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Regulatory Compliance in India

SEZ Services Offered By us

Advisory/Regulatory Support

Approval of SEZ ( Preparation of application ,project report ,etc.)
Approval of letter of permission (LOP) / renewal of letter of permission
Approval of Import Export Code Number
Permission for inter-unit transfer of capital goods
Permission for disposal of waste and scrap
Approval for enhancement of production capacity
Permission for additional location / change of location
Permission for sale of DTA sale
Assisting in claiming Duty Drawback

Compliance Support

Filing of periodical returns with SEZ/Central Excise & Service Tax/ Commercial Tax Authorities etc.,
Structuring of contracts/transactions to optimize indirect tax incidence
Formulating indirect tax efficient business models
Conducting VAT impact assessment studies
Undertaking comprehensive reviews of business operations
Advice on classification, valuation, applicability of taxes on transactions and admissibility to tax benefits/exemptions
Identification of innovative tax planning opportunities
Single point contact & centralized coordination for tax payments, compilation of documents

Drafting appeals & submissions

Appearances & arguments before adjudication & appellate authorities
Briefing Senior Counsel on need basis
Representation before relevant Government authorities
SEZ: (click for more details)

1. What is a Special Economic Zone?

Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs.

2. How is the SEZ different from EOUs?

SEZ is a clearly demarcated enclave with specified Processing and Non-Processing Areas. EOUs are stand-alone units which could be located in any part of the country as per Investor's Choice. An existing unit in DTA can also be converted into an EOU. EOUs are under customs bonding and are under physical control of jurisdictional Central Excise Offices. In SEZs there are no individual boundaries or physical controls; units are within an enclave which is declared Port for imports and exports and are outside the jurisdiction of territorial customs set up.

3. What is the Processing and Non-Processing Areas? How are they demarcated?

Processing Area is that area in an SEZ where units can be located for manufacturing of goods or for rendering services. FTWZs can be set up only in the Processing Area.

Processing Area is demarcated by Development Commissioner and should be fully secured by boundary wall or wire mesh fencing as specified.

Non-Processing Area is the area which is intended to provide support facilities to Processing Area activities and may include commercial and social infrastructure.

4. How to set up a unit in SEZ?

SEZ can be broadly categorized into two categories, namely (i) sector specific SEZ where units in that specific sector only could be set up and (ii) multi-product SEZ, where units under different sectors could be set up. In addition to this, there is one more category of Free Trade and Warehousing Zone, which is exclusive for trading and warehousing units

5. Can one convert a DTA unit into SEZ by shifting its assets to SEZ?

The SEZ unit cannot be formed out of splitting/reconstruction of existing business activities. However, this condition shall not apply in respect of Unit which is formed as a result of re-establishment, reconstruction or revival of business of assessee as is referred to in section 33B of the Income Tax Act, 1961 and in the circumstances/period specified in that section.

Transfer of used capital goods or business from existing DTA or STPI unit to SEZ is permissible subject to the condition that such used capital goods or business will not get income tax exemption benefit when the value of such goods or business exceeds the limit of 20% of the total capital goods. Final decision regarding the Income Tax exemption lies with Income tax Department.

6. How to set up a unit in SEZ?

Submission of the Application by the entrepreneur
• An entrepreneur shall first register himself as a user of SEZ Online so that he has a User id and password to access the system. For registration, the user shall have to enter few basic details and submit the New Unit registration form online.
• After registration, the entrepreneur (user) shall log on to SEZ Online system.
• He will fill an online proposal for setting up a unit in SEZ in prescribed 'Form F'.
• On submission of Form F Online, SEZ online system will generate unique request id. Once the application (Form F) is submitted online, the user can not make any further changes in it.
• The user can track the status of his new unit application by using the request id, after log on to the SEZ Online system.
• The user shall take a print of the Form F from SEZ Online system and submit it to DC's office along with necessary supporting documents in physical form and applications fees. Payment of New unit application fees to DC will be done outside the SEZ Online system.
• As the application is approved, the user shall receive a notification in the e-mail id (provided during registration) about the same. The user shall also be able to view the same after logon to the system using his User id and password.

Processing of the Application in DC's Office
• On receipt of the electronic application through SEZ Online and the supporting documents in physical form from the entrepreneur, DC officials shall log on to SEZ Online system and view the proposal online. SEZ official will verify the supporting documents which have been submitted as physical copies.
• Based on Approval Committee's decision, DC's Office will update the status (approved, rejected or approved proposal with modifications or approved proposal subject to conditions) in SEZ Online system.
• In case the proposal is approved with modifications/any additional documents or changes or clarifications sought, DC official will submit such remarks in SEZ Online system.
• While processing the application, if the DC Official finds a discrepancy, he might send the application back to the entrepreneur, electronically, for necessary modifications /clarification. While sending back the application as discrepancy, the DC official shall provide his remarks about the discrepancy.
• The Entrepreneur, (after receiving the application marked with discrepancy back), will have a facility to view and reply to the remarks. If modifications are required in Form F, then entrepreneur can edit it and resubmit.
• On approval of the proposal, SEZ official will view and print letter of approval through SEZ Online system and dispatch the same to entrepreneur.

