Special Economic Zones - Guidelines for field formations - reg. - SEZ - F.No DGEP/SEZ/473/2006/ 835

Directorate General of Export Promotion (Government of India Ministry of Finance Department of Revenue) 1 st Floor, Hotel Janpath, Janpath, New Delhi 110 001 Phone - 23344622, Fax: - 23344614/630 E-Mail: - [email protected] F.No DGEP/SEZ/473/2006/ 835 Dated: 03.04.2008 Sub: Special Economic Zones - Guidelines for field formations - reg. Attention is invited to DGEP's letter No. DGEP/SEZ/473/2006 dated 04.07.2007 (Copy enclosed) where in the need for effective participation of the jurisdictional Commissioners in the meetings of the Approval Committees of Special Economic Zones (SEZS), constituted under Section 13 of the Special Economic Zones Act, 2005 , was emphasised. 2. With the notification of more than 200 SEZs and the process of setting -up of these SEZs by Developers and of units by entrepreneurs having commenced, the role of Officers representing the Department of Revenue (DOR) in the meetings of these Approval Committees is now of utmost significance. The following guidelines are therefore issued with a view to help them in taking a proactive approach at the meetings of the Approval Committees for safeguarding the interest of Revenue. These guidelines are not exhaustive and the officers should familiarize themselves with the provisions of the SEZ Act, 2005, and the SEZ Rules, 2006, and the instructions issued by this Department and the Department of Commerce to arrive at the stand to be taken at these meeting. 3. Certain doubts have been raised by field formations regarding jurisdictions over SEZs. In this connection, attention is drawn to Board's Circular No. 53/2005-Customs dated 29th December, 2005 (issued from F.No.305/171/2005-FTT) wherein it was specified that in the port cities, the administrative control over the Special Economic Zones falling within the territorial jurisdiction of the Commissioner of Customs shall be with the Commissioner of Customs. At other places, the administrative control over Special Economic Zones shall be with the jurisdictional Commissioner of Central Excise. Needless to say, the representative of this Department in the Approval Committee shall be from the Commissionerate having jurisdiction in terms of the above cited Board's Circular. 4. GUIDELINES 1. The officers nominated to the Approval Committee of SEZs should familiarize themselves with the SEZ Act and Rules and instructions issued in this regard and ensure that the decisions taken at the Committee are within the provisions of law and should be made keeping in mind the revenue implications of such decisions. 2. Rule 17 of the SEZ Rules, 2006, provides that the Development Commissioner shall get a proposal for setting up of a unit scrutinized and placed before the Committee. The representatives of DOR are advised to conduct verification of credentials of the entrepreneurs proposing to set-up SEZ units beforehand and provide inputs like past history of any cases of violation of the Customs Act, Central Excise Act, etc. to the committee in order so as to enable the Committee to take a decision keeping in mind the track record of the entrepreneurs. 3. The Committee has powers to approve, modify or reject proposals for setting up units for manufacturing or rendering services in accordance with the provisions of sub-section 8 of Section 15 of the SEZ Act, 2005. While granting assent to the approval, the representatives of DOR should ensure whether the particular process to be carried out by the unit constitutes manufacture or not in terms of Section 2 (r) of the SEZ Act which is analogous to section 2(f) of the Central Excise Act. Similarly, in the case of service units, it may be ensured that the services sought to be rendered fall within the ambit of the definition of export of services prescribed in the said Act and Rules. 4. Section 14 of the SEZ Act lays down the powers and functions of the Committee. The Committee approves the import or procurement of goods from the DTA in the SEZ for carrying on the authorized operations by a developer. Import/procurement of material from DTA should be allowed only for the authorised operations approved by the Board of Approval for SEZs (BOA) specifically or are included in the default list of such operations. It should be ensured that the authorized operations are covered under the provisions of SEZ Act and Rules. Activities like Housing, etc, should only be allowed in phases of 20% of approval at a time and commensurate with the needs of SEZs. It should be ensured that the quantum of raw material/machinery and services required are relevant to authorised operations. Since for activities like setting up of hospitals, hotels and other such social infrastructure, no duty free material is permitted for operation and maintenance of such facilities in terms of sub-rule (3) of Rule 27 of the SEZ Rules, 2006, care should be taken not to allow any duty free material for these purposes. For example, consumer goods such as washing machines cannot be allowed duty free for use in such premises. Similarly, vehicles for transportation cannot be allowed as authorised operations. The nominee of the Department should therefore, carefully examine any proposal for allowing goods for authorised operations based on actual need and in accordance with the law. The DOC vide notification dated 16.03.2007 had amended Rule 11(10) of the SEZ Rules widening the scope of operations in the non-processing area enabling the developer to build infrastructure in the non-processing area in excess of the approval given by the BOA, provided no tax benefits have been availed on the excess infrastructure. On being objected by the DOR, the MOC vide instruction no. 8/07 dated 30.03.07 decided to keep it in abeyance till a final view is taken in the matter. Hence, in view of the amendment of Rule 11(10) being kept in abeyance no extra infrastructure without the permission of BOA under authorised operations should be allowed by the unit approval committees. 1. The activities listed in Annexure-A may be considered as approved by default for carrying out as authorised operations from the date of notification. 2. Any activity outside the SEZ cannot be allowed as Authorized Operation. Hence, no duty free material or tax benefit should be allowed for activities like water sewerage / drainage pipelines outside the SEZ or power/telecommunication lines outside SEZ. 3. No tax benefits would be available for measures taken to establish contiguity. 4. Field formations (Range / Divisions) should follow the procedure laid down for movement of goods from SEZ to DTA and from DTA to SEZ as mentioned in the Customs Circular No. 29/2006 dated 27.12.2007 on Implementation of Special Economic Zone Act, 2005, and Special Economic Zone Rules, 2006. 5. No unit should be allowed to start functioning till the walls and specified entry / exit points and the offices of the Development Commissioner (including the Customs officers posted under him) are in place. The processing area should be properly fenced and secured to segregate it from the non-processing area. Regarding manner of fencing: 6. In case of the IT/ITES/EH/ Biotechnology SEZs the BoA's power to decide manner of fencing and number of entry exit points shall be exercised by the Development Commissioner concerned who shall kept the BoA informed of the decisions in this regard. 7. Wherever, the developers are proposing to create 2.4 meters high wall/chain linked fencing with 0.6 meters barbed wire fencing with single entry/exit points, as was provided in the SEZ Rules 2006 prior to amendment dated 15th March 2007, no separate approval of the BoA shall be required. 8. Only one entry/exit gate should be permitted in view of security and revenue loss concerns as well as paucity of Customs Staff for manning the gates unless more gates have been specifically permitted by the BoA. 9. The SEZ Act and Rules do not permit any exemption to services provided by a SEZ unit to any individual inside an SEZ as it does not get covered under the export of services. Similarly, regarding exemption of service tax on services availed by units / developers in SEZs and regarding taxability of service rendered to an SEZ unit in respect of authorised operations by a DTA service provider in DTA, it may be kept in mind that service tax is exempted only for services rendered within the area of SEZ. 10. CENVAT credit is not available for the inputs used in the finished product supplied to "Developer" of SEZ in terms of Rule 6(6) of CENVAT Credit Rules 2004. 5. In this connection, it is also imperative that sufficient Customs personnel be provided to these SEZs to ensure that there is no leakage of Revenue. Reference is invited to the sanction of staff for SEZs issued by the CBEC vide F. No. A. 11013/4/2007-Ad IV. dated 13th November, 2007 and 20th March, 2008. Certain clarifications had also been sought by cadre-controlling authorities regarding the allocations and posting of officers to SEZs in terms of the above cited orders. These issues have subsequently been clarified vide F.No.A. 11013/4/2007-Ad. IV dated 28.2.2008 based on decisions taken at the Board meeting held on 14.2.2008. Accordingly, all cadre controlling authorities are requested to immediately take action to fill up the posts of Customs Officers in SEZs by posting suitable officers in all SEZs which are in the process of being set up or have become functional. Care should be taken to ensure that the staff so deployed have the necessary experience to carry out the duties required to be performed by them as authorised officer/specified officers and officers are rotated in due course. 6. It is requested that these guidelines may be conveyed to the Commissioners in whose jurisdictions such SEZs are located. (M. Vinod Kumar) Addl. Director General (EP) ANNEXURE A AUTHORIZED ACTIVITIES WHICH CAN BE UNDERTAKEN BY THE DEVELOPER/APPROVED CO- DEVELOER BY DEFAULT FROM THE DATE OF NOTIFICATION Information Technology/Information Technology Enabled Services, Bio-technology and Gems and Jewellery Special Economic Zone: Roads with Street lighting, Signals and Signage Water treatment plant, water supply lines (dedicated lines up to source), sewage lines, storm water drains and water channels of appropriate capacity. Sewage and garbage disposal plant, pipelines and other necessary infrastructure for sewage and garbage disposal, Sewage treatment plants Electrical, Gas and Petroleum Natural Gas Distribution Network including necessary sub-stations of appropriate capacity, pipeline network etc. Telecom and other communications facilities including internet connectivity. Rain water harvesting plant Air conditioning of processing area Fire protection system with sprinklers, fire and smoke detectors Landscaping and water bodies Boundary wall Built up processing area not less than minimum prescribed 1 lakh sq. m. Office space for Customs and Security staff not exceeding 500 sq.m. Sector Specific Special Economic Zones 1. Roads with Street lighting, Signals and Signage 2. Water treatment plant, water supply lines (dedicated lines up to source), sewage lines, storm water drains and water channels of appropriate capacity. 3. Sewage and garbage disposal plant, pipelines and other necessary infrastructure for sewage and garbage disposal, Sewage treatment plants. 4. Electrical, Gas and Petroleum, Natural Gas Distribution Network including necessary sub-stations of appropriate capacity pipeline network etc. 5. Effluent treatment plant and pipelines and other infrastructure for Effluent treatment. 6. Telecom and other communications facilities including internet connectivity 7. Rain water harvesting plant 8. Landscaping and water bodies 9. Wi Fi and / or Wi max Services 10. Drip and Micro irrigation systems 11. Boundary wall 12. Factory sheds in processing area 13. Office space for Customs and Security staff not exceeding 500 sq.m. Multi Product Special Economic Zones 1. Roads with Street lighting, Signals and Signage 2. Water treatment plant, water supply lines (dedicated lines up to source), sewage lines, storm water drains and water channels of appropriate capacity. 3. Sewage and garbage disposal plant, pipelines and other necessary infrastructure for sewage and garbage disposal, Sewage treatment plants 4. Electrical, Gas and Petroleum Natural Gas Distribution Network including necessary sub-stations of appropriate capacity, pipeline network etc. 5. Effluent treatment plant and pipelines and other infrastructure for Effluent treatment 6. Play ground 7. Landscaping and water bodies 8. Wi Fi and / or Wi max Services 9. Drip and Micro irrigation systems 10. Boundary wall 11. Factory sheds 12. Office space for Customs and Security staff not exceeding 500 sq.m.