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					Special Economic Zone

A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that
are more free-market-oriented than a country's typical or national laws. "Nationwide" laws may
be suspended inside a special economic zone. The category 'SEZ' covers a broad range of more
specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free
Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the
goal of a structure is to increase foreign direct investment by foreign investors, typically an
international business or a multinational corporation (MNC).

In the People's Republic of China, Special Economic Zones were founded by the central
government under Deng Xiaoping in the early 1980s. The most successful Special Economic
Zone in China, Shenzhen, has developed from a small village into a city with a population over
10 million within 20 years. India has also played a significant role in the founding and
establishment of Special Economic Zones. It has the largest outsourcing industry in Asia.

Following the Chinese examples, Special Economic Zones have been established in several
countries, including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland,
South Korea, Russia, Ukraine, United Arab Emirates, Cambodia, North Korea. Currently, Puno,
Peru has been slated to become a "Zona Economica" by its president Alan Garcia.

A single SEZ can contain multiple 'specific' zones within its boundaries. The most prominent
examples of this layered approach are Subic Bay Freeport Zone in the Philippines, the Aqaba
Special Economic Zone Authority in Jordan, Sricity Multi-product SEZ and Mundra SEZ in
India and According to World Bank estimates of 2007 there are more than 3,000 projects taking
place in SEZs in 120 countries worldwide.

SEZs have been implemented using a variety of institutional structures across the world ranging
from fully public (government operator, government developer, government regulator) to 'fully'
private (private operator, private developer, public regulator). In many cases, public sector
operators and developers act as quasi-government agencies in that they have a pseudo-corporate
institutional structure and have budgetary autonomy. SEZs are often developed under a public-
private partnership arrangement, in which the public sector provides some level of support
(provision of off-site infrastructure, equity investment, soft loans, bond issues, etc.) to enable a
private sector developer to obtain a reasonable rate of return on the project (typically 10-20%
depending on risk levels).

India
  It has been suggested that this section be split into a new article. (Discuss)
Considering the need to enhance foreign investment and promote exports from the country and
realising the need that a level playing field must be made available to the domestic enterprises
and manufacturers to be competitive globally, the Government of India had in April 2000
announced the introduction of Special Economic Zones policy in the country, deemed to be
foreign territory for the purposes of trade operations, duties and tariffs. As of 2007, more than
500 SEZs have been proposed, 220 of which have been created. This has raised the concern of
the World Bank, which questions the sustainability of such a large number of SEZs. The Special
Economic s in India closely follow the PRC model.

India passed special economic zone act in 2005. In India, the government has been proactive in
the development of the SEZs. They have formulated policies, reviewed them occasionally and
have ensured that ample facilities are provided to the developers of the SEZs as well as to the
companies setting up units in the SEZs.

[edit] SEZs in India

In India, SEZs are the special zones created by the Government and run by Government-Private
or solely Private ownership, to provide special provisions to develop industrial growth in that
particular area. The government of India launched its first SEZ in 1965, in Kandla, Gujarat. The
incentives and facilities offered to the units in SEZs for attracting investments into the SEZs,
including foreign investment include:-

      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 up to US $ 12500 billion in a year without
       any maturity restriction through recognized banking channels.

      Exemption from Central Sales Tax.

      Exemption from Service Tax.

      Single window clearance for Central and State level approvals.

      Exemption from State sales tax and other levies as extended by the respective State
       Governments.

The major incentives and facilities available to SEZ developers include:-
      Exemption from customs/excise duties for development of SEZs for authorized
       operations approved by the BOA.

      Income Tax exemption on income derived from the business of development of the SEZ
       in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.

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

      Exemption from dividend distribution tax under Section 115O of the Income Tax Act.

      Exemption from Central Sales Tax (CST).

      Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

Currently there are 114(as on Oct 2010) SEZs operating throughout India in the following
states.[4] Karnataka - 18; Kerala - 6; Chandigarh - 1; Gujarat - 8; Haryana - 3; Maharashtra - 14;
Rajastan - 1; Orissa - 1 Tamil Nadu - 16; Utter Pradesh - 4; West Bengal - 2.

Additionally, more than 500 SEZs are formally approved (as on Oct 2010) by the Govt of India
in the following states.[5] Andhra Pradesh - 109; Chandigarh - 2; Chattisgarh - 2; Dadra Nagar
Haveli - 4; Delhi- 3; Goa - 7; Gujarath - 45; Haryana - 45; Jharkand - 1; Karnataka - 56; Kerala -
28; Madhya Pradesh - 14; Mahrashtra - 105; Nagaland - 1; Orissa - 11; Pondicherry - 1; Punjab -
8; Rajasthan - 8; Tamil Nadu - 70; Uttarankhand - 3; Utter Pradesh - 33; West Bengal - 22;




