Frequently Asked Questions
What are the exit options for an SEZ Developer?
The SEZ Act provides for transfer of letter of approval in case of a Developer who is unable to discharge his functions,or violates the terms and conditions of the letter of approval or is facing financial hardship.
There is no restriction on transfer of equity in the Developer company, which would provide the investors with an exit option.
Is Foreign Direct Investment (FDI) allowed for establishment of an SEZ?
Foreign Direct Investment, upto 100%, for setting up of SEZ is permissible under automatic route. Wherever approval from Central Government is required, the same can be given by Board of Approval.
However, it should be ensured by the promoter that his equity does not fall below 51%. In case the promoter decides to decrease the shareholding below 51%, then prior approval of BOA must be taken. (Instructions No:23 of Department of Commerce)
How is the built up area for FTWZ determined? Will it cover paved area, walled area, container yard etc.? Is development allowed in phases?
The minimum built up area for FTWZ is 1 lakh sq. mtrs. The paved and walled area, and the container yard will not form part of the built up area. Development can be carried out in phases as well.
Whether sale of land in processing area/non-processing area allowed?
No. Land notified as an SEZ can not be sold. It can only be leased.
Can the residential area in the non-processing area of the SEZs be sold?
No. Land in the SEZ, including the non-processing area, cannot be sold.
Can the car parking area be part of the built-up area for the IT SEZs?
No. The car parking area cannot be counted as part of the built- up area for IT SEZs.
What is the concept of a Co-Developer?
The infrastructure facilities of the SEZs are normally to be developed by the Developer. The developer may, however, desire that certain facilities or certain portions of the SEZ to be developed by another person. Such person willing to set up infrastructure in the SEZ can file an application with the Board of Approval to be considered as Co-Developer, with the consent of the Developer, and will be eligible for similar benefits as the Developer. (Section 3(12) of SEZ Act, 2005)
Are there any limitations or conditions in relation to the support infrastructure in the non-processing area? Can these be used/ accessed by outsiders?
This is considered on case-to-case basis by the Board of Approval. It is expected that the non-processing area facilities should primarily cater to the needs of the SEZ.
What are the kinds of support infrastructure that can be included in an SEZ? Will these be part of the SEZ and will fiscal benefits be available in respect of these facilities?
The SEZs can have business, residential or recreational facilities located in the non-processing area to support the processing area activities. Such activities shall need prior authorization of the BOA. Only those authorized activities approved by the BOA would be eligible for exemption from taxes and duties for the initial establishment of the infrastructure facilities. No duty exemption shall however be available for operation and maintenance of such facilities in non-processing area. [Rule 27(3)]. Details of a activities, which can be approved as authorized activities, in non-processing area, are given in Ministry of Commerce & Industry Notification dated 27.10.2006. In respect of default activities, as given in Ministry of Commerce & Industry Circular No:F.1/153/2007-SEZ dated 22.8.2008, no approval from Board of Approvals is required.
Is there a requirement for a minimum number of tenants in a SEZ?
No. There is no minimum requirement for the number of tenants within an SEZ. The same legal entity can be the developer and can also be one of the units in the SEZ.
Is there a minimum criterion for built up space?
There is a minimum built-up area requirement of 1 lakhs sq. meters for sector specific SEZ in the IT sector and for FTWZ. [Rule 5(2) of SEZ Rules 2006], Rule 5(2) provides as under:
• A Multi Product SEZ shall have a contiguous area of one thousand hectares or more but not exceeding 5000 hectares. Provided that in case a Special Economic Zone is proposed to be set up in Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal, Sikkim, Jammu and Kashmir, Goa or in a Union Territory, the area shall be two hundred hectares or more.
• Provided further that at least fifty per cent of the area shall be earmarked for developing the processing area
• Provided also that the Central Government may consider on merit the clubbing of contiguous existing notified Special Economic Zones notwithstanding that the total area of resultant Special Economic Zones exceeds 5000 hectares.
