Gallops-SEZ

FAQs

1. What is a Special Economic Zone (SEZ)?

SEZs are specifically demarcated areas within the country where raw materials and capital goods can be imported duty free from abroad or the domestic market and a special package of tax holiday and incentives are given with a view to boost exports from the home country. Manufacturing and Services operations are allowed in a SEZ.

2. Who can establish SEZs?

Any private/public/joint partnership company or State Government or its agencies can set up a Special Economic Zone (SEZ).

3. Where is the complete SEZ Policy contained?

The complete SEZ policy is contained in the SEZ Act of India 2005. This can be downloaded from the website www.sezindia.nic.in along with the rules of the Act.

4. Is 100 % Foreign Direct Investment allowed in the SEZ?

Yes. FDI companies can also repatriate dividend subject to dividend tax. (Currently 10 %). Each year a minimum 10 % of profits must be transferred to the general reserve and the balance can be allocated by the company.

5. Who is responsible for the maintenance of the SEZ?

The Developer/Maintainance commity is responsible for the maintenance of the SEZ. The Development Commissioner monitors the performance of the Developer.

6. What are the benefits available for companies in the SEZ Zone?

Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units

100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.

Exemption from minimum alternate tax under section 115JB of the Income Tax Act.

External commercial borrowing by SEZ units unlimited in a year without any maturity restriction through recognized banking channels.

Exemption from Central Sales Tax.

Exemption from Service Tax within SEZ.

Single window clearance for Central level approvals.

Exemption from State sales tax and other levies as extended by the Gujarat state Governments.

7. What is the approval mechanism for the units in the SEZ?

All approvals are to be given by the Unit Approval Committee headed by the Development Commissioner. Clearance from the Department of Policy and Promotion/Board of Approvals, wherever required will be obtained by the Development Commissioner. A Letter of Permission to set up an SEZ unit is issued by the DC on the unit, meeting all the criteria specified in the Application. The Application form downloaded from www.sezindia.nic.in is enclosed for reference in the Annexure.

8. What are the obligations of the Unit under the Scheme?

The units have to be Net Foreign Exchange Earners to get the status of an SEZ unit i.e. Exports – Imports >0. For this purpose, a Legal Undertaking is required to be executed by the unit with the Development Commissioner.

Any company in the SEZ set up with FDI has to be incorporated under the Indian Companies Act with the Registrar of Companies for undertaking Indian operations.

The units have to maintain proper records of accounting. If a unit is engaged in both trading & manufacturing, separate accounting records must be maintained.

Annual Performance Reports must be submitted to the Development Commissioner

The units are also to execute a bond with the Zone Customs for their operation in the SEZ.

9. Will there be a Customs House in the SEZ?

Yes. There will be an on-site Customs House in the SEZ.

10. What is the processing area in an SEZ?

The processing area is the bonded area within the SEZ where all manufacturing, services and trading SEZ units are located.

11. What is the non-processing area in an SEZ?

The NPA is the area outside the bonded area within the SEZ where residential, commercial and recreational development is located.

12. Are all industries permitted in an SEZ?

All types of industries can be located in an SEZ with the appropriate approvals and clearances from the Pollution Control Board.

13. Can units operate both in the Domestic Tariff Area (DTA) and SEZ areas?

A company can set up units both in the SEZ and DTA provided separate accounting procedures are maintained.

14. Can SEZ units supply goods in the local market?

Yes. SEZ units can sell goods and services including rejects and scraps or products arising during the manufacturing process in the Domestic Market on payment of customs duties and applicable excise duties. This is subject to their achieving positive net foreign exchange earnings and fulfilling the conditions necessary on FOREX. These sales are considered as imports in the DTA and are subject to import duties, countervailing, anti-dumping and safeguard duties as applicable. The components of tax are as follows:-