Executive Summary
Special Economic Zones (SEZs) were established in many
countries as testing grounds for implementation of liberal market
economy principles. SEZs are viewed as instruments enhancing
the acceptability and credibility of transformation policies,
attracting domestic and foreign investment and also for the
opening upon the economy. SEZs in India seek to promote the
value addition component in exports, generate employment as
well as mobilize foreign exchange. Globally, many countries
initiated Free Trade Agreements (FTAs) which eventually led to a
spurt in investments in infrastructure developments for Free Trade
Zones (FTZs) and SEZs. A close examination of the evolution of
SEZs in countries with similar economies as India eg; China, Iran,
UAE and Jordan, will help us to understand their success stories
and thereby implement those factors, in order to curb the SEZ
bottlenecks faced by India today. The Shenzhen SEZ in China is
a perfect example of a SEZ success story. In India, the
government has been proactive in the development of SEZs.
They have formulated policies, reviewed them occasionally and
also ensured that ample facilities are provided to the SEZ
developers as well as the companies setting up units in SEZs.
These favourable conditions resulted in the biggest ever
corporate rush for the development of SEZs in India. Over 234
companies received formalapproval, 162 companies received in-
principle approval and 100 companies received notification to set
up SEZs. The Indian government is expecting an investment to
the tune of Rs.53,561 crore (USD 13274 million) and an additional
job creation for 15,75,452 individuals in SEZs by December 2009.
Despite all the efforts, SEZ development has become the most
controversial issue for India today. It is very important to
understand all aspects of SEZs such as basic concepts, its
various models and the life cycle of its business before initiating
any policy or investments for these projects. Despite the fact that
the existing SEZ Act and FDI Policies for SEZs are very lucrative;
the rationale behind the rapid economic and industrial growth of
the Indian SEZ policy is being questioned. The diagram below is a
snapshot of the different typesof SEZs. With the unending list of
trouble-shooting problems in India, it becomes very important to
understand the business of SEZs in India. The report emphasizes on
certain issues which brings clarity to the SEZissue. The report helps you
answer questions like:
Special Economic Zone (SEZ) is a duty free area which is meant
for the purposes of trade operations, duties and tariffs for
investors. 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 country. Manufacturing and Services
operations are allowed in an SEZ.The Foreign Trade Policy of
Government of India provides for setting up of Special Economic
Zones (SEZ) in the country with a view to provide an hassle free
environment for exports. Units may be set up in SEZ for
manufacture of goods and rendering of services. The units in
SEZs have to be a net foreign exchange earner but they are not
subjected to any pre-determined value addition or minimum
export performance requirements. SEZs could be set up in public,
private, joint sector or by State governments. 100% FDI is allowed
in setting up of SEZs. The government of India has also
converted existing Export Processing Zones into SEZs. The
minimum size of the SEZs shall be 1000 hectares except in
product specific and port/airport based SEZs. Approval for setting
up of new SEZs is given by Department of Commerce,
Government of India. For setting up units in SEZs, all approvals
are given by a Committee headed by Development Commissioner
of the concerned SEZ. For setting up a unit in SEZ, application in
prescribed format should be submitted to the development
Commissioner. A large number of new SEZs have come up in private
sector in India including SEZs set up by foreign companies



INTRODUCTION
India was one of the first in Asia to recognize the effectiveness of
the Export Processing Zone (EPZ) model in promoting exports,
with Asia’s first EPZ set up in Kandla in 1965. With a view to
overcome the shortcomings experienced on account of the
multiplicity of controls and clearances; absence of world-class
infrastructure, and an unstable fiscal regime and with a view to
attract larger foreign investments in India, the Special Economic
Zones (SEZs) Policy was announced in April 2000.
      A Special Economic Zone (SEZ) is a geographical region that
has economic laws that are more liberal than a country's typical
economic laws. The category 'SEZ' covers a broad range of more
specific zone types, including Free Trade Zones (FTZ), Export
Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE),
Free Ports, Urban Enterprise Zones and others. The most
successful Special Economic Zone is in China, Shenzhen that
has been developed from a small village into a city with a
population over 10 million within 20 years. Following the Chinese
examples, SEZ have been established in several countries,
including India. According to World Bank estimates, as of 2007
there are more than 3,000 projects taking place in SEZs in 120
countries worldwide. SEZs have been implemented using a
variety of institutional structures across the world ranging from
fully public (government operator, government developer,
government regulator) to 'fully' private (private operator, private
developer, public regulator). In many cases, public sector
operators and developers act as quasigovernment agencies.
SEZs are often developed under a Public-Private- Partnership
arrangement, in which the public sector provides some level of
support to enable a private sector developer to obtain a
reasonable rate of return on the project.


     ROUTES FOR FOREIGN DIRECT INVESTMENT
     Automatic Route - No prior Government approval is required if
the investment to be made falls within the sectoral caps specified
for the listed activities. Only filings have to be made by the Indian
company with the concerned regional office of the Reserve Bank
of India (“RBI”) within 30 days of receipt of remittance and within
30 days of issuance of shares
     FIPB Route - Investment proposals falling outside the automatic
route would require prior Government approval. Foreign
Investment requiring Government approvals are considered and
approved by the Foreign Investment Promotion Board (“FIPB”).
Decision of the FIPB usually conveyed in 4-6 weeks. Thereafter,
filings have to be made by the Indian company with the RBI
     CCFI Route - Investment proposals falling outside the automatic
route and having a project cost of Rs. 6,000 million or more would
require prior approval of Cabinet Committee of Foreign
Investment (“CCFI”). Decision of CCFI usually conveyed in 8-10
weeks. Thereafter, filings have to be made by the Indian company
with the RBI-
APPROVAL MECHANISM AND ADMINISTRATIVE
SET UP OF SEZS
Under the Act, SEZ could be set up either jointly or severally by
the CentralGovernment, State Government, or any person
(including a private or publiclimited company, partnership or
proprietorship):
 for manufacture of goods; or
· for rendering services; or
· for both manufacturing of goods and for rendering services; or
· As a Free Trade and Warehousing Zone.
Approval mechanism
The developer submits the proposal for establishment of SEZ to
the concerned State Government. The State Government has to
forward the proposal with its recommendation within 45 days from
the date of receipt of such proposal to the Board of Approval. The
applicant also has the option to submit the proposal directly to the
Board of Approval. The Board of Approval has been constituted
by the Central Government in exercise of the powers conferred
under the SEZ Act. All the decisions are taken in the Board of
Approval by consensus. The Board of Approval has 19 Members.
Its constitution is as follows:
Administrative set up
The functioning of the SEZs is governed by a three tier administrative
set up:
•

