Special Economic Zone.

CHAPTER 1.

A) INTRODUCTION:
Considering the need to enhance foreign investment and promote exports from the country and realising the need that a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally, the Government of Indias annual EXIM policy of 2000 announced SEZs in India. Apart from new SEZs, the erstwhile Export Processing Zones / Free Trade Zones are also converted into SEZs. Special Economic Zone Act was passed in 2005 and Special Economic Zone Rules in 2006.

The main obstacles to the Industrial growth in India have been poor infrastructure, administrative interference, uncongenial tax laws and unfavorable labour laws and all these collectively driving away foreign investments. But with the SEZs providing solutions to each of these, there is enormous growth potential for Indian industry; manufacturing and service alike. With all the ingredients of SEZs, Indian businesses will sooner become globally competitive.

In India, SEZs are engines of economic growth, supported by world class infrastructure and attractive fiscal benefits. In particular SEZs can be helpful for small and mid-sized businesses which can not afford to set up huge infrastructure on their own.

In this age of Globalization, there is a need for every nation in the world to perform well economically. With the improvements in science and technology and the raising standards of living worldwide, ensuring economic development assumes primary importance in the policies of every nation.

Special Economic Zone.

While striving for economic development, every nation takes steps necessary for the implementation of its ambitious plans. But more often than not, these plans cannot be affected successfully throughout the nation. There are always shortcomings in these economic plans. Every nation wants to give its industries ample

facilities for efficient production of goods and services and in order to make them globally competitive in terms of price and quality. Some of these facilities can be used by all industries throughout the nation. But sometimes, some facilities cannot be given on account of reasons like the geographical extent and the possibility of misuse.

For Example: If a country wants to give subsidized power to a specific industry, it cannot do so throughout the nation as keeping a check on whether the subsidized power is going to the right people or not is a Herculean task.

Thus, in order to give the industry certain added advantages, the governments of various nations come up with special schemes and subsidies mostly related to customs duties. These schemes provide an upward thrust to the nations products in the global markets on account of lower prices / better quality. Such schemes, if implemented directly, are not allowed by the WTO. This has resulted in many nations coming up with such schemes in an indirect manner. One of the most popular ones is to set up a special area demarked for the purpose of industrial growth. Various facilities can be offered in this area without the fear of them being misused and also, no resistance from WTO (or any other trading partner / nation) is encountered on account of the scheme not being a national policy, but only limited to a small area demarked for the purpose. This is where the concept of Economic Zones comes in.

Special Economic Zone. DEFINITION:

Specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs EXIM Policy 2000, Chapter 9 Para 30EXIM Policy 2000, Chapter 9 Para 30

MEANING:
SEZ is a geographical region with different economic laws than a countrys typical economic laws, with the main goal of attracting foreign investment. In economic terms, SEZ is specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties & tariffs. Countries which have experimented with this concept are China (with great success), UAE, Malaysia, India, Jordan, Poland, Kazakhstan, Philippines, Russia and to some extent North Korea.

Apart from Central government, any private/ public/ joint sector or State Government can set up an SEZ. Before recommending any proposal to department of commerce, the State must satisfy themselves that they are in a position to supply basic inputs like water, electricity etc.

SEZs have potential to play a key role in economic development of a country, as they did for China.

Special Economic Zone. CONCEPT OF SEZs:

1. Duty free areas with Integrated Infrastructure 2. High Point - Preferential Policy framework with a package of incentive 3. Benefits of local advantages within an international business environment 4. Business Infrastructure combined with social facilities

5. Development, Administration and Operation to be undertaken by private sector to enable a hassle free operating environment 6. Envisaged as areas of excellence to enable global companies to derive domestic advantages for doing business.

Special Economic Zone. EPZ TO SEZ:

The first EPZ in India was set up in Kandla, Gujarat in 1965. The Santacruz EPZ in Mumbai came into operation in 1973. However, the EPZ policy was deficient by several factors like limited power of zonal authorities, absence of single window facility within the zone, rigid custom procedures for bonding and bank guarantees, restrictive FDI policy, procedural constraints and severe infrastructural deficiencies.

