A new policy had been introduced in the Exim Policy effective from 1.4.2000 for setting up of Special Economic Zones in the country with a view to provide an internationally competitive and hassle free environment for exports. Units may be set up in SEZ for manufacture, re-conditioning, and repair or for service activity.All the import/export operations of the SEZ units will be on self-certification basis. The units in the Zone have to be a net foreign exchange earner but they shall not be subjected to any pre-determined value addition or minimum export performance requirements.Sales in the Domestic Tariff Area by SEZ units shall be subject to positive foreign exchange earning and on payment of full Custom Duty and import policy in force.

The policy provides for setting up of SEZ’s in the public, private, joint sector or by State Governments. It was also envisaged that some of the existing Export Processing Zones would be converted into Special Economic Zones.Accordingly, the Government has issued notifications on 1.11.2000 for conversion of the existing Export Processing zones at Kandla and Surat (Gujarat), Santa Cruz (Maharashtra) and Cochin (Kerela) into Special Economic Zones.

Salient feature of the scheme are as under :

(a) 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.

(b) Goods going into the SEZ area from DTA shall be treated as deemed exports and goods coming from the SEZ area into DTA shall be treated as if the goods are being imported.

(c) SEZ units may be set up for manufacture of goods and rendering of services, production, processing, assembling, trading, repair, remaking, reconditioning, re-engineering including making of gold/ silver/ platinum jewellery and articles thereof or in connection therewith. Units for generation/distribution of power may also be setup in SEZs.

1. SEZ units may export goods and services including agro-products, partly processed jewellery, sub-assemblies and component. It may also export by-products, rejects, waste scrap arising out of the production process.

2. SEZ units, other than trading/service unit, 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.

3. SEZ unit may import without payment of duty all types of goods, including capital goods, as defined in the Policy, 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).

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.

4. SEZ units may procure goods required by it without payment of duty, from bonded warehouses in the DTA set up under the Policy and from International Exhibitions held in India.

5. SEZ may import, without payment of duty, all types of goods for creating a central facility for use by software development units in SEZ. The Central facility for software development can also be accessed by units in the DTA for export of software.

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

7. SEZ units may also import/procure goods from DTA without payment of duty for setting up of units in the Zone.

The Government today said that more than 200 applications for setting up Special Economic Zones are pending with it."Formal approval has been granted to 150 SEZs. Over 200 proposals for setting up of SEZs have been received for consideration," Minister of State for Commerce and Industry Jairam Ramesh said in a written reply to a question in the Rajya Sabha.He said that of the 150 SEZs that have been approved, 18 have been notified.Of the 18 zones notified, five are in Andhra Pradesh, four in Tamil Nadu, three in Karnataka, two in Gujarat, and one each in Chandigarh, Maharashtra, West Bengal and Uttar Pradesh.The biggest SEZ that has been notified so far is spread over an area of 2406 hectares. It is a multi product SEZ promoted by Gujarat Adani Ports Limited.

 The government has slammed the brakes on trading units seeking to enter the numerous special economic zones (SEZs) coming up across the country. While development commissioners of SEZs have been asked not to clear applications from trading units, senior officials of the finance ministry are in consultation with their counterparts in the commerce & industry ministry to debar trading units from availing income tax exemption available under Section 10 A of the Income Tax Act.Development Commissioners of SEZs have been asked to keep trading units out, highly-placed government sources said. Communication to this effect has been sent to all development commissioners, the sources said. Each SEZ has a development commissioner who is responsible for all clearances.

The ban follows apprehensions that merchant exporters would relocate to SEZs to avail of the tax holiday available to SEZ units. The finance ministry feels that revenue loss will be substantial if exporters procure goods from the local market and then export it from SEZs — availing of all tax benefits without actually setting up any new manufacturing capacity.The issue of ‘trading units’ was discussed at the recent meeting of the SEZ Board of Approval and it was decided that these units would not be allowed till a detailed policy was formulated on them. "There was an apprehension that purely trading units in the DTA (domestic tariff area or local market) may seek to relocate to an SEZ for tax avoidance.

In view of the concerns of revenue loss due to such activity being allowed in SEZs, the Board decided to instruct development commissioners not to allow trading units to be set up in SEZ until the issue was fully examined and guidelines were issued on this subject," according to the minutes of the board meeting. Representatives of finance as well as commerce & industries were present at the meeting.The ban on trading units will not cover companies carrying out imports purely for exports from SEZs. Neither would the decision have an impact on the free trade warehousing zones (FTWZs) proposed by the government, the sources said. A large portion of India’s exports is handled by merchant exporters who procure goods manufactured by smaller units and export them after branding.

In some cases, even branding is not involved as these firms book orders and get goods manufactured by small units. This is typical in the case of sectors like textiles, handicrafts and gift items.Since the government wants to provide a thrust to manufacturing and infrastructure through SEZs, the mood is against trading companies finding a place in these zones.Under the SEZ Act, units located in these zones are eligible for full tax holiday for the first five years, 50% tax exemption for the next five and benefit on ploughed back profits for another five years.SEZ, as a policy instrument, is going to play a crucial role in the next decade in India in employment generation, increasing exports, attracting investment, introduction of new technology and creation of world class infrastructure. The globally competitive fiscal package provided in the SEZ Act 2005 has generated tremendous enthusiasm in the country with the commerce ministry receiving proposals for over175 new SEZs.

This is against the backdrop that from 1965 to the year 2000 we had set up only seven EPZs in the country. Hence, this potentiality needs to be harnessed by coordinated and concerted efforts of all central agencies and those of the state governments.Between 1965 and 2000, a total of seven EPZs were set up by the Centre which also spent money on its maintenance. If the Centre would have had to set up the SEZs with its own resources for providing employment and increasing exports, the investment required would have been huge. Since the entire investment is being made by the private sector, it is leading to a considerable amount of saving for the government. Naturally, the private sector will not make such huge investments unless a proper package is put in place.Second, since the SEZs are going to create huge employment in the country, it would lead to savings under the ‘Employment Guarantee Scheme’ of the government under which it intends to provide wages to the unemployed.

Business Opportunity for Petroleum Industry :

1. The SEZ can give a boost to one of the largest volume through bunkering sales. Presently due to taxes the foreign vessels do not take large quantity bunkers from Indian ports. They just take adequate bunkers to reach either Singapore or Middle East ports where the bunkers are more competitive. Since the duties will not be applicable to SEZ units the bunkering business is going to have a boom in the port locations.

2. The trading units are banned if they propose to propose material from domestic market and export for getting duty benifits, but trading ban is not applicable for those trading operations where the material is imported for export purpose. Hence, India being in the center of east and western countries there is excellent opportunity to develop this business.3. In addition to the above typical manufacturing and exporting of petroleum products are possible.

For more details on any of the above subjects e-mail petro@vsnl.com