After liberalization process started in 1991, EXIM policy was introduced in 1992.

EXIM policy provided certain benefits to EPZs

EPZ (Export Processing Zones): units which exclusively exported their output & to those
units which had been established in certain particular areas.

EPZs came to be known as SEZs

Till 2005, provisions regarding SEZs, part of FTP (foreign trade policy) & these
provisions were implemented through various notifications & circulars issued by the
concerned ministries or departments.
However, it has not given sufficient confidence to investors to commit substantial funds
whether it is for developing infrastructure or for setting up units in these areas.
The government felt that in order to give effect to along term stable policy which also
lends credence on this aspect, an Act of Parliament was necessary, which should have
minimum regulations & it also provide for single window clearance mechanism. With
this objective in mind, The Special Economic Zones Act, 2005 was enacted.

The main purpose of the SEZ Act is to provide an internationally competitive

environment for exports. It was to be made possible by making available goods &
services free of taxes & duties. SEZs should be supported by sufficient infrastructure
facilities & added to that, a package of incentives is to be given to attract investments
locally as well as from abroad. In short, if any unit is established in a specific area
notified as SEZ which is well developed & the unit also gets various incentives. It will be
able to export at a price & quality in international trade successfully meeting a
competitive environment. It was also felt that even for developing such areas if incentives
are given, entrepreneurs will be encouraged to develop such delineated areas with
sufficient infrastructure.

Some Important Provisions of SEZ Act & SEZ Rules

This act extends to whole of India.

Special Economic zone means each Special Economic Zone notified under the proviso
to sub-section (4) of section 3 & sub-section (1) of section 4 (including Free Trade &
Warehousing zone) & includes an existing Special Economic Zone. It is thus for the
purpose of trade operations & duties & tariffs.

Developer means a person who, or a State Government which, has been granted by the
central government a letter of approval under sub-section (10) of section 3 & includes an
Authority & a Co-Developer.

Free Trade & Warehousing Zone means a Special Economic Zone wherein trading &
warehousing & other activities related thereto are carried on.
Offshore Banking Unit means a branch of a bank located in a Special Economic Zone &
which has obtained the permission under clause (a) if sub-section (1) of section 23 of the
Banking Regulation Act, 1949,

This Act broadly covers two aspects

(i) Establishment of SEZ
(ii) Establishment of units in SEZ

I. Establishment of SEZ:

 Can be done by Central or State Government or by any Private person whether

singly or jointly or as a joint sector.
 Can be for manufacturing of goods or to render services or for both or as Free
Trade & Warehousing Zone.
 The proposer shall first identify an area & apply in Form A1
 Application to be submitted to State Government or to Board of Approval (BOA),
Ministry of Commerce & Industry, Department of Commerce, Udyog Bhawan,
New Delhi-11
 If it is submitted to State Government, it may be forward the proposal along with
its recommendations to BOA within 45 days. BOA may approve or reject or
modify the proposal.
 If it is submitted directly to BOA, BOA may approve in, which case after getting
the approval, the party should obtain concurrence of the State Government within
six months.
 The Board generally approves subject to certain terms & conditions like minimum
area of land for different types of activities & other conditions necessary &
communicates to Central Government.
 Central Government shall issue a letter of approval within 30 days of receiving
communication from BOA about grant of approval as such or with modifications
duly accepted by the party. The letter of approval will be issued in the following
forms:
 Form B: If the land is in possession of the developer
 Form B1: In principle approval if additional conditions are
specified by BOA while approving the proposal
 Form C: If the approval is for providing infrastructural facilities

 The letter of approval granted in Form B & Form C shall be valid for three years
while the letter of approval granted in Form B1 is valid for one year within which
the developer should submit Form A as prescribed.
 The developer should then submit exact particulars of identified area to Central
Government may notify the area as SEZ after ensuring necessary conditions are
fulfilled. The Central Government notifies such areas after taking into account
certain factors like creation of employment opportunity, promotion of export of
goods & services etc.
1
  The Development Commissioner of the concerned SEZ shall demarcate the area
within SEZ as processing Area, Area exclusively for trading or warehousing
purposes & non-processing areas.
 The Developer shall execute a Bond-cum-Legal undertaking in Form D regarding
proper accounting & utilization of goods.
 The developer should submit a quarterly & half yearly returns regarding account
of Import of procurement, consumption & utilization of goods etc. in Form E.

II. Establishment of Units in SEZ:

 A consolidated application in Form F is to be given to the Development

Commissioner of the concerned SEZ. This application covers seeking permission
for setting up of a unit as well as for allotment of IEC number, SSI Registration,
building approval, power connection etc.
 The Development Commissioner will forward the same to Approval Committee
established by Central Government.
 The Approval Committee may approve or modify or reject the proposal within 15
days of its receipt.
 The Approval Committee will be guided certain specified principles while
granting or rejecting the permission to the unit.
 In case it is approved, the approval will be granted by the Development
Commissioner in Form G
 The unit shall execute a Bond cum Legal Undertaking to the Development
Commissioner in Form H regarding proper accounting & utilization of goods,
regarding achievement of positive net foreign exchange earning etc.
 The units shall submit Annual Performance Report to the Development
Commissioner in Form I.
 The performance of the unit shall be monitored by Approval Committee as per the
guidelines given in Annexure I appended to SEZ Rules.
 Any one aggrieved by any order of Letter of Permission may appeal to the Board
of Approval in Form J.
 Entry of any person into the processing area shall be regulated by the
Development commissioner through issue of an Identity Card in Form K.

Benefits to Developer of & Units of SEZ

The following benefits are available:

• Exemption from any duty or tax on goods exported out of SEZ or imported into
SEZ or procured from DTA by SEZ.
• Exemption from any duty or tax on goods imported into or exported out of or
procured from DTA.
• Exemption from service tax on taxable services provided to a Developer or units
in SEZ.
• Exemption from Securities Transaction Tax on certain transactions.
 • Exemption under Income Tax Act, 1961 on profits from business which differs
for the developers from the units.

SPECIAL ECONOMIC ZONE

Special Economic Zones (SEZ) are growth engines that can boost manufacturing,
augment exports & generate employment. The private sector has been actively associated
with the development of SEZs. The SEZs require special fiscal & regulatory regime in
order to impart a hassle free operational regime encompassing the state of the art
infrastructure & support services. The proposed legislation on SEZs to be enacted in the
bear future would cover the concepts of the developer 7 co-developer, fiscal concessions
under the Income Tax & Customs Act, provide for Offshore Banking Units (OBUs) etc. a
brief on the some of the facilities available under the SEZ scheme is given as under:

 Eligibility:
 Special economic Zone (SEZ) is a specifically duty free enclave & shall
be deemed to be foreign territory for the purpose of trade operations &
duties & tariffs.
 Goods & services going into the SEZ area from DTA shall be treated as
exports & goods coming from the SEZ area into DTA shall be treated as if
these are being imported.
 SEZ units may be set up for manufacture of goods & rendering of
services.

 Export & Import of Goods:

 SEZ units may export goods & services including agro-products, partly
processed goods, sub-assemblies, & components except prohibited items
of exports in ITC (HS). The units may also export by-products, rejects,
waste scrap arising out of the production process. Export of Special
Chemicals, Organisms, Materials, Equipment & Technologies (SCOMET)
shall be subject to fulfillment of the conditions indicated in the ITC (HS)
Classification of Export & Import Items.

 SEZ units, other than trading/service units, may also export to Russian
Federation in Indian Rupees against repayment of State Credit/Escrow
Rupee account of the buyer, subject to RBI clearance, if any.

 SEZ unit may import/procure from the DTA without payment of duty of
all types of goods & services, including capital goods, whether new or
second hand, required by it for its activities or in connection therewith,
provided they are not prohibited items of imports in the ITC (HS).
However, any permission required for import under any other law shall be
applicable. Goods shall include raw material for making capital goods for
use within the unit. The units shall also be permitted to import goods
 required for the approved activity, including capital goods, free of cost or
on loan from clients.

 SEZ units may procure goods required by it without payment of duty, all
types of goods for creating a central facility for use by units in SEZ. The
central facility for software development can also be accesses by units in
the DTA for export of software.

 Gem & Jewellery units may also source gold/silver/platinum through the
nominated agencies.

 SEZ units may import/procure goods & services from DTA without
payment of duty for setting up, operation & maintenance of units in the
zone.

 Leasing of Capital Goods:

 SEZ unit may, on the basis of a firm contract between the parties, source
the capital goods from a domestic/foreign leasing company. In such a case
the SEZ unit & the domestic/foreign leasing company shall jointly fill the
documents to enable import/procurement of the capital goods without
payment of duty.

 Net Foreign Exchange Earning (NFE):

 SEZ unit shall be a positive Net Foreign exchange earner. NFE shall be
calculated cumulatively for a period of five years from the commencement
of production.

 Monitoring of Performance:
 The performance of SEZ units shall be monitored by the Unit Approval
Committee.

 DTA Sales & Supplies:

 SEZ units may sell goods, including by-products, & services in DTA in
accordance with the import policy in force, on payment of applicable duty.

 DTA sale by service/trading unit shall be subject to achievement of

positive NFE cumulatively. Similarly for units undertaking manufacturing
& services/trading activities against a single LOP, DTA sale shall be
subject to the achievement of NFE cumulatively.
 The following supplies effected in DTA by SEZ units will be counted for
the purpose of fulfillment of positive NFE:
a. Supplies made to bonded warehouses set up under the policy & /or
under Section 65 of the Customs Act.
b. Supplies against special entitlement of duty free import of goods.
 c. Supplies of goods & services to such organizations which are
entitled for duty free import of such items in terms of general
exemption notification issued by the ministry of finance.
d. Supply of services (by services units) relating to exports paid for in
free foreign exchange or for such services rendered in Indian
rupees which are otherwise considered as having been paid for in
free foreign exchange by RBI.

 Entitlement for supplies from the DTA

Supplies from DTA to SEZ shall be entitled for the following:

 DTA supplier shall be entitled for:

o Drawback/DEPB/DFRC/ Advance Licence
o Discharge of export performance, if any, on the supplier

 SEZ units shall be entitled for:-\

o Exemption from Central Sales Tax
o Exemption from payment of Central Excise Duty on all goods eligible
for procurement by the unit.
o Reimbursement of duty paid on fuels or any other goods procured
from DTA as per the rate of drawback notified by the Directorate
General pf Foreign Trade from the date pf such notification.

 Management of SEZ

 SEZ will be under the administrative control of the Development

Commissioner.
 All activities of the SEZ units within the zone, unless otherwise specified,
including export & re-import of goods shall be through self certification
procedure.

BENEFITS FOR 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
o 100% income tax exemption for a period of five years;
o an additional 50% tax exemption for two years thereafter;
o Similarly, 100% FDI is also provided in the manufacturing sector.
o Exemption from industrial licensing requirements; and
o No import license requirements is also given to the SEZ units.