Tax and Regulatory

Indirect tax benefits on supplies to SEZ Contractors perspective

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INDIRECT TAX BENEFITS ON SUPPLIES
TO
SEZs CONTRACTORS PERSPECTIVE

Conference on
EPC Contracts Tax & Legal Imperatives
18 -19 May 2007 | Hotel Imperial | Janpath | New Delhi | India

Sujit Ghosh
Executive Director, BMR & Associates
Indirect tax benefits on supplies to SEZ Contractors perspective

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CONTENTS

The scheme providing benefits

Can the rules go beyond the Act
CST on procurement & sale
Excise duty at OEM level
Service tax on procurement & sale
Import procedure
Sales tax exemption (select States)
general comments

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THE SCHEME
PROVIDING BENEFITS

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A typical supply chain under EPC contracts

EPC typically involves a Main Contractor, and Subcontractors/vendors who undertake
material supply and/or provision of services to the Owner/Main Contractor
(respectively) while executing the project
Diagrammatically, this could be depicted as under:
Subcontractor
Subcontractor

Services/material

Contractor

Project
deliverables

Project
owner/SEZ
Unit/Developer

Subcontractor

In the above structure, the levy of indirect taxes (viz. service tax, sales tax/VAT,
excise duty etc.) typically arise on the Contractor as well as the Subcontractors
In the subsequent slides, the provisions of the SEZ Act conferring benefit of these
taxes in the overall supply chain, has been examined

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The Scheme providing benefits

Under Section 26, every Developer and Unit is entitled to the following
exemptions, drawback and concessions, namely

Exemption from customs duty on goods imported into the SEZ

Exemption from any duty of excise on goods brought from the DTA to the SEZ
Exemption from service tax on taxable services provided to the SEZ
Exemption from tax on sale/purchase of goods under the CST Act, etc

The provision relevant only on procurements by Unit & Developer & and not
on sales/output services
Consequently, a Contractor is eligible for the following benefits

If the Contractor is a OEM, it is exempt from Excise duty

If the Contractor is a seller, it is exempt from CST on its output sale
If the Contractor is a service provider, it is exempt from its output Service tax

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The controversy in the Scheme

IInd Proviso to Rule 10 of the SEZ rules provides as follows
Provided further that exemptions, drawbacks and concessions on the
goods and services allowed to a Developer or Co- Developer as the case
may be shall also be available to the contractors appointed by such
Developer or Co- Developer and all the documents in such cases shall bear
the name of the Developer or Co Developer along with the contractor and
these shall be filed jointly in the name of the Developer or Co-Developer
and the contractor

In addition, Provision to Rule 27(1) of the SEZ rules provides as follows

exemptions from payment of duty, taxes or cess, drawbacks and
concessions on all types of goods and services, required for setting up and
maintenance of the factory building, allowed to a Unit shall also be
available to the contractors appointed by such Unit and all the documents
in such cases shall bear the name of the Unit along with the contractor and
these shall be filed jointly in the name of the Unit and the contractor

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The Controversy in the Scheme

These two Rules, would imply that the benefits accorded to a Contractor on
its Revenue side (ie on supplies made to the SEZ) would be available to the
Subcontractors of such Contactors as well
If the above principle were to hold good, it would essentially mean

Exemptions from any duty of excise on goods manufactured by an OEM, who is

a Subcontractor to the Main Contractor appointed by the SEZ Unit/Developer
Exemption from service tax on taxable services provided by a Subcontractor of
the Main Contractor appointed by the SEZ Unit/Developer
Exemption from tax on sale/purchase of goods under the CST Act on sales
effected by the Subcontractor to the Main Contractor appointed by the SEZ
Unit/Developer

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The Controversy in the Scheme

The conclusion (in the preceding slide) would essentially suggest that, via
the Rule, exemptions are being provided to a Subcontractor, even though
the Act does not envisage such a scheme
Therefore, the moot question is Can the Rules travel beyond the Act
If they cannot, then the benefits envisaged under the Rules on the output
taxes of the Subcontractor would not be available

The finer point Can the Rules travel beyond the Act, has been
examined in the following slides

