases to be in employment of the Unit or Developer, the said identity card shall be surrendered forthwith and shall be deemed to be invalid from such date;

(3) Temporary identity card may be issued by the Development Commissioner to the casual visitors and contractors and a proper record of such entries shall be maintained at the Special Economic Zone Gate

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