Basic customs duty + safeguard duties if applicable + CVD – payable on goods removed for clearance to DTA.
Valuation is as per date of removal and when date is not ascertainable, date of payment of duty.
The DTA buyer to file – ‘Bill of Entry for Home consumption’
No additional duty of customs tariff – if goods cleared to DTA are not exempt from Sales tax or value added tax imposed by State Government.
SEZ unit can supply goods against advance authorization. The supplier will be entitled to benefits of deemed exports.
Supply in DTA against special entitlement of duty free imports goods. The manufacturer as well as trader can supply duty free import of goods against special entitlement. It will be counted towards fulfillment of NFE, as in case of EOU units
Basic customs duty + countervailing + anti-dumping and safeguard duties as applicable.
SEZ unit can supply goods against advance authorisaton. The supplier will be entitled to benefits of deemed exports.
Supply in DTA against special entitlement of duty free imports goods. The manufacturer as well as trader can supply duty free import of goods against special entitlement. It will be counted towards fulfillment of NFE, as in case of EOU units.

15. What are the tax implications/exemptions on supplies from DTA to SEZ?

Any services provided in a SEZ or to a unit in SEZ are exempt from customs duty.
Goods brought from DTA to SEZ are exempt from excise duty.
Taxable services provided to a developer or unit in SEZ are exempt from service tax. The services must be provided only within the zone.
Exemption from CST or Central Sales Tax to dealers in India supplying goods to unit in SEZ .Units in SEZ are required to furnish declaration in prescribed form to Indian manufacturer.
A unit in an SEZ can obtain goods from registered dealer outside the zone without payment of CST. SEZ unit has to submit original “I” form to the assessing authority.

16. Can SEZ units do job work for domestic export companies?

Yes. SEZ units can do contract work for domestic companies provided all raw material including semi-finished goods and consumables including fuel is supplied by the DTA exporter. The finished goods must be directly exported from the SEZ unit on behalf of the DTA exporter. Export document is jointly in the name of DTA unit and the SEZ unit. The DTA exporter is eligible for refund of duty paid on the inputs by way of brand rate of duty drawback.

17. Can SEZ units subcontract part of production process (eg: finishing process etc.) in the DTA?

Yes. SEZ units can subcontract to units in the DTA which are registered with the and also abroad with prior permission of the Specified Officer given on an annual basis. The goods sent out for subcontracting has to be returned to the SEZ within 120 days from the date of removal or within a period as may be extended by the Special Officer in charge of this procedures.

18. Can goods be exported directly from the sub-contractor’s premises in the DTA?

Yes. Goods can be exported directly from the DTA unit provided it is registered with the Central Excise Department. This is allowed only by way of direct export and not through third party.

19. Can subcontracting be given to another SEZ unit within the same SEZ or in another SEZ? And exports allowed from that unit?

Yes.

20. Are sales permitted from one unit to another in an SEZ or from one SEZ to another?

Yes. They will be treated as exports and payment will have to be made in foreign currency for such purchases.

21. What can Overseas Banking Units do in the SEZ?

Such operations are not covered by Indian banking laws and may be able to offer better terms than banks in the DTA area. They operate on international terms of banking. They also have tax benefits. Risk is directly between the user and the bank. The SEZ authority or developers are not involved.

22. If there is export duty on an item and this is exported to the SEZ from DTA does duty have to be paid?

No. All Duties of Customs and Excise are exempted to items coming into an SEZ from the DTA to carry out the operations of the SEZ unit.

23. Does State Govt. have an SEZ policy in place?

Yes. Some of them do. Please refer the respective state govt policy for details.

24. Are labour laws different in the SEZ?

No. Labour laws are the same in the DTA area and the SEZ. In some states the administration of the law has been made simpler. For e.g., SEZs have been declared as an essential service which in effect means that the procedures for going on a strike is more stringent. The Development Commissioner may be invested with the powers of the Labour Commissioner in the Zone.

25. Are minimum wages act applicable to the SEZ?

All labour laws are applicable in an SEZ.

26. All Local laws applicable in an SEZ?

Yes. Local laws are applicable in an SEZ unless specifically given exemption by the State Government.

27. Are imports and exports faster from the SEZ?

Yes. Due to procedural ease as provided in the scheme and on-site Customs House, the turnaround time for imports and exports in an SEZ is shorter.