Part A-Introduction

Special Economic Zone (SEZ)

1
SEZ

1. A designated Duty free enclave, to be treated as foreign territory for

trade operations, duties and tariff

2. Conceptualized, intended and implemented as engines for

economic growth supported by quality infrastructure and attractive
fiscal package - both at Centre and at the State level - with
minimum possible regulations

3. The main objectives are:

 Promotion of exports of goods and services
 Promotion of investment from domestic and foreign sources
 Creation of employment opportunities
 Development of infrastructure facilities

2
SEZ (continued)

4. SEZ Act and Rules provide for:

 Simplified procedure for development, operation and
maintenance of SEZs, setting up Units and conducting
business in SEZ
 Single window clearance for abovementioned point
 Single window clearance on matters relating to Central and
State government
 Simplified compliance procedure and documentation with an
emphasis on self-certification

3
SEZ (continued)

5. SEZ Act and Rules provide for (continued):

 Apex body ( the Board for Approval which is drawn from

different ministries)

 The zonal level Approval Committee( headed by the

Development Commissioner)

 The performance of the SEZs are periodically monitored by

Approval Committee

 Units are liable for penal action under provision of FTDR in

case of violation of conditions of Approval

4
Legal Formalities

Development Commissioner will issue a Letter of Approval for

setting up the Unit

Bond cum legal undertaking in Form-H executed by the Unit and

in Form –D by the Developer

Bond cum legal undertaking to be jointly accepted by

Development Commissioner and the Specified Officer who is the
Assistant Commissioner / Deputy Commissioner of Customs
posted in the Zone

There will be no debit or credit in the Bond account but it will be

monitored on a Quarterly / Annual basis

5
 Direct Tax Benefits For SEZ Unit
Various Income Tax benefits are available to SEZ

Exemption from Income Tax is available only if an Unit is into

international trading / exporting goods manufactured in the SEZ and
not simply procuring goods from DTA and exporting them

Income Tax benefits under Income Tax Act to Developers for any Block
of 10 years in a15 years period

Income of Infrastructure Capital Fund / Company from investments in

SEZ are exempt from Income Tax

100% FDI is freely allowed in manufacturing sector in SEZ Unit -

except
for prohibited items

6
Indirect Tax Benefits For SEZ Unit

1. A SEZ Unit is entitled for the following Indirect Tax

exemptions, as per the provisions of SEZ Act, 2005,from:

 Payment of any Customs duty/IGST on goods imported.

 Supply of goods by DTA manufacturers to SEZ Units / SEZ
Developer are exempted from payment of:
* Excise Duty
* IGST

7
Direct Import

A SEZ Unit may import goods directly into SEZ / through Ports /
Airports / Land Customs stations / Internal Container Depots / Foreign
post offices / authorized couriers.
The Unit shall file Bill of Entry for home consumption in quintuplicate
specially stamped as “SEZ Cargo” with the Authorized Officer of SEZ.
The Authorized officer shall register and assign a running annual
serial number and assess the Bill of Entry on the basis of transaction
value for transshipment. No separate documents / transshipment
bond is needed to the filed and the transshipment permission shall be
stamped on the fifth copy of the Bill of Entry.
On arrival of goods in the SEZ, the goods are subjected to the
verification by the authorized Officer of the SEZ. Verification of Seal
on the Container / truck for full container load and marks and number
of packages in other cases shall be carried out. After verification, if
details are in order, consignments shall be allowed inside the SEZ.

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 Procurement Procedure
(Same SEZ / Other SEZ)
 The receiving Unit shall file Bill of Entry for home consumption with the
authorized officer (in quintuplicate) giving description of the goods
along with an invoice and packing list for assessment
 On the basis of such assessed Bill of Entry, the goods shall be allowed
to be transferred to the receiving Unit under transshipment permission
stamped on the Bill of Entry itself
 The receiving Unit shall submit the re-warehousing certificate within 45
days to the specified officer of the supplying Unit, failing which the
specified officer of supplying Unit shall write to the specified officer of
the receiving Unit to demand Duty from the receiving Unit
 Where the supplying and receiving Units are located in the same SEZ,
the movement of goods is allowed without filing of Bill of Entry and the
transactions shall be recorded in the regular books of account of these
Units.

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Procurement From Warehouse

The Unit shall file a Bill of Entry with the specified Officer of the SEZ

for assessment and submit the assessed copy to the Customs

Officer in charge of the warehouse from where the unit is intending

to procure the goods

Customs officer in charge of the warehouse shall allow the

clearance of the goods from the warehouse to the SEZ unit without
payment of Duty based on the ex-bond shipping Bill and on the
basis of Bill of Entry duly assessed

Re-warehousing certificate by a way of endorsement by the

authorized officer on the copy of the ex-bond shipping bill is to be
submitted to the Customs officer in charge of warehouse within 45
days from the date of clearance of the goods from the warehouse,

21failing
January which
2009 the Customs officer in EOU
SEZ and charge of the warehouse shall 10
Domestic Procurement