• A Special Economic Zone for a specific sector or [for one or more services] or in a port or airport, shall have a contiguous area of one hundred hectares or more:
• Provided that in case a Special Economic Zone is proposed to be set up exclusively for electronics hardware and software, including information technology enabled services, the area shall be ten hectares or more with a minimum built up processing area of one lakh square metres:
• Provided further that in case a Special Economic Zone is proposed to be set up exclusively for handicrafts, the area shall be ten hectares or more.
• Provided also that in case a Special Economic Zone is proposed to be set up exclusively for bio-technology, non- conventional energy, including solar energy equipments/ cell, or gem and jewellary sectors, the area shall be ten hectares or more with a minimum built up area as under:
i) forty thousand square meters in case of a Special Economic Zone proposed to be set up exclusively for biotechnology and non-conventional energy sectors, including solar energy equipments/cells but excluding a Special Economic Zone set up for non-conventional energy production and manufacturing;
ii) fifty thousand square meters in case of a Special Economic Zone proposed to be set up exclusively for the gems and jewellery sector.
• Provided also that in case a Special Economic Zone for a specific sector is proposed to be set up in Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal, Sikkim, Jammu and Kashmir, Goa or in a Union territory, the area shall be fifty hectares or more for the Special Economic Zones not covered under the first and second provisos.
• Provided also that at least fifty per cent, of the area shall be earmarked for developing processing area.
• Special Economic Zone for Free Trade and Warehousing shall have an area of forty hectares or more with a built up area of not less than one lakh square metres.
• Provided that in a stand alone Free Trade and Warehousing Zone at least fifty per cent of the area shall be earmarked for developing processing area.
• Provided further that a Free Trade and Warehousing Zone may also be set up as part of a Special Economic Zone for multiproduct:
• Provided also that in a Special Economic Zone for a specific sector, Free Trade and Warehousing Zone may be permitted with no minimum area requirement but subject to the condition that the maximum area of such Free Trade and Warehousing Zone shall not exceed twenty per cent, of the processing area.
Will it be possible to include a portion of the non-processing area into the processing area at a later point of time subject to compliance with the boundary wall requirements?
The Development Commissioner is the authority to demarcate the SEZ area into processing and non-processing areas. Conversion of non-processing area into processing area would be permissible subject to the satisfaction of the Development Commissioner. (Rule 11)
What is the procedure for increasing the size of the SEZ with additional land?
As long as the additional land is contiguous and vacant and it makes the entire SEZ area contiguous, the additional area could be included as part of the SEZ by a notification, after approval from Board of Approvals.
Is there any procedure for de-notifying an SEZ?
This can be considered by Board of Approval provided SEZ developer refunds back all benefits availed by it.
Would there be any issue if a rivulet passes through the SEZs?
The requirement of contiguity in respect of a SEZ shall be considered by the Board of Approval on a case-to-case basis. [Rule 7(2)]
Can contractors be appointed by developer and will they be eligible for duty benefits?
Duty benefits available to the Developer shall also be available to the contractor without any approval by the BOA. However, the responsibility for proper utilization of goods rest with the Developer. Relevant documents would have to be filed jointly in the name of the Developer and the contractor. (Rule 10)
Are goods imported/procured before the notification of the SEZ entitled to duty benefits?
No. As per Rule 9 duty benefits are available for authorized operations by the SEZ developer only after the Zone has been notified. Similarly, SEZ units are entitled to import/procure goods for authorized operations only after the processing area has been demarcated. [Rule 9]
Are duty and other benefits available for operation and maintenance of infrastructure facilities in the non-processing area?
Duty exemption for goods and services is not available for operation and maintenance of facilities in the non-processing area. [Rule 27(2)]
A developer is allowed to allot land in the processing area on a lease basis to a person wanting to establish infrastructure facilities; what infrastructure facilities can be located in the processing area?