     The Board of Approval is the apex body and is headed by
      the Secretary, Department of Commerce. The Approval
      Committee at the Zone level deals with approval of units in
      the SEZs and other related issues.
•
     Once an SEZ has been approved by the Board of Approval
      and Central Government has notified the area of the SEZ,
      units are allowed to be set up in the SEZ. All the proposals
      for setting up of units in the SEZ are approved at the Zone
      level by the Approval Committee consisting of Development
      Commissioner, Customs Authorities and representatives of
      State Government. All post approval clearances including
      grant of importer-exporter code number, change in the name
      of the company or implementing agency; broad banding
      diversification, etc. are given at the Zone level by the
      Development Commissioner.
•

     The performance of the SEZ units are periodically monitored
      by the Approval Committee and units are liable for penal
      action under the provision of Foreign Trade (Development
      and Regulation) Act, in caseof violation of the conditions of
      the approval. Consequent upon the SEZ Rules, 263
      companies had received formal approvals to set up SEZs,
      and another 169 had been granted in-principle clearance by
      the government.
INCENTIVE/ FACILITIES TO SEZ ENTERPRISES:
     Operational advantages:
     Sectoral restrictions on manufacturing sector inapplicable within
      SEZ
     All SEZ activities on self certification basis
     Single window clearance
     Inter unit transfer of goods permitted
     No routine customs examination of export and import cargo
     Forward looking labour laws under consideration
     Fiscal advantages:
    100% FDI for manufacturing units operating inside SEZs through
automatic approval route in almost every sector.
    100% profit repatriation facility from export earnings
    permission to sell within Domestic Tariff Area (DTA) and an
     exemption from a Special Addition Duty (SAD) subject to the
     company having a positive Net Foreign Exchange Position
     (NFEP)
    supplies from DTAs to be treated as exports while those from
     SEZs to DTAs to be treated as imports
   investments in SEZ treated as infrastructure development
    and eligible for exemption local inputs at reduced cost
    without the excise, VAT and other levies of India
   duty free import of materials for construction, capital goods and
    goods required for O&M
       Customs and Excise:
   SEZ units may import or procure from the domestic sources,
    duty free, all their requirements of capital goods, raw
    materials, consumables, spares, packing materials, office
    equipment, DG sets etc. for implementation of their project in
    the Zone without any license or specific approval.
   Duty free import/domestic procurement of goods for setting up of
    SEZ units.
   Goods imported/procured locally duty free could be utilized over
    the approval period of 5 years.
   Domestic sales by SEZ units will now be exempt from SAD.

   Domestic sale of finished products, by-products on payment of
    applicable Custom duty.
   Domestic sale rejects and waste and scrap on payment of
    applicable Custom duty on the transaction value.
       Income tax
   Physical export benefit
   100% IT exemption (10A) for first 5 years and 50% for 2 years
    thereafter.
   Reinvestment allowance to the extend of 50% of ploughed back
    profits
   Carry forward of losses
       Foreign Direct Investment:
   100% foreign direct investment is under the automatic route
    is allowed in manufacturing sector in SEZ units except arms
    and ammunition, explosive, atomic substance, narcotics and
    hazardous chemicals, distillation and brewing of alcoholic
    drinks and cigarettes , cigars and manufactured tobacco substitutes.
   No cap on foreign investments for SSI reserved items.
       Banking / Insurance/External Commercial Borrowings
   Setting up Off-shore Banking Units allowed in SEZs.
   OBU’s allowed 100% Income Tax exemption on profit for 3 years
    and 50 % for next two years.
   External commercial borrowings by units up to $ 500 million a
    year allowed without any maturity restrictions.
   Freedom to bring in export proceeds without any time limit.
   Flexibility to keep 100% of export proceeds in EEFC account.
    Freedom to make overseas investment from it.
   Commodity hedging permitted.
   Exemption from interest rate surcharge on import finance.
   SEZ units allowed to ‘write-off’ unrealized export bills

INCENTIVE/ FACILITIES
Location of SEZ in India
At present there are 8 functional special economic zones located at:
     Santacruz (Maharashtra)
     Cochin (Kerala)
     Kandla and Surat (Gujarat)
     Chennai (Tamil Nadu)
     Visakhapatnam ( Andhra Pradesh)
     Falta (West Bengal)
     Noida ( Uttar Pradesh)
     Indore (Madhya Pradesh)

In addition, 18 approvals have been given for setting up of SEZ at
Positra (Gujarat)
    Navi Mumbai and Kopata (Maharashtra)
    Nanguneri (Tamil Nadu)
    Kulpi and Salt Lake (West Bengal)
    Paradeep and Gopalpur (Orissa)
    Bhadohi, Kanpur, Moradabad and Greater Noida (U.P.)
    Vishakhapatnam and Kakinada (Andhra Pradesh)
    Vallarpadam/Puthuvypeen (Kerala)
    Hassan ( Karnataka)
    Jaipur and Jodhpur ( Rajasthan)
           Statewise Distribution of outstanding SEZ projects
                  State No of SEZs Investment (Rs bn)

Maharashtra - 70 610.9
Karnataka - 63 263.4
Andhra Pradesh - 62 379.1
Haryana - 50 1257.6
Gujarat 40 850.2
Tamil Nadu 30 86.5
Uttar Pradesh 23 66.2
West Bengal 21 153.4
Orissa 13 605.4
Rajasthan 11 0.3


SEZ Institutional Framework – Overview
This policy intended to make SEZs an engine for economic growth supported by quality
infrastructure complemented by an attractive fiscal package, both at the Centre and the State
level, with the minimum possible regulations. SEZs in India functioned from 1.11.2000 to
09.02.2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made
effective through the provisions of relevant statutes.