Supplies of goods by DTA manufacturers to SEZ units / SEZ

Developer are treated as exports and are eligible for following export

benefits as admissible under FTP, subject to the conditions that

i) payment should be received in foreign currency and
ii) Disclaimer certificate from SEZ Unit / Developer

Duty Entitlement Pass Book Scheme (DEPB)

Drawback - DTA manufacturers are entitled to get drawback of the

Duty of Excise and Customs paid on the inputs when supplies are
made to SEZ Unit / Developer

Advance Authorizations

Export Promotion Capital Goods (EPCG) Authorizations

21 January 2009 SEZ and EOU 11

Sales In Domestic Tariff Area

A Unit may sell goods and services including rejects / wastes /

scraps / remnants / by-products arising during the manufacturing
process / in connection therewith in the Domestic Tariff Area on
payment of Customs Duties. Valuation and assessment of the goods
cleared into Domestic Tariff Area shall be made in accordance with
Customs Act

A Buyer shall file the Bill of Entry for home consumption together with
the invoice and packing list with the authorized officer

The Bill of Entry for home consumption may also be filed by the Unit
on
the basis of the authorization from a DTA Buyer

21 January 2009 SEZ and EOU 12

 Sub-contracting

A Unit may sub-contract a part / any of its production

process to Unit(s) in DTA / SEZ / EOU / EHTP / STP with
prior permission of the specified officer which is given on
annual basis

Permission is not required if both the Units are located in

the same SEZ. However, proper accounts of the goods
involved in sub-contracting are to be maintained by both the

supplying and receiving Units

The wastage is permitted as per the norms admissible

under the FTP

21 January 2009 SEZ and EOU 13

 Sub-contracting (continued)

The value of sub-contracted production of a Unit in any

financial year shall not exceed the value of goods produced
by the Unit within its own premises in the immediately
preceding financial year

Moulds, jigs, tools fixtures and drawings can be sent to the

sub-contractor premises subject to the condition that these
shall be brought back to the Unit immediately on expiry of
sub-contracting arrangement

21 January 2009 SEZ and EOU 14

Sub-contracting (continued)

The Unit removing raw materials, consumables excluding

fuel and components imported / domestically procured
without any processing for sub-contracting into the DTA
area shall file bank guarantee to the specified Officer to
cover the Duty forgone on such materials
Bank guarantee is not required if the SEZ unit turnover is
Rs one crore or above or if the unit is in SEZ for more
than a period of two years with an unblemished track
record
The specified officer or authorized officer may make
random checks either at the sub-contractor’s premises /
the SEZ gate for the purpose of verification of goods sent
and received

21 January 2009 SEZ and EOU 15

Sub-contracting (continued)

The goods sent for sub-contracting shall be returned to the

Unit within 120 days from the date of removal. Wherever
material is not received within 120 days, the Unit has to
apply for extension with the specified officer providing the
reason for same who shall grant extension after recording
the reason

In case of failure by the Unit to bring back the goods after
sub-contracting within 120 days or within the extension, the
specified officer shall take action to recover the Duty on the
goods taken for sub-contracting

21 January 2009 SEZ and EOU 16

Export From SEZ

SEZ can export through seaports / airports / Inland Container

Depot / Container Freight Station / Land Customs Station /
Post / Courier / Personal Carriage as under:
The Unit shall file Shipping Bill (in quadruplicate) with
the Authorized Officer of Customs in the SEZ together
with relevant documents as in invoice, packing list and
Currency Declaration Form (GR) - in duplicate
The goods shall not be subjected to routine
examination and ‘Let Export Order’ shall be given on the
basis of self certification by the Unit
Goods may be sealed after examination, as per the
norms prescribed for free shipping bills - at the option of
the Unit - by the Authorized Officer

21 January 2009 SEZ and EOU 17

Export From SEZ (continued)

If services are exported in a non-physical form, then,

the export value is to be furnished by the Unit on self
certification basis as per the instructions of the Reserve
Bank of India

In case of large quantity / size cargos, which can not

be exported from SEZ, the export of the same may be
allowed under Bond for Differential Duty amount by the
specified officer. SEZ Unit shall submit the proof of
export within 90 days of removal of such cargo, failing
which applicable Duty on the goods (not exported) shall
be payable

21 January 2009 SEZ and EOU 18

Annual Performance Report

The Unit shall maintain proper accounts which would clearly

indicate in value terms the goods imported / procured from DTA /
consumption / utilization / production of goods – including by-
-products / waste or scrap / remnants / disposal of goods and
balance in stock

The Unit shall maintain such records for a period of 7 years from
the end of relevant financial years

The Unit shall submit Annual Performance Report in the Form I

to the Development Commissioner

21 January 2009 SEZ and EOU 19

Exit Policy

An Unit can opt out of the SEZ with the approval of the Development
Commissioner and on payment of the appropriate Duties. In case
NFE is not fulfilled, the exit may be subject to penalty too