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Can the Rules travel

beyond the Act

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Can the Rules travel beyond the Act

It is an established principle that the Rules cannot travel beyond the Act
Some of the judicial decisions endorsing this view have been enumerated
below:

The basis of the statutory power conferred by the Statute cannot be transgressed
by the rule making authority. The rule making authority has no plenary power. It
has to act within the limits of the power granted to it (Bimal Chandra Banerjee v.
State of Madhya Pradesh AIR 1971 SC 517)

The Rules, therefore, cannot be so framed which do not carry out the purpose of
the chapter and cannot be in conflict with the same (Laghu Udyog Bharti v. UOI
2006 (2) STR 276 SC)

Delegated legislation must be read in the context of the primary/legislative Act

and not the vice-versa - In case of a conflict between a substantive provision of
an Act and delegated legislation, the former shall prevail (ITW Signode India Ltd.
v. Collector of central excise 2003 (158) E.L.T. 403 (S.C.)

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Can the Rules travel beyond the Act

Accordingly, Rule 10 & Rule 27, cannot travel beyond the SEZ Act, in as
much as

It cannot grant benefit beyond that which has been contemplated under the SEZ
Act
Thus, it appears that Rule 10 / Rule 27 are ultra vires the SEZ Act and hence not
valid
Consequently, as the SEZ Act contemplates benefits only on the Revenue Side
of the Main Contractor, the Rules cannot extend the benefit of tax exemptions on
the cost side of the Main Contractor
In short, Subcontractors would not be eligible to any output tax exemptions,
similar to that which is available to the Main contactors on their output taxes

There however exist few thoughts to reflect upon

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Thoughts for reflection !

Who would challenge the validity of Rule 10 / Rule 27 ?
Would the Government not be bound by Rules framed by it ?
Can the non-SEZ competitors challenge these Rules on the basis that these
Rules provide benefits not envisaged under the SEZ Act ?
Would not the Rules be void ab initio ?

Therefore, in the subsequent slides benefits on supplies to SEZ have been

examined under the two scenarios:
Where Rules 10 and 27 are valid ; and
Where the above Rules are not valid

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CST ON
PROCUREMENT AND
SALES WHERE
RULES 10 & 27 ARE
VALID

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Availability of exemptions to supplies of Main Contractor

Interstate sales effected by the Main Contractor to the SEZ Unit/Developer
would be entitled to exemption from CST against Form I

This exemption has a limited impact, at least where supplies are being made
to a Unit/Developer who can issue Form C, if the Main Contractor adopts
In-transit Sales/ E1 sales/ 6 (2) Sales

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Availability of exemptions to supplies of Subcontractor of a Main

Contractor
On application of Rules 10 & 27, CST on sales effected by the
Subcontractor would also be exempt from CST (in theory)
However, there exist the following practical difficulties:

The exemption from CST under the SEZ Rules, contemplates issuance of Form I
by the purchaser as per the CST Act & Rules
As per the CST Act and the Rules, Form I can be issued only by a Unit or a
Developer in the SEZ
Accordingly, there is no provision that permits a Main Contractor to issue a Form
I, such that its Subcontractor can also claim the CST exemption as contemplated
in the SEZ Rules

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CST ON
PROCUREMENT AND
SALES WHERE
RULES 10 & 27 ARE
NOT VALID

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Availability of exemptions to Main Contractor & Subcontractor

There would be no change with regard to the exemption available to the
Main Contractor in this scenario
However, where the Subcontractor is not eligible to claim the above
benefits, the key question that arises for consideration would be as follows:

If supplies by Main Contractor to SEZ amounts to export, can the sales made by
the Subcontractors qualify as preceding sales in the course of export and
remain outside the net of CST/VAT

This issue assumes importance since under the SEZ Act:

Export, has been defined to mean supplying goods from DTA to a Unit or
Developer; and
SEZ has been deemed to be a territory outside the customs territory of India for
the purposes of undertaking authorized operations

This issue has been examined in the following slides

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Can supplies to SEZ be eligible for export benefits

Prima-facie, relying entirely on the meaning ascribed to the term Export and
crossing the customs frontier (under the SEZ Act), it would appear that:

Supply of goods by the Main Contractor to the SEZ being export and the
Constitution of India prohibiting levy of tax on export, there would never be any
occasion for levy of tax
That being the case, there would be no requirement for furnishing Form I as well
Therefore, should the same principle not apply to preceding sales in the course
of export, as they are one integrated transaction dovetailed into a single
transaction, thereby enabling the Subcontractor to also avail the exemption ?