To instill confidence in investors and signal the Government's commitment to a stable SEZ
policy regime and with a view to impart stability to the SEZ regime thereby generating greater
economic activity and employment through the establishment of SEZs, a comprehensive draft
SEZ Bill prepared after extensive discussions with the stakeholders. A number of meetings were
held in various parts of the country both by the Minister for Commerce and Industry as well as
senior officials for this purpose. The Special Economic Zones Act, 2005, was passed by
Parliament in May, 2005 which received Presidential assent on the 23rd of June, 2005. The
draft SEZ Rules were widely discussed and put on the website of the Department of Commerce
offering suggestions/comments. Around 800 suggestions were received on the draft rules. After
extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th
February, 2006, providing for drastic simplification of procedures and for single window
clearance on matters relating to central as well as state governments. The main objectives of the
SEZ Act are:

(a) generation of additional economic activity
(b) promotion of exports of goods and services;
(c) promotion of investment from domestic and foreign sources;
(d) creation of employment opportunities;
(e) development of infrastructure facilities;

It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in
infrastructure and productive capacity, leading to generation of additional economic activity and
creation of employment opportunities.


The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and
creation of related infrastructure. A Single Window SEZ approval mechanism has been provided
    through a 19 member inter-ministerial SEZ Board of Approval (BoA). The applications duly
    recommended by the respective State Governments/UT Administration are considered by this
    BoA periodically. All decisions of the Board of approvals are with consensus.


    The SEZ Rules provide for different minimum land requirement for different class of SEZs.
    Every SEZ is divided into a processing area where alone the SEZ units would come up and the
    non-processing area where the supporting infrastructure is to be created.

    The SEZ Rules provide for:

   " Simplified procedures for development, operation, and maintenance of the Special Economic
    Zones and for setting up units and conducting business in SEZs;
   Single window clearance for setting up of an SEZ;
   Single window clearance for setting up a unit in a Special Economic Zone;
   Single Window clearance on matters relating to Central as well as State Governments;
   Simplified compliance procedures and documentation with an emphasis on self certification

    Approval mechanism and Administrative set up of SEZs

    Approval mechanism
    The developer submits the proposal for establishment of SEZ to the concerned State
    Government. The State Government has to forward the proposal with its recommendation
    within 45 days from the date of receipt of such proposal to the Board of Approval. The applicant
    also has the option to submit the proposal directly to the Board of Approval.

    The Board of Approval has been constituted by the Central Government in exercise of the
    powers conferred under the SEZ Act. All the decisions are taken in the Board of Approval by
    consensus.



    SEZ
    Introduction

    A Special Economic Zone in short SEZ is a geographically bound zones where the economic laws in
    matters related to export and import are more broadminded and liberal as compared to rest parts of the
    country. SEZs are projected as duty free area for the purpose of trade, operations, duty and tariffs. SEZ
    units are self-contained and integrated having their own infrastructure and support services.

    Within SEZs, a units may be set-up for the manufacture of goods and other activities including
processing, assembling, trading, repairing, reconditioning, making of gold/silver, platinum jewellery etc.

As per law, SEZ units are deemed to be outside the customs territory of India. Goods and services
coming into SEZs from the domestic tariff area or DTA are treated as exports from India and goods and
services rendered from the SEZ to the DTA are treated as imports into India.

Benefits of SEZ

Apart from providing state-of-the-art infrastructure and access to a large well-trained and skilled work
force, the SEZ also provides enterprises and developers with a favorable and attractive framework of
incentives which include 100% income tax exemption for a period of five years and an additional 50%
tax exemption for two years thereafter. Similarly, 100% FDI is also provided in the manufacturing sector.
Exemption from industrial licensing requirements and no import license requirements is also given to
the SEZ units.

Read more about the benefits of SEZ units » Various SEZ Units in India
The area under 'SEZ' covers a wide range of zones, including Export Processing Zones (EPZ), Free Zones
(FZ), Industrial Estates (IE), Free Trade Zones (FTZ), Free Ports, Urban Enterprise Zones and others.
Usually the goal of an SEZ structure is to increase foreign investment in the country.

At present there are fourteen functional SEZs located at Santa Cruz (Maharashtra), Cochin (Kerala),
Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta and Salt Lake
(West Bengal), Nodia (Uttar Pradesh), Indore (Madhya Pradesh), Jaipur (Rajasthan), etc.

More about the list of SEZ units in India »

Attractive incentive and great investment opportunities have attractive many business tycoons to step
into the SEZ all over the country. The first step was taken by the Mahindra World City at Chennai. The
SEZ was promoted by Mahindra & Mahindra Ltd and later on by the Tamil Nadu Industrial Development
Corporation. Mahindra & Mahindra Ltd holds 89% equity in the same. Later on, Reliance Industries also
signed a pact with the Haryana government for setting up of the Rs. 25,000 crore multi products SEZ
near Gurgaon in 2006.

Obligations under SEZ Unit
It is compulsory for every SEZ units in India to achieve positive net foreign exchange earning as per the
formula given in paragraph Appendix 14-II (para 12.1) of Handbook of Procedures, Vol.1. For this
particular purpose, a legal undertaking is required which has to be executed by a separate unit of the
Development Commissioner. The is responsible for providing periodic reports to the Development
Commissioner and Zone Customs as provided in Appendix 14-I F of the Handbook of Procedures, Vol.1

Role of State Government in Establishment of SEZ Units
State Governments play a very active role to play in the establishment of SEZ unit. Any proposal for
setting up of SEZ unit in the Private / Joint / State Sector is routed through the concerned State
government who in turn forwards the same to the Department of Commerce with its recommendations
for consideration. Before recommending any proposals to the Ministry of Commerce & Industry
(Department of Commerce), the States Government properly checks all the necessary inputs such as
water, electricity, etc required for the establishment of SEZ units. The State Government has to forward
the proposal with its recommendation within 45 days from the date of receipt of such proposal to the
Board of Approval. The applicant also has the option to submit the proposal directly to the Board of
Approval. Representative of the State Government, who is a member of the Inter-Ministerial Committee
on private SEZ, is also consulted while considering the proposal.

HISTORY OF SEZ

           The world first known instance of SEZ have been found in an industrial park set up in Puerto
Rico in 1947. In the 1960s, Ireland and Taiwan followed suit, but in the 1980s China made the SEZs gain
global currency with its largest SEZ being the metropolis of Shenzhen.

From 1965 onwards, India experimented with the concept of such units in the form of Export Processing
Zones (EPZ). But a revolution came in 2000, when Murlisone Maran, then Commerce Minister, made a
tour to the southern provinces of China. After returning from the visit, he incorporated the SEZs into the
Exim Policy of India. Five year later, SEZ Act (2005) was also introduced and in 2006 SEZ Rules were
formulated.



Special Economic Zones Terms And Conditions.

Only units approved under SEZ scheme would be permitted to be located in SEZ.

       The SEZ units shall abide by local laws, rules, regulations or laws in regard to area planning,
        sewerage disposal, pollution control and the like. They shall also comply with industrial and
        labour laws as may be locally applicable.
       Such SEZ shall make security arrangements to fulfill all the requirements of the laws, rules and
        procedures applicable to such SEZ.
       The SEZ should have a minimum area of 1000 hectares and at least 35 % of the area is to be
        earmarked for developing industrial area for setting up of processing units.
       Minimum area of 1000 hectares will not be applicable to product specific and port/airport based
        SEZs.
       Wherever the SEZs are landlocked, an Inland Container Depot (ICD) will be an integral part of
        SEZs.
       Detailed guidelines on setting up of SEZ in the Private/Joint/State Sector is given in Appendix 14-
        II.N of Handbook of Procedures Volume I.



ADVANTAGE & DIS ADVANTAGE OF SEZ
Introduction

A SEZ unit which has been set up for carrying on manufacturing, trading or service activity has both
advantages as well as disadvantages. SEZ advantages are quite far more as compared to its
disadvantages which are almost negligible.

              Advantages
    1.    15 year corporate tax holiday on export profit – 100% for initial 5 years, 50% for the next 5 years
          and up to 50% for the balance 5 years equivalent to profits ploughed back for investment.
    2.    Allowed to carry forward losses.
    3.    No licence required for import made under SEZ units.
    4.    Duty free import or domestic procurement of goods for setting up of the SEZ units.
    5.    Goods imported/procured locally are duty free and could be utilized over the approval period of
          5 years.
    6.    Exemption from customs duty on import of capital goods, raw materials, consumables, spares,
          etc.
    7.    Exemption from Central Excise duty on the procurement of capital goods, raw materials, and
          consumable spares, etc. from the domestic market.
    8.    Exemption from payment of Central Sales Tax on the sale or purchase of goods, provided that,
          the goods are meant for undertaking authorized operations.
    9.    Exemption from payment of Service Tax.
    10.   The sale of goods or merchandise that is manufactured outside the SEZ (i.e, in DTA) and which is
          purchased by the Unit (situated in the SEZ) is eligible for deduction and such sale would be
          deemed to be exports.
    11.   The SEZ unit is permitted to realize and repatriate to India the full export value of goods or
          software within a period of twelve months from the date of export.
    12.   “Write-off” of unrealized export bills is permitted up to an annual limit of 5% of their average
          annual realization.
    13.   No routine examination by Customs officials of export and import cargo.
    14.   Setting up Off-shore Banking Units (OBU) allowed in SEZs.
    15.   OBU's allowed 100% income tax exemption on profit earned for three years and 50 % for next
          two years.
    16.   Exemption from requirement of domicile in India for 12 months prior to appointment as
          Director.
    17.   Since SEZ units are considered as ‘public utility services’, no strikes would be allowed in such
          companies without giving the employer 6 weeks prior notice in addition to the other conditions
          mentioned in the Industrial Disputes Act, 1947.
    18.   The Government has exempted SEZ Units from the payment of stamp duty and registration fees
          on the lease/license of plots.
    19.   External Commercial Borrowings up to $ 500 million a year allowed without any maturity
          restrictions.
    20.   Enhanced limit of Rs. 2.40 crores per annum allowed for managerial remuneration.
           Disadvantages
    1. Revenue losses because of the various tax exemptions and incentives.
    2. Many traders are interested in SEZ, so that they can acquire at cheap rates and create a land
       bank for themselves.
    3. The number of units applying for setting up EOU's is not commensurate to the number of
       applications for setting up SEZ's leading to a belief that this project may not match up to
       expectations.



ADMINISTRATIVE SET UP FOR SEZ

            Introduction
             The functioning of SEZs is governed by a three-tier administrative set-up. The Board of
             Approval is the apex body and is headed by the Secretary, Department of Commerce. The
             Approval Committee at the Zone level deals with approval of units in the SEZs and other
             related issues.



Board of Approval

The Board of Approval has been constituted by the Central Government in exercise of the powers
conferred under the SEZ Act. All the major decisions are taken by the Board of Approval. The Board of
Approval has 19 Members which are as follows:

Table-Board of Members - SEZ units

1. Secretary, Department of Commerce                                                   Chairman

2. Member, CBEC                                                                        Member

3. Member, IT, CBDT                                                                    Member

4. Joint Secretary (SEZ), Department of Commerce                                       Member

5. Joint Secretary, DIPP                                                               Member

6. Joint Secretary, Ministry of Science and Technology                                 Member

7. Joint Secretary, Ministry of Small Scale Industries and Agro and Rural Industries   Member

8 . Joint Secretary, Ministry of Home Affairs                                          Member
9. Joint Secretary, Ministry of Defence                                                   Member

10. Joint Secretary, Ministry of Environment and Forests                                  Member

11. Joint Secretary, Ministry of Law and Justice                                          Member

12. Joint Secretary, Ministry of Overseas Indian Affairs                                  Member

13. Joint Secretary, Ministry of Urban Development                                        Member

14. A nominee of the State Government concerned                                           Member

15. Director General of Foreign Trade or his nominee                                      Member

16. Development Commissioner concerned                                                    Member

      A professor in the Indian Institute of Management or the Indian Institute of
17.                                                                                       Member
      Foreign Trade

      Director or Deputy Sectary, Ministry of Commerce and Industry, Department of        Member
18.
      Commerce                                                                            Secretary



Unit Approval Committee

All the request for setting up of units in the SEZ are approved at the Zone level by the Approval
Committee consisting of Development Commissioner after a discussion with the Customs Authorities
and representatives of State Government. All post approval clearances in matters related to importer-
exporter code number, change in the name of the company or implementing agency; broad banding
diversification, etc. are given at the zonal level by the Development Commissioner. A separate units is
also there who monitor the performance of the SEZ units on a periodic basis and is governed by the
Approval Committee. SEZ units are liable for penal action under the provision of Foreign Trade
(Development and Regulation) Act, in case of any violation in the rules formulated by the Approval
Committee.

Development Commissioner


SEZs / EOUs, each zone are headed by a Development Commissioner, who is also heading the Unit
Approval Committee. Development Commissioner is the nodal officer for SEZs and help in resolution of
problem, if any, faced by the units or developer. In all SEZ’s, the statutory functions are controlled by the
Government while the rest of the operations are privatized.

SEZ ESTABLISHMENT PROCEDURE
Introduction

A SEZ unit can be set up any where in India after fulfilling the following requirements.

Step by Step Procedure

    1. According to SEZ Act 2005, a Special Economic Zone can be established either jointly or severally
       by the Central Government, State Government, or any other person involve in the
       manufacturing of goods. Even a foreign company can also set up SEZ in India.
    2. After identifying the proper area a person wishing to establish a SEZ unit may make a proposal
       to the State Government
    3. Notwithstanding anything contained in sub-section (2), any person, who intends to set up a
       Special Economic Zone, may, after identifying the area, at his option, make a proposal directly to
       the Board for the purpose of setting up the Special Economic Zone:
    4. In case, a State Government intends to set up a Special Economic Zone, it may after choosing
       the area, forward the proposal directly to the Board of Approval for the purpose of setting up
       the Special Economic Zone:
    5. Every proposal under sub-sections (2) to (4) shall be made in such form and manner containing
       such particulars as may be prescribed.
    6. The State Government may, on receipt of the proposal made under sub-section (2), forward the
       same together with its recommendations to the Board within a fix period as may be prescribed.
    7. Without prejudice to the provisions contained in subsection (8), the Board may, after receipt of
       the proposal under sub-section (2) to (4), approve the proposal subject to such terms and
       conditions as it may deem fit to impose, or modify or reject the proposal.
    8. The Central Government may prescribe the following requirement for establishment of a Special
       Economic Zone, namely:-
                  The minimum area of land and other terms and conditions subject to which the
                     Board shall approve, modify or reject any proposal received by it under sub-section
                     (2) to (4) ; and
                  The terms and conditions, subject to which the Developer shall undertake the
                     authorised operations and his obligations and entitlements.

Provided that different minimum are of land and other terms and conditions referred to in clause (a)
may be prescribed by the Central Government for a class or classes of Special Economic Zones.

9. If the Board,-

       Approves without any modification, the proposal received under sub-section (2) to (4), it shall
        communicate the same to the Central Government;
       Approves with modifications the proposal received under sub-section (2) to (4), it shall,
        communicate such modifications to the person or the State Government concerned and if such
        modifications have been accepted by such person or the State Government, the Board shall
        communicate the approval to the Central Government;
       Rejects the proposal, received under sub-section (2) to (4), it shall record the reasons therefore
        and communicate the rejection to the Central Government which shall intimate to the State
        Government or the person concerned.