Authorized infrastructure facilities which may be located in the processing area include, standard design factory buildings, power plant, effluent treatment plant, etc. [Rule 11(5)]
Does a developer have to get environmental clearance or is the approval of the BOA sufficient? Also, whether public hearing is dispensed with in respect of SEZ development?
Yes; environmental clearance as required under the law is required and the BOA approval does not include environmental clearance.
For development of SEZs, public hearing is not exempted and the process of environmental impact assessment (EIA) as laid down in the notification of the Ministry of Environment would have to be adhered to. [Condition of Letter of Approval to developer (Form -B and C)].
What is the meaning of the "Vacant area"?
"Vacant Land" means the land where there are no functional ports, manufacturing units, industrial activities or structures in which any commercial or economic activity is in progress. (Rule 2 (zf)).
What is meant by contiguous area? Can an underpass/over bridge to connect two pieces of land separated by road/canal etc. create contiguity?
Contiguous area means 'an area which is connecting without a break, within a common boundary'. Fulfillment of the requirement of contiguous area in respect of SEZs shall be considered by the Board of Approval on a case-to-case basis, in case the contiguity is broken due to existing roads, railwaylines, streams etc. (Rule 7(2))
The conditions for relaxation of contiguity criteria in respect of multi-product SEZs are as under (Instruction No:27 of Department of Commerce):-
i) The developer shall maintain contiguity by dedicated security gates/overbridges/underpass/culverts and also fence side of the road facing the processing area.
ii) No tax benefits would be available for measures taken to establish contiguity.
iii) The entire processing area would be located on one side of the National Highway.
iv) The formal approval from authorities concerned like NHAI and others would be submitted to the Department of Commerce and work for establishing contiguity would be started only after obtaining the requisite approvals.
v) No LoA for any SEZ unit will be issued till the entire measures to establish contiguity and securitization of the processing area are completed.
vi) the movement shall be restricted between the two SEZs till contiguity is established and the present systems will continue
What is the processing and non-processing area? Who is the authority to demarcate the processing and non-processing area?
The processing area is that area in an SEZ where units can be located for manufacture of goods or rendering of services. The Free Trade and Warehousing Zone can also be set up only in the processing area of a multi product SEZ.
The processing and non-processing areas will be demarcated by the Development Commissioner. The processing area and Free Trade and Warehousing Zone shall have specified entry and exit points and be fully secured by taking such measures as approved by the Board of Approval. The non-processing area is the area which is intended to provide support facilities to the SEZ processing area activities and may include commercial and social infrastructure. (Section 6 of SEZ Act and Rule 11)
In this context, the Board decided to prescribe the following norms for boundary walls (Instruction No. 25 of Department of Commerce):
A. In respect of IT/ITES SEZs, the height of the wall will be decided by the DC
B. In respect of other SEZs, the wall could either be 2.4 meters in height or 1.8 meters in height plus 0.6 meters of barbed wire fencing.
C. For any deviations, the proposals can be referred to BoA for a decision.
(Instruction No. 25 of Department of Commerce)
What are the incentives and facilities available to the developers of SEZs?
The major incentives and facilities available to SEZ developers include:-
• Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA.
• Income Tax exemption for a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act. Block of 10 years will be selected at the discretion of the developer.
• Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.
• Exemption from dividend distribution tax under Section 115 O of the Income Tax Act.
• Exemption from Central Sales Tax (CST) for authorised operations.
• Exemption from Service Tax. (Section 7,26 and Second Schedule of the SEZ Act) for authorised operations.
What are the steps involved in establishment of a Special Economic Zone?
The steps involved are:
• A developer intending to set up an SEZ should first identify the category of SEZ he intends to apply for.
• Area for setting up of the SEZ needs to be identified. (The area should not be less than the minimum area indicated at Q.2 above.)
• After identifying the area, an application for establishment
of SEZ in Form - A is to be made to the State Government concerned. (Rule 3). If the land is owned by the Developer or has already been leased for a period in excess of 20 years by the Developer, the details of the same can also be filed alongwith the application.