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Can supplies to SEZ be eligible for export benefits

The preceding conclusions should not be made unless the following points
are considered:

The Constitution lays down (in Article 286) that no law of a State shall authorize
the imposition of a tax on sale in the course of export and the Parliament would
make law formulating principles for determining when a sale takes place in the
course of export
Pursuant to this Article, the CST Act has formulated principles for determining
when a sale takes place in the course of export
Therefore, to take protection of the above Constitutional restriction, reliance has
to be placed only on the interpretation of the phrase sale in the course of
export (accorded by the Judiciary) as well as any other legislation which
provides appropriate principle on the matter, including the CST Act

Therefore, the interpretation accorded by the Judiciary to the term sale in

the course of export with reference to the above Constitutional provision,
needs further examination

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Interpretation of Sales in the course of export

Case laws

Narang Hotels 135

STC 289 (Bom)

Ratio
There must be a sale
Goods must actually be exported
Sale must be a part and parcel of the export

State of Kerala v.
Cochin Coal
Company Ltd. 12 STC
1

The word export" did not mean merely "taking out of the country" but
that the goods must be sent to a destination at which they could be
said to be imported

State of Kerala v.
Cochin Coal
Company Ltd. 12 STC
1

Concept of export in article 286(1)(b) of the Constitution postulates the

existence of two termini between which they are intended to be
transported,
Not a mere movement of goods out of the country without any
intention of their being landed in specie in some foreign port

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Interpretation of Sales in the course of export

It is also instructive to notice that in Empresa Siderurgica, S.A. v. Merced 337 US 154
it was held that
"It is the entrance of the articles into the export stream that marks the start of
the process of exportation. Then there is certainty that the goods are headed for
their foreign destination and will not be diverted to domestic use. Nothing less
will suffice."

When does export commence

The Bombay High Court in Narang Hotels case held that
in case of import the expression "before the goods have crossed the customs
frontiers of India" means the goods must have crossed the limits of area of
customs station, namely, customs port. In other words, the goods must move or
undertake onward journey to a foreign destination and cross entire customs
station including its outer boundary

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Interpretation of Sales in the course of export

Therefore, two key points emerge from the judicial decisions

Export contemplates a foreign territory where the goods must be imported into

Goods must cross outer boundaries of customs station for export to commence

In this context the following observations would be crucial to take note of:

Definition of DTA under the SEZ Act - whole of India (including territorial waters
and continental shelf) but does not include the areas of SEZ

In case an SEZ is notified as a customs station/any place where goods are

ordinarily kept before clearance by customs authorities then for the Export to
commence the goods have to cross the outer boundary of such SEZ on
outbound journey

Tacit recognition of the fact that SEZ are not areas outside India, since Indian
labour laws and other laws find applicability within the SEZ

Accordingly, it appears that supplies to SEZ cannot be considered as

exports as interpreted by the Judiciary and as understood in the context of
the CST Act since none of the tests appear to be met
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The Conflict between the general principles & the SEZ Act in the
present context
Notwithstanding the conclusion in the preceding slide, it may be noted that
Section 51 of the SEZ Act provides the following:
The provisions of this Act shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in force or in any
instrument having effect by virtue of any law other than this Act

Basis the above, can the following be argued ?