    10.The Central Government shall, on receipt of communication under clause (a) or clause (b) of sub-
    section (9), grant, within such time as may be prescribed, a letter of approval on such terms and
    conditions and obligations and entitlements as may be approved by the Board, to the Developer,
    being the person or the State Government concerned:

    Provided that the Central Government may, on the basis of approval of the Board, approve more
    than one Developer in a Special Economic Zone in cases where one Developer does not have in his
    possession the minimum area of contiguous land, as may be prescribed, for setting up a Special
    Economic Zone and in such cases, each Developer shall be considered as a Developer in respect of
    the land in his possession.

11. Any person who, or a State Government which, intends to provide any infrastructure facilities in the
identified area referred to in sub-section (2) to (4), or undertake any authorised operation may, after
entering into an agreement with the Developer referred to in sub-section (10), make a proposal for the
same to the Board for its approval and the provisions of sub-section (5) and sub-sections (7) to (10) shall,
as far as may be, apply to the said proposal made by such person or State Government.

12. Every person or a State Government referred to in subsection (11), whose proposal has been
approved by the Board and who, or which, has been granted letter of approval by the Central
Government, shall be considered as a Co-Developer of the Special Economic Zone.

13. Subject to the provisions of this section and the letter of approval granted to a Developer, the
Developer may allocate space or built up area or provide infrastructure services to the approved units in
accordance with the agreement entered into by him with the entrepreneurs of such Units.

Documents Submission

Following necessary document are required before making the final proposal for the SEZ units-

    1. 15 copies of the application shall be submitted to the Chief Secretary of the State, which shall
       indicate:
    2. Name and address of the applicant
    3. Status of the promoter (whether private/public or joint sector/ NRIs or state government)
    4. Project report

The documents for establishment of SEZ shall be submitted with the following details: -

    1. Location of the proposed Zone with details of existing infrastructure and that proposed to be
       established,
    2. Area of the proposed SEZ and its distance from the nearest Sea Port/Airport/Rail/Road head etc.
    3. Financial details and mode of financing the project and viability of the project.
    4. Details of foreign equity, if any
    5. Whether the zone will allow only certain specific industries or will be a multi-product zone.

State Government Approval

The State Government shall, forward it along with their commitment to the following to the Department
of Commerce, Government of India:

       That the area proposed under Special Economic Zone shall be free from any environmental
        restrictions;
       Water, electricity and other services would be provided as required;
       Full exemption shall be given in electricity duty and tax on sale of electricity for self generated
        and purchased power;
       Exemption from State Sales Tax, octroi, mandi tax, turnover tax and taxes, duty, Cess, levies on
        supply of goods from Domestic Tariff Area to SEZ units;
       That single point clearances system and minimum inspections requirement under State
        Laws/Rules would be provided.
       Generation, transmission and distribution of power shall be allowed within the SEZ;
       The Zone will be declared as a Public Utility Service under the Industrial Disputes Act;
       All powers under Industrial Dispute Act, 1947 shall be delegated to Development Commissioner.
             Section 11(1) of Special Economic Zones Act, 2005 provides that "the Central
                Government may appoint any of its officers not below the rank of Deputy Secretary to
                the Government of India as the Development Commissioner of one or more Special
                Economic Zones"

Government of India after considering the above proposals may grant in-principle approval for setting
up of SEZs. The in-principle approval shall be valid for a period of one year. However, this validity period
may be extended by the Department of Commerce, as it may thinks fit.

According to Section 3(7) of Special economic Zones Act, 2005, the Board of Approval may accept,
modify or reject the proposal depending upon various circumstances. In case of acceptance, approval is
valid for a period of 3 years within which time effective steps shall be taken by the developer to
implement the project. Although, this time period can be extended the Department of Commerce
depending upon various circumstances.



SEZ ACT 2005

Introduction

The policy relating to SEZs was earlier contained in Foreign Trade Policy. However, to give a long term
and stable policy framework with minimal regulation, the SEZ Act was enacted. In 2005, a
comprehensive Special Economic Zones Act 2005 was passed by Parliament in May 2005. The SEZ Act
2005 and the rules of the SEZ Act came into force from February 10, 2006. Investment of the order of Rs
100,000 crore over the next three years with an employment potential of over 500,000 was also
expected from the new SEZs, apart from indirect employment during construction period of the SEZs.

SEZ Act 2005

The SEZ Act 2005 is mainly divided into 7 different chapters and 3 schedules.

Chapter I           Preliminary

Chapter II          Establishment Of Special Economic Zone

Chapter III         Constitution Of Board Of Approval

Chapter IV          Development Commissioner

Chapter V           Single Window Clearance

Chapter VI          Special Fiscal Provisions For Special Economic Zones

Chapter VII         Special Economic Zone Authority

Chapter VIII        Miscellaneous

Schedule I          Enactments (See Sections 7 And 54)

Schedule II         Modifications To The Income-Tax Act, 1961.

Schedule III        Amendment To Certain Enactments (See Section 56)



Key Issues

The SEZ Act deals primarily with the following matters:

       Establishment of the SEZ and the various authorities constituted in this connection.
       Appointment of the Developer, Co-developers and approval for units to be located in the
        notified area.
       Exemptions, drawbacks and concessions including exemptions from customs duty (on goods
        brought into or exported from the SEZ), excise, service tax, securities transaction tax, sales tax
        and income tax.
       Offshore Banking Unit & International Financial Services Centre. Setting up of offshore banking
        units / International Financial Services Centre in SEZs.
       Notified Offences & Civil Suits. A single enforcement agency/officer for certain notified offences
        as well as the designation of courts by the state governments for such offences committed in
        and for civil suits arising in SEZs.