7. For what purpose a unit in SEZ can be set up?

A unit in an SEZ can be set up for the purpose of manufacture of goods or for the purpose of rendering of services including trading.

8. What is the procedure to set up a unit in SEZ?

For setting up a manufacturing, trading or service unit in SEZ, the promoter/unit has to submit following details to Development Commissioner:
  • Brief about the company & promoter
  • Products to be manufactured
  • Export Turn Over for five years
  • Import Requirements (Capital Goods & Raw materials)
  • Space Requirement
  • Employment

After verification of the details the Development Commissioner will send a letter of willingness to allot space subject to suitability of the proposal and availability of area.

Once the letter of willingness is received the unit/promoter has to apply in Form - F (5 copies) to the Development Commissioner along with:

  • Copy of letter of willingness to allot space in the Zone issued by CSEZ/Developer
  • Application fees through a DD drawn in favour of "The Pay & Accounts Officer, Cochin Special Economic Zone"
  • Affidavit of undertaking in stamp paper of Rs.25/-
  • Project Report indicating list of capital goods to be imported/procured, Description of raw materials and other imports, Technical Collaboration, Marketing Collaboration, activities proposes etc. (including a write up on the background of the promoters establishing their credentials and standing)
  • Copy of Certificate of Incorporation alongwith Articles of Association and Memorandum of Association in case of companies and attested copy of Partnership Deed in case of Partnership Firms
  • Income tax returns of proprietor/partners for the last 3 years. In case of company audited balance sheet for the last 3 years.
  • Copy of Pan Card of Promoters
  • Proof of residence of promoter (Copy of Ration Card, Voter ID Card, Passport, Driving License)
Letter of Approval (LOA) is thereupon issued by Zone Administration. The unit should issue a letter accepting terms & conditions of the LOA on its letter pad.

9. What is the approval mechanism for the units?

All approvals are to be given by the Unit Approval Committee headed by the Development Commissioner (DC). Clearance from the Department of Policy and Promotion/Board of Approvals, wherever required will be obtained by the Development Commissioner. A Letter of Approval to set up a unit in a SEZ is issued by the DC, provided the unit meets all the criteria specified in the Application. The procedure of application is detailed under Clause 17 of the SEZ Rules, 2006.

10. What is the obligation of the Unit under the Scheme?

  • SEZ units have to achieve positive net foreign exchange earnings as per the formula given in paragraph Appendix 14-II of Handbook of Procedures, Vol.1. For this purpose, a Legal Undertaking is required to be executed by the unit with the Development Commissioner.
  • The units have to provide periodic reports to the Development Commissioner and Zone Customs as provided in Appendix 14-I F of the Handbook of Procedures, Vol.1.
  • The units are also to execute a bond with the Zone Customs for their operation in the SEZ.
  • Any company 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

11. What happens if a unit is NFE negative in the first and second years of operation?

Such units will be placed in watch list category .They should improve performance to achieve NFE positive status by Third year. If the NFE performance continuance to be negative, SCN will be issued by Development Commissioner and if the negative performance continues in the fifth year, penal action will be taken after adjudication of the case under the provisions of Foreign Trade (Development & Regulation) Act.

12. What are the incentive/facilities available for SEZ units?

Major incentives and facilities available to SEZ units inclu
  • Duty free import/domestic procurement of goods including those for development, operation and maintenance of SEZ units
  • *100% income tax exemption for SEZ units under section 10AA of the income tax act for First five years,50% for next 5years thereafter and 50% of the ploughed back export profit for next 5years (*subject to proposed DTC CODE)
  • Other exemptions from duties, taxes, cess, etc. (see section 7,26 and the second schedule to SEZ Act)
  • Exemption from Central Sales Tax
  • Exemption from Service Tax
  • Exemption from State Sales Tax and other Levies
  • External commercial borrowing to US $ 500 million in a year without any maturity restriction through recognized banking channels
  • Single window clearance for various Central and State level approvals
  • 100% FDI/NRI investment allowed under automatic route
  • 100% retention of export proceeds in Foreign Currency account
  • Clubbing of SEZ exports with DTA exports or vice-versa for the purpose of securing status holder certificates under provisions of FTP
  • Installation of one Fax machine (duty free) outside the SEZ
  • Access to persons authorized by software units in IT and ITES units of facility installed in unit through communication links
  • Enhanced limit of ` 2.4 crores for managerial remuneration under the Companies Act
  • Shifting of units from one SEZ to another SEZ

13. Can units in an SEZ import/procure vehicles free of duty?

No duty exemption or other benefits are available for goods for personal use or consumption. Therefore, cars cannot be imported / procured free of duty. (Rule 27(3))

14. Can the entire production be sub- contracted by an SEZ unit?

Production can be sub-contracted in a financial year up to the value of goods produced by units in its own premises in the preceding financial year. For the first year of operation; it will be restricted to the value of goods produced in own premises during the first year of production. This means that where a unit produces in its own premises say ` 5 crores worth of goods in the preceding year or in the first year, the sub-contracting of production could be undertaken to the extent of goods worth ` 5 crores outside the unit (Rule 41(1) (f))