• The State Government, at the time of recommending the proposal, shall commit to provide the facilities and incentives such as exemption from state and local levies, exemption from electricity duty, single window clearance under the State Laws etc. as provided in sub-Rule (5) of Rule 5 of the Special Economic Zone Rules, 2006. [Rule 4(5)]
• The State Government has to forward the proposal with its recommendations within 45 days from the date of receipt of such proposal to the Board of Approval (BOA) addressed to Deputy Secretary, (SEZ) Department of Commerce, Udyog Bhavan, New Delhi. [Rule 4 (1)]
• The applicant also has the option to submit the proposal in Form A directly to the Board of Approval addressed to Deputy Secretary, (SEZ) Department of Commerce, Udyog Bhavan, New Delhi. In such cases, the applicant shall have to obtain the concurrence of the State Government within 6 months from the date of such approval. [Proviso to Rule 4(1)]
• After approval by the Board, the Department of Commerce issues a Letter of Approval to the applicant for establishment of the SEZ (Rule 6)
• After receipt of the Letter of Approval and on submission of details of the land and a clarification from the concerned state government or its authorized agency stating that
developer has legal possession and irrevocable right, the Department of Commerce shall notify the area as an SEZ. (Rule 7 and 8)
• The applicant is required to submit details of the operations proposed to be undertaken in the SEZ so as to obtain authorization for the same from the BOA. Exemptions from central duties and taxes are extended only for the authorized operations.
• Procurement of goods for development of SEZ for authorized operations shall be approved by the Approval Committee at the zone level on the basis of which goods can be procured without payment of Customs duty and Excise Duty by the developer. (Rule 10)
• The applicant has to submit Bond cum Legal Undertaking in the Form-D[SEZ Rule 22(i)].The same shall be jointly accepted by Development Commissioner and by the Specified Officer.
What is a maximum area limit for multi-product Special Economic Zone?
The maximum area over which a multi-product Special Economic Zone can be set up is 5000 hectares. However, the Central government may consider on merit, the clubbing of contiguous existing notified Special Economic Zones notwithstanding that the total area of resultant Special Economic Zones exceeds 5000 hectares.
What is the minimum area requirement for establishment of Special Economic Zones?
The minimum area requirements stipulated for various categories of SEZs are:
|TYPE||AREA||AREA FOR SPECIAL STATES/UTs||MINIMUM BUILT-UP AREA.|
|Multi-product||1000 hectares||200 hectares||—|
|Multi services||100 hectares||100 hectares||—|
|Sector specific||100 hectares||50 hectares||—|
|Handicrafts||10 hectares||10 hectares||—|
|IT/ITES, Electronic Hardware||10 hectares||10 hectares||1 Lakh sq.meter processing area.|
|Gems and Jewellery||10 hectares||10 hectares||50,000 sq. meters processing area|
|Bio-tech, Non - Conventional energy including solar energy equipments/ cell||10 hectares||10 hectares||40,000 sq. meters processing area|
|Non Conventional energy Excluding solar energy equipments/ cell||10 hectares||10 hectares|
|FTWZ||40 hectares||40 hectares||1 lakh sq.meters processing area.|
The Special States are Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttranchal, Sikkim, Jammu & Kashmir and Goa
Who can establish a Special Economic Zone?
A Special Economic Zone can be established by individual, whether resident in India or outside India, a Hindu undivided family, a co-operative society, a company, a firm, proprietary concern, or an association of persons or body of individuals, local authority or by the State Governments. (Section 3 of SEZ Act, 2005)
The Central Government does not intend to set up any new SEZs.
Will it be possible to supply to other units in SEZ?
YES. Inter Unit Sales are permitted as per the Policy. Buyer procuring from another unit pays in Foreign Exchange.
What are the provisions relating to External Commercial Borrowing (ECB) in SEZ ?
External commercial borrowings by units up to $ 500 million a year allowed without any maturity restrictions For details please see guidelines issued by RBI (F.No. 4(2)/2002-ECB, dated 15.9.2002).