Salient Features of the SEZ Act

Governance: An important feature of the Act is that it provides a comprehensive SEZ policy framework
to satisfy the requirements of all principal stakeholders in an SEZ – the developer and operator,
occupant enterprise, out zone supplier and residents. Earlier, the policy relating to the EPZs/ SEZs was
contained in the Foreign Trade Policy while incentives and other facilities offered to the SEZ developer
and units were implemented through various notifications and circulars issued by the concerned
ministries/departments. This system did not give confidence to investors to commit substantial funds for
development of infrastructure and for setting up units.

Another major feature of the Act is that it claims to provide expeditious and single window clearance
mechanisms. The responsibility for promoting and ensuring orderly development of SEZs is assigned to
the board of approval. It is to be constituted by the central government. While the central government
may suo motu set up a zone, proposals of the state governments and private developers are to be
screened and approved by the board. At the zone level, approval committees are constituted to
approve/reject/modify proposals for setting up SEZ units.

In addition, the Development Commissioner (DC) and his/her office is responsible for exercising
administrative control over a zone. The labour commissioner’s powers are also delegated to the DC.
Finally, clause 23 requires that designated courts will be set up by the state governments to try all suits
of a civil nature and notified offences committed in the SEZs. Affected parties may appeal to high courts
against the orders of the designated courts.

Incentives: The Act offers a highly attractive fiscal incentive package, which ensures

       Exemption from custom duties, central excise duties, service tax, central sales taxes and
        securities transaction tax to both the developers and the units;
       Tax holidays for 15 years (currently the units enjoy a seven year tax holiday), i e, 100 per cent
        tax exemption for 5 years, 50 per cent for the next five years, and 50 per cent of the ploughed
        back export profits for the next five years1; and
       100 per cent income tax exemption for 10 years in a block period of 15 years for SEZ developers.

Infrastructure: Provisions have been made for:

       The establishment of free trade and warehousing zones to create world class trade-related
        infrastructure to facilitate import and export of goods aimed at making India a global trading
        hub.
       The setting up of offshore banking units and units in an international financial service centre in
        SEZs.
       The public private participation in infrastructure development.
       The setting up of a “SEZ authority” in each central government SEZ for developing new
        infrastructure and strengthening the existing one.

There has been a tremendous rush to set up SEZs since the Act came into effect in February 2006. The
total number of approvals and in-principle approvals across 21 states as on October 27, 2006, was 212
and 152, respectively. As on date, 34 SEZs out of these approvals have been notified. Table 1 shows the
current status of the upcoming SEZs.



SEZ CONTROVERSY

  Introduction

Land, especially agricultural land is a very sensitive issue in India. There are millions of people whose
livelihood depends on agricultural land. But the introduction of SEZ in India has resulted in the
dispossession of agricultural land and has affected the livelihood of farmer at large. In against of this,
farmers first protested to safeguard their interests through litigation and court cases challenging the
establishment of SEZs. But later on, the resistance against SEZ in India became massive when political
parties also joined the farmers.

Jamnagar Incidence

In November 2006, farmers from the Jamnagar District in Gujarat moved the High Court of Gujarat and
later to the Supreme Court in order to challenge the setting-up of a 10,000-acre (approx. 4,000-ha) SEZ
by Reliance Infrastructure. They claimed that the acquisition of large tracts of agricultural land in the
villages of the district not only violated the Land Acquisition Act of 1894, but was also in breach of the
public interest. This led the Government to “consider” putting a ceiling on the maximum land area that
can be acquired for multi-product zones and decide to “go slow” in approving SEZs.

Nandigram Violence

The Nandigram violence is another famous incidence related to SEZ controversy. Nandigram is a rural
area in Purba Medinipur district of the Indian state of West Bengal. It is located about 70 km south-west
of Kolkata, on the south bank of the Haldi River, opposite the industrial city of Haldia.

In 2007 the West Bengal government decided to allow Salim Group to set up a chemical hub at
Nandigram under the SEZ policy. Farmers of that village were against it. So, on the order of the Left
Front government on 14 March, 2007, more than 3,000 heavily armed police stormed the Nandigram
area. The main objective was to remove the protestors in order to expropriate 10,000 acres of land for a
Special Economic Zone (SEZ) to be developed by the Indonesian-based Salim Group. During this
incidence, police shot dead at least 14 villagers and wounded 70 more including children and women.

The above given examples show the controversies associated with SEZs. No doubts that these
commercial hubs started with a lot of premature praise and have now became a bone of contention
which is readily exploited by the political forces to the detriment of the peasants, who fear losing their
means of livelihood.



  Surat SEZ Units



        Surat Special Economic Zone is a multi product Zone . All types of non
        polluting industries are welcome to set up units in the Zone . A
        Manufacturing , Trading and Service unit can be set up in the Zone . At
        present more than 120 units are operating and exporting to various
        countries all across the globe.

        Major categories of units in operation are from Textiles, Garments, Made
        ups (pillows, quilts, bedsheets, etc), IT Hardware, Engineering Goods,
        Pharmaceuticals, Chemials, Gems & Jewellery, Diamond, Tobacco, etc.

        Various industries are flourishing because of the locational advantages,
        cost effective peaceful industrial friendly labour available in abundance
        for all industrial sectors and excellent infrastructure provided in the
        Zone.

				
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