That since the SEZ Act overrides all other law, therefore it ought to override
judge made law (under Article 141) as well as the CST Act

If yes, should not the supplies from the DTA to the SEZ be eligible for the
protection against tax as envisaged in Article 286 (ie not liable to any tax)

Consequently, cant the same principle be also applied on the preceding

sale/purchase (from Subcontractor to the Main Contractor)

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EXCISE DUTY AT OEM

LEVEL

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Availability of exemptions to supplies of Main Contractor (OEM)

Supplies by manufacturers who are Main Contractors to the Unit/Developer
would not be liable to excise duty
To avail this benefit, the Main Contactor must supply the goods directly to
the SEZ Unit/Developer
In addition the procedure indicated in the subsequent slide must be followed
by the Main Contractor (who is an OEM)

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Procedure to be followed by a DTA Supplier

1
Goods shall be cleared either:
under bond; or
as duty paid goods under claim of rebate

on the cover of ARE-1*

DTA Supplier/
Manufacturer

Endorsed copy of ARE-1

and Bill of Export

Authorised
Officer
Examination at
the time of entry
of the goods into
SEZ

Clearance of
goods after
examination
for use
within SEZ

Endorsed copy of
ARE-1 and Bill of
Export to be
forwarded within
45 days

Clearance of
goods for export

Construction site / factory

Jurisdictional Officer
DTA

Special Economic Zones

*Bill of export to be filed in addition if the goods cleared under export entitlement

India

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Outside India

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Availability of exemptions to supplies of vendors (OEM)

appointed by the Main Contractor
Since Section 26(1)(c) provides exemption to goods brought from the DTA,
if the vendor (OEM) sells the goods to the Main Contractor but ships /
consigns the goods directly to the SEZ, the exemption from excise should be
available to such Vendor as well
That is to say, regardless of validity of Rule 10 & 27, the vendor ( OEM) who
is a Subcontractor can claim benefit of excise duty exemption

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Availability of exemptions to supplies of vendors (OEM)

appointed by the Main Contractor
However, if the vendor (OEM) ships the goods to the Main Contactor, who
after taking delivery of the goods ship the same to the SEZ Unit/Developer,
then the exemption to the vendor of excise duty is likely to the denied

Important to note that the denial of excise duty exemption to the Vendor
(OEM) would apply regardless of the fact that Rule 10 & 27 may be
construed to be valid. The reasoning being :

Unlike physical export, where under the CT1 procedure contemplated under
Notification 42/2001, the merchant exporter can procure goods without payment
of excise duty and therefore physically export the goods, this procedure has not
been envisaged in the SEZ Act/Rules

Instead, the SEZ Act contemplates exemptions of excise duty only on goods
brought from the DTA to the SEZ

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Contd

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Availability of exemptions to supplies of vendors ( OEM)

appointed by the Main Contractor

Since the exemption applies at the point of manufacture, therefore the condition
should typically apply at the above point

In other words, the goods should be brought from the factory of the vendor
(OEM) to the SEZ without the physical intervention of the Main Contractor

Procedure under the above situation would remain similar to that indicated
earlier

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SERVICE TAX ON
PROCUREMENT AND
SALE

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Credit of service tax paid on procurement of services

Legislative provisions
Section 26 provides for exemption of service tax on taxable services provided to a
SEZ Developer / Unit to carry on authorized operations
Accordingly, the Contractors providing services to SEZ Developer / Units are exempt
from payment of service tax

Issues for discussion

Applicability of Rule 6 of the Cenvat Credit Rules, 2004
Rule 6(1) provides that cenvat credit shall not be allowed on such quantity of input or
input services which is used manufacture of exempt goods or in rendering exempt
services
Rule 6(6)(i) provides that Rule 6(1) shall not apply if the excisable goods are cleared
without payment of duty to a Unit in a SEZ
Provision of services by a Contractor to a SEZ are exempt from payment of service
tax accordingly in terms of Rule 6(1) ineligibility of input credit and resultant loss of
credit
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Credit of service tax paid on procurement of services

Issues for discussion
Supply of goods by a manufacturer to a SEZ exempt from excise duty however, the
restriction of Rule 6(1) does not apply because of operation of Rule 6(6)
From credit perspective provision of services to SEZ accorded an unfair treatment
as compared to supply of goods
No apparent rationale for different treatment of goods and services from a credit
perspective!!!

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Credit of service tax paid on procurement of services

Issues for discussion
Availability of Duty Drawback

Duty drawback available for goods under Rule 30 of the SEZ Rules

No provision for duty drawback for services

Another instance of provision of services to SEZ being accorded an unfavourable

treatment over supply of goods

Parity with export of services

For export of services out of India, refund/ rebate of service tax paid on input
services is available

Purpose is that export should be of services and not of taxes

However, on provision of services to a SEZ Developer/ Unit , under the Export of

service Rules no refund/ rebate contemplated on supplies to SEZ

Non eligibility to credit / refund / rebate / duty drawback amounts to levy of taxes on
services that are to be exported ultimately
No apparent rationale for such treatment !

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Credit of service tax paid on procurement of services

Issues for discussion
Export under SEZ Act v. Export of services under service tax laws

Under the SEZ Act, export defined such that providing services from the
Domestic Tariff Area to a Unit or Developer would qualify as export for the
purposes of the SEZ Act

This definition is entirely different from the conditions required to qualify as

export of service under the service tax laws

To qualify as export of service under service tax laws in addition to other

conditions, the service has to be used outside India and provided outside India

Under section 53 of the SEZ Act, an SEZ deemed to be territory outside the
customs territory of India.

The usage of the phrase outside the customs territory of India must be
distinguished from the phrase outside of India, which is used to determine
export of service

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Credit of service tax paid on procurement of services

Issues for discussion
Export under SEZ Act v. Export of services under service tax laws (contd)

Not an appropriate construction of statutory interpretation to interpose the

definition under the SEZ Act for the purposes of satisfying the conditions
ascribed in the service tax laws and vice versa

Section 51 of the SEZ Act provides that the provision of the SEZ Act shall have
effect notwithstanding anything inconsistent therewith contained in any other law
for the time being in force

Correct interpretation of Section 51 of the SEZ Act should be, where in the
context of a subject directly covered under the SEZ Act, there is a contradiction
between the provisions of the SEZ Act and any other law, the SEZ Act would
prevail

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Credit of service tax paid on procurement of services

Issues for discussion
Export under SEZ Act v. Export of services under service tax laws (contd)

The benefits available to export of services flow from the service tax laws

Under service tax laws export defined differently from the way export is defined
under SEZ

Thus, there is a conflict between the way export is defined under the two laws

Even though there is a variance of what constitutes export under both the laws,
the same does not arise in connection with operations / benefit provided in the
SEZ

Further, since the benefit is being provided under the service tax laws, the
definition under the service tax laws would have to be considered

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Credit of service tax paid on procurement of services

Issues for discussion

Had the benefit for export of services been provided / claimed under the SEZ Act,
the definition under the SEZ Act may have prevailed

For the purposes of service tax laws, the definition under the SEZ Act cannot be
imported

Thus, as the conflict is not in an area pertaining to a benefit / subject covered by

the SEZ Act, Section 51 ought not to have any operation

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Benefit to Main contractors & Subcontractors

Impact of Rule 10 & 27
If Rule 10 & 27 held to be valid, then, the Subcontractors would also be eligible for
exemption from Service tax. Further in these cases, the following needs to be noted:

Fiscal benefits ( including Service tax) is restricted to goods and services, required for
setting up and maintenance of the factory building - No explanation of the scope of
the term factory building;

However, the above restriction does not apply where the Project Owner is SEZ
Developer / Co-developer more extensive - covers all goods and services

Where however, Rule 10 & 27 are invalid, then the exemption from service tax would
be restricted only to services provided by the Main contractors
In these situations, the Contractor would be eligible for service tax exemption on all
supplies of services regardless of whether these are being supplied to a Unit or a
Developer / Co-developer of SEZ

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IMPORT
PROCEDURE

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Standard procedure for imports

1

5 copies of BOE for Home consumption

SEZ Unit

6
3

Goods verified and

admitted into SEZ

Qu
wit intup
ht
he licate
Cu
c
sto opy
Fourth copy sent to the banker
ms (tra
Triplicate retained
Au nss
tho hi
riti pm
e
es
at nt co
the py
po ) to
rt o be
f im file
po d
rt