15. Whether SEZs have been exempted from Labour laws?

Normal Labour Laws are applicable to SEZs, which are enforced by the respective state Governments. The state Government have been requested to simplify the procedures/returns and for introduction of a single window clearance mechanism by delegating appropriate powers to Development Commissioners of SEZs

16. What are the facilities for Domestic suppliers to Special Economic Zone?

Supplies from Domestic Tariff Area (DTA) to SEZ to be treated as physical export. DTA supplier would be entitled to:
  • Drawback/DEPB
  • CST Exemption
  • Exemption from State Levies
  • Discharge of EP if any on the suppliers

17. Supplies to bonded warehouses and FTWZs by SEZ Units, where payment received in foreign exchange are countered towards fulfillment of positive net foreign earnings. Is actual receipt of foreign exchange necessary in such cases?

RBI has allowed such buyers to pay in foreign exchange for procurements of goods from SEZs. Thus supplies by units should be paid for in foreign exchange..

18. Is sub-contracting permitted for trading units or for FTWZ units?

No. (Rule41 (1) (g))

19. Is FDI permissible setting up of units in SEZs

100% FDI Investments is allowed under provision of SEZ Act, 2005 under automatic route.

20. Transfer of goods from Port of Entry to SEZ is permitted on the basis of assessed Bill of Entry. What happens if the Bill of Entry was not assessed and the goods arrived in the port?

Where the Bill of Entry was not assessed on the date of filing the movement of goods is permitted on the basis of registered Bill of Entry bearing endorsements of the Authorized Officer of SEZ.

21. Is Income Tax benefit admissible on export trade of goods procured from DTA?

Trading for the purpose of Second Schedule of SEZ act (income tax purposes) means import for re-export (explanation to rule 76). Thus, income tax benefit is not admissible on export trading of goods after their procurement from DTA.

22. Is merchant exports allowed by SEZ unit?

Yes; exports through a merchant exporter or a status holder is permitted subject to requirements under Rule 46 (10).

23. How is the ‘let export’ order given in respect of SEZ units?

'Let export’ order is given on the basis of self certification. (Rule -46(1) (C)) Self-certification means certification by exporting unit regarding sealing of container or package of goods & includes certification by authorized persons on copies of Shipping Bill stating that the package or container in respect of goods under export has been sealed in his presence.

24. Can inputs for sub-contracting activities be procured directly from DTA sources?

No direct procurement or import of inputs for sub-contracting is permitted.

25. Is a Bank Guarantee needed for removal of goods for sub-contracting?

Bank Guarantee is payable by a sub-contracting unit whose turnover is less than `1Crore or where it has not been in the SEZ for over two years with an unblemished track record of performance. (Rule 42(1)(d)).

26. How is imported capital goods accounted for in NFE calculations of capital intensive units?

For annual calculation of NFE, value of imported capital goods & lump sum payment of foreign technical knowhow fee are amortized at the rate of 10% per annum. (Rule – 53 B: (d)).

27. Who monitor the functioning of the units in SEZ?

Performance of the SEZ units is monitored by a Unit Approval Committee consisting of Development Commissioner, Custom and representative of State Govt. on annual basis.

28. Are SEZ's controlled by Government?

In all SEZ's, the statutory functions are controlled by the Government. Government also controls the operation and maintenance function in the 7 Central Government controlled SEZs. In rest of the SEZ’s operation and maintenance are privatized.

29. If one buy goods from DTA should they require to pay State Sales Tax and Excise?

No. Central Govt. has exempted the sales from DTA to SEZ from Excise duty. However in Karnataka Sales to SEZ by DTA is taxable to VAT but unit can apply for Refund if there are no DTA clearances.

30. What is the practical role of Development Commissioner?

Development Commissioner is the nodal officer for SEZs and help in resolution of problem, if any, faced by the units / developer.

31. How about examination of goods by customs?

Customs examination is to the bear minimum. SEZ units function on self-certification basis.

32. Will it be possible to supply to other units in SEZ?

Yes. Inter unit sales are permitted as per the Policy, provided that the buyer procuring from another unit pays in Foreign Exchange.

33. Who is responsible for the maintenance of a SEZ?

The Developer of a SEZ is responsible for its maintenance.

34. Is it possible for EXIT of SEZ Units?

One condition under which SEZ Units operate is that there is a fixed period of approval during which time the units must meet the condition of achieving positive NFE. This period is 5 years. It is evident that upon completion of this period the unit has the option to exit from scheme (though it may also opt to continue in the SEZ for a fresh period of 5 years) which would also mean its physical departure from particular zone.

35. What is the exit options provided to an entrepreneur?

With approval of Development Commissioner a unit may exit from SEZ on payment of applicable duties on the imported/indigenous capital goods, raw materials, components, consumables, spares & finished goods in stock. If the unit has not achieved positive Net Foreign Exchange, the exit will be subject to penalty that may be imposed under the Foreign Trade (Development & Regulation) Act, 1992.

Development commissioner may permit one time option to exit to EPCG Scheme & on payment of duty under that Scheme. (Rule 74)

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