Exit from SEZ is allowed to an Unit after 5 years from the date of
LOA

After the exit, an Unit can opt for EPCG as a one time option

21 January 2009 SEZ and EOU 20

Part B

Export Oriented Unit (EOU)

21 January 2009 SEZ and EOU 21

 Salient Features of EOU

1. These are Customs bonded Units set up under Section 65 of the

Customs Act, 1962 but with a much relaxed control and in
accordance with the FTP for manufacture of articles of export out of
India or for production / packaging / job work for export of goods /
services out of India

2. All required inputs and capital goods , indigenous / imported - are

made available to these Units free of Customs and Excise Duties
under Bond

3. The EOU unit may be engaged in manufacture of goods, including

repair, re-engineering and rendering of services. However, Trading
Units are not permitted.

21 January 2009 SEZ and EOU 22

Salient Features of EOU
(continued)
4. Raw material, machinery, packing material etc. imported in this
zone is brought without Customs Duty in case of imported goods
and Excise Duty in case of goods produced indigenously.
Machinery can be obtained on lease

5. Second hand Capital goods can be imported without payment of

Duty

6. DG sets and captive Power Plants can be procured by status

holder EOU unit under intimation to Development Commissioner
and jurisdictional Central Excise authority

7. The goods can be brought from Customs port under a transit

bond
or an insurance policy covering the duty involved. No bank
guarantee is necessary

21 January 2009 SEZ and EOU 23

 Salient Features of EOU
(continued)
8. Goods can also be procured from a public or private warehouse,
where goods are kept without payment of Customs Duty

9. Special CVD of 4% is not payable in case of goods imported by EOU

10. Registration at one port and import can be from other port

11. Anti dumping Duty or Safeguard Duty is not applicable to imports by

EOU
12. EOU Unit can procure indigenous material without payment of Excise
Duty under CT3

21 January 2009 SEZ and EOU 24

 Salient Features of EOU
(continued)
14. If goods cleared under CT3 are not used for intended purpose by the
EOU Unit, action for recovery like confiscation of goods, forfeiture of
security etc. can be initiated

15. A liberal rate of depreciation at different rates for each quarter without any
upper cap has been allowed for de-bonding of Capital goods from the EOU
unit, they need pay duty only on the depreciated value. It means zero duty
where depreciation comes to 100%

16. The consumption of imported and indigenous goods should be as per SION
(Standard Input Output Norms)

17. Scrap / waste / remnants arising out of production (up to 2%)

within norms may be sold in DTA as per SION

21 January 2009 SEZ and EOU 25

SEZ and EOU – A Distinction

1. Supplies to SEZ from DTA are ‘Exports’ while supplies to EOU

from DTA are ‘Deemed Exports”

2. SEZ unit has to be located within the specified zones developed,

while an EOU unit can be set up at any of over 300 places all over
India

3. There is physical control over movement of goods in SEZs, but

there is no such physical control over goods to individual EOUs

4. Fast Track Clearance Service (FTCS) for clearance of imported

consignment for EOU. In case of SEZ units, Customs clearance
for
export and import is obtained within the zone itself

21 January 2009 SEZ and EOU 26

SEZ and EOU – A Distinction
(continued)

5. In case of EOUs, sale within India should be on payment of

Excise Duty. In certain cases, this is payable only 50 % or 30% of
normal Customs Duty payable of such goods if imported into
India. In case of supplies from SEZ to DTA, normal Customs
Duty as payable on import of similar goods is payable

6. EOU Unit can sell in DTA up to 50% of the FOB value of sales of
preceding year - subject to fulfillment of positive NFE and on
payment of concessional rate of Duty. There is no such restriction
in case of SEZ on percentage, but SEZ have to attain positive
NFE

21 January 2009 SEZ and EOU 27

SEZ and EOU – A Distinction
(continued)

7. An EOU can exit (de-bond) with permission of Development

Commissioner and on payment of applicable Duties. However, in
case of Unit in SEZ, it has to physically go out of SEZ

8. In case of an EOU, Central Sales Tax (CST) paid on purchases is

refundable (but not local tax) provided goods are used for
production (and not for services). In case of SEZ Unit, the supplier
does not have to pay CST

9. Service Tax is exempted in case of services provided in SEZ. In

case of an EOU, Service Tax exemption is not available - but refund
can be claimed.

21 January 2009 SEZ and EOU 28

SEZ and EOU – A Distinction
(continued)

10. 100% foreign equity is permissible in SEZ . In case of an EOU,

restriction of FDI (foreign direct investment) are relatively
greater

11.Supplies made to EOU by an Indian Supplier are ‘Deemed

Exports’ and he is entitled to benefits of ‘Deemed Exports’ in
form of refund of terminal Excise Duty and Duty drawback.

12.Supplies to SEZ are ’Exports’ and all Export benefits i.e. DEPB
and Duty drawbacks are available

13.Restriction on External Commercial Borrowing are less in case

of SEZ, compared to restriction on EOU

21 January 2009 SEZ and EOU 29