Bankers

SEZ Customs
authorities

BOE Assessed - Triplicate, Fourth

& Fifth copy returned to SEZ Unit

Transshipment copy to accompany the

goods to be transported from the port
to the SEZ

Goods cleared from the customs port

based on the assessed BoE

Customs
Authorities at
the port of
import

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STATE EXEMPTIONS
(SELECT STATES) GENERAL COMMENTS

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State exemptions General Comments

No exemption from State / local levies directly granted under the SEZ Act,
since the provisions of the Act do not override State legislations
The Act empowers the States to grant exemption from State / local levies to
SEZ Developers / Units

directly or

through delegated legislation

Many States have initiated the process of granting indirect tax benefits to
SEZ Developers / Units
However, States are not consistent in

Level and extent of indirect tax benefits granted

The legal framework for grant the indirect tax benefits

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State exemptions General Comments

The indirect tax benefits have been / are proposed to be extended through one or
more of the following:

SEZ Policy

SEZ Act

Specific provisions in VAT / other State tax legislations

Notifications issued under the SEZ / VAT Acts etc

Most States grant benefits on the procurements from DTA. Most of these benefits are
applicable to procurements from DTA for works contracts / EPCs
The following slides contain an overview of the legal framework and extent of indirect
tax benefits granted by select States

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Overview of Legal Framework

SEZ
Policy

SEZ
Act

Provisions
under VAT
laws

Provisions
under
Entry Tax
laws

Notifictions
under VAT
laws

Notifications
under Entry
Tax laws

Andhra Pradesh

Yes

No

Yes

No

No

No

Gujarat

Yes

Yes

No

No

No

No

Yes
(To be
notified)

Yes
(general
provision of
granting
exemption)

No

Yes

No

No

Current
provision does
not confer any
special benefits

No

No

Yes

Haryana

Karnataka

Yes

No

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Overview of Legal Framework

SEZ
Policy

Maharashtra

Yes

SEZ
Act

Yes

Provisions
under VAT
laws
Yes
(Restricted to
certain supplies
by SEZs)

Provisions
under
Entry Tax
laws

Notifictions
under VAT
laws

Notifications
under Entry
Tax laws

No

Yes
(Restricted to
certain supplies
by SEZs)

No

Tamil Nadu

Yes

No

Yes

No

Yes
(issued under
sales tax Act still
applicable)

Uttar Pradesh

Yes

Yes

No

No

Yes
(Under SEZ Act)

Indirect tax benefits on supplies to SEZ Contractors perspective

Yes

No

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Benefits to purchases by Units

Procurements from DTA
VAT / Sales tax
Andhra Pradesh

(Zero-rated)

Gujarat
Haryana
Karnataka

Entry Tax

(On inputs)

(On inputs)

(If meant for use in manufacture of goods to

be exported)
Exemption proposed under budget 2007

Maharashtra
Tamil Nadu

(Zero-rated / exemption notification)

(On direct imports from foreign country for use

in manufacture)

Uttar Pradesh
Legends

: Exempt

: Not exempt

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Benefits to purchases by Developers

Procurements from DTA
VAT / Sales tax

Entry Tax

(On inputs)

(On inputs)

Andhra Pradesh
Gujarat
Haryana
Karnataka

Exemption proposed under

budget 2007

Maharashtra
Tamil Nadu

(exemption notification)

Uttar Pradesh

Legends

: Exempt

: Not exempt

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Tax and Regulatory

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Tax and Regulatory

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Challenge Us

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Examination at the time of entry to SEZ

At the time of assessment, it shall be specifically examined whether the goods are for
authorised operations
On arrival of goods, Authorised Officer shall examine the goods in respect of
description, quantity, marks and other relevant parameters
Where goods are procured under the claim of export entitlements, Officer shall
examine the goods as per the export norms
Endorsed copy of Bill of Export and ARE-1 shall be treated as proof of Export
Drawback or DEPB credit against supply of goods by DTA supplier shall be
admissible provided payment for the supply are made from the Foreign Currency
Account of the SEZ Unit
Goods may be supplied by the DTA supplier who is a trader or a merchant exporter
under a cover of invoice and ARE-1 shall not be required in that case

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Exemptions, drawbacks and concessions to

every Developer and entrepreneur
Section 26 of SEZ Act

(1) Subject to the provisions of sub-section (2), every Developer and the entrepreneur
shall be entitled to the following exemptions, drawbacks and concessions, namely: (a) exemption from any duty of customs, under the Customs Act, 1962 or the Custom
Tariff Act, 1975 or any other law for the time being in force, on goods imported into, or
service provided in, a Special Economic Zone or a Unit, to carry on the authorised
operations by the Developer or entrepreneur;
(b) exemption from any duty of customs, under the Customs Act, 1962 or the Customs
Tariff Act, 1975 or any other law for the time being in force, on goods exported from,
or services provided, from a Special Economic Zone or from a Unit, to any place
outside India:
(c) exemption from any duty of excise, under the Central Excise Act, 1944 or the Central
Excise Tariff Act, 1985 or any other law for the time being in force, on goods brought
from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the
authorised operations by the Developer or entrepreneur

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Exemptions, drawbacks and concessions to every

Developer and entrepreneur
(d) drawback or such other benefits as may be admissible from time to time on goods
brought or services provided from the Domestic Tariff Area into a Special Economic
Zone or Unit or services provided in a Special Economic Zone or Unit by the service
providers located outside India to carry on the authorised operations by the Developer
or entrepreneur;
(e) exemption from service tax under Chapter-V of the Finance Act, 1994 on taxable
services provided to a Developer or Unit to carry on the authorised operations in a
Special Economic Zone;
(f) exemption from the securities transaction tax leviable under section 98 of the Finance
(No. 2) Act, 2004 in case the taxable securities transactions are entered into by a nonresident through the International Financial Services Centre;
(g) exemption from the levy of taxes on the sale or purchase of goods other than
newspapers under the Central Sales Tax Act, 1956 if such goods are meant to carry
on the authorised operations by the Developer or entrepreneur.

(2) The Central Government may prescribe the manner in which, and the terms and
conditions subject to which, the exemptions, concessions, drawback or other benefits
shall be granted to the Developer or entrepreneur under sub-section (1).
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Benefits to Contractor appointed by a Developer

Rule 10 of SEZ Rules

Permission for procurement of items. The Approval Committee may permit goods and
services to carry on the operations authorized under rule 9:
Provided that for the Special Economic Zones set up by the Central Government,
the goods and services required for the authorized operations may be approved by
the Board:
Provided further that exemptions, drawbacks and concessions on the goods and
services allowed to a Developer or Co-developer, as the case may be, shall also be
available to the contractors appointed by such Developer or Co-developer and all
the documents in such cases shall bear the name of the Developer or Co-developer
alongwith the Contractor and these shall be filed jointly in the name of the Developer
or Co-developer and the Contractor:
Provided also that the Developer or Co-developer, as the case may be, shall be
responsible and liable for proper utilization of such goods in all cases.

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Benefits to the Contractor appointed by SEZ Unit

Rule 27(1) of SEZ Rules

A Unit or Developer may import or procure from the Domestic Tariff Area without payment
of duty, taxes or cess or procure from Domestic Tariff Area after availing export
entitlements or procure from other Units in the same or other Special Economic Zone or
from Export Oriented Unit or Software Technology Park Unit or Electronic Hardware
Technology Park Unit or Bio-technology Park Unit, all type of goods, including capital
goods (new or second hand), raw materials, semi-finished goods, (including semi-finished
Jewellery) component, consumables, spares goods and materials for making capital
goods required for authorized operations except prohibited items under the Import Trade
Control (Harmonized System) Classifications of Export and Import Items
Provided that exemptions from payment of duty, taxes or cess, drawbacks and
concessions on all types of goods and services, required for setting up and maintenance
of the factory building, allowed to a Unit shall also be available to the contractors
appointed by such Unit and all the documents in such cases shall bear the name of the
Unit along with the Contractor and these shall be filed jointly in the name of the Unit and
the Contractor:
Provided further that the Unit shall be responsible and liable for proper utilization of such
goods and services in all cases.
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