During 1991-2000, wide-ranging measures were initiated by the Go I for revamping and restructuring EPZs. This phase was thus marked by progressive liberalization of policy provisions and relaxation in the severity of controls and simplification of procedures. Focus had been on delegating powers to zone authorities, providing additional fiscal incentives, simplifying policy provisions and providing greater facilities. The EXIM Policy (1997-2002) introduced a new scheme from April 1, 2000 for establishment of the Special Economic Zones (SEZs) in different parts of the country. As per the policy1. SEZs are permitted to be set up in the public, private, joint sector or by the State Governments with a minimum size of 1000 hectares. 2. The number of incentives both fiscal and non-fiscal has also been extended to the units operating in SEZs. 3. Development Commissioners have been given the labour commissioner's powers. SEZ policy is thus the most significant thrust towards ensuring the success of export processing zones. 4. From November 1, 2000 the Export Processing Zones at Kandla, Santa Cruz (Mumbai), Cochin and Surathave been converted into SEZs. 5. In 2003, other existing EPZs namely, Noida, Falta, Chennai, Vizag were also converted into SEZs. As on June 2005, 53 SEZs have been approved by the Government of India out of which 11 SEZs are functional and the rest 42 SEZs are under establishment.

Special Economic Zone. B) OBJECTIVES OF SEZ :

The Central Government, while notifying any area as SEZ shall be guided by the following: -

The main objective of the SEZ scheme according to the finance and commerce ministries is to create delineated, duty -free zones with world class infrastructure, internationally competitive production

environment and fast track clearance system for attracting private investments, especially foreign direct investment (FDI) for setting up export oriented unit. The broad objectives of the SEZ policy are:

a) Generation of additional economic activity b) Promotion of exports of goods and services; c) Promotion of investment from domestic and foreign sources; d) Creation of employment opportunities; e) Development of infrastructure facilities; and f) Maintenance of sovereignty and integrity of India, the security of the State and friendly relations with foreign states. g) Attracting foreign investment. h) Foreign exchange earnings i) Technology transfers.

Special Economic Zone. SALIENT FEATURES:

A designated duty free enclave and to be treated as foreign territory for trade operations and duties and tariffs No license required for import Manufacturing, trading or service activity allowed SEZ unit to be positive net foreign exchange earner within three years Performance of the units to be monitored by a Committee headed by Development Commissioner and consisting of Customs No fixed wastage norms Full freedom for subcontracting including subcontracting abroad Duty free goods to be utilized in 5 years Job work on behalf of domestic exporters for direct exports allowed Contract farming allowed agriculture/ horticulture units No routine examination by Customs of export & import cargo No separate documentation required for Customs and Exim Policy In house customs Clearance Support service like banking, post office, clearing agents etc. provided in Zone Complex

Special Economic Zone. UNIQUENESS OF SEZ IN INDIA:

The SEZ policy framework is the most visionary, ambitious and far-reaching initiative of the Government of India (GOI) so far designed to transform fundamentally the 'Foreign Direct Investment (FDI) Landscape' for all times to come. It is designed to provide complete business freedom to large multinational companies, which are seeking to globalize their production bases.

The central and distinctive anchors of the SEZ policy framework in India cover the following themes:

100% tax break/holiday for ten years up to 2010 (in other countries, tax reliefs are regulated). Unrestricted access to domestic markets (with payment of applicable duties/taxes). The permissible economic activity in SEZ is vast and it covers trading, servicing, reconditioning, labeling, repacking etc... 100% foreign ownership automatically cleared in the manufacturing sector. The Chinese SEZs for long have insisted on the joint venture with local partners. 100% foreign investment automatically cleared in the manufacturing sector.

Special Economic Zone.

DISTINCTIVE CHARACTERISTICS OF THE INDIAN SEZ

MODEL:

There are certain distinct characteristics of the Indian SEZ model, which have been illustrated below.

1. International experiences show that Govt. have largely developed special economic zones and have invested the necessary funds to create zone infrastructure. As an extension, Govt.has also had taken the principal responsibility for marketing these zones internationally. Unlike this the primary thrust of the Indian SEZ model is to facilitate 'private sector led' SEZ's. This has opened up possibilities for developing SEZ's in the private sector and joint sector.

2. Keeping in view learning from other countries, the Indian SEZ model also envisages a minimum size of 1000 ha for all green-field SEZ's. As highlighted earlier, a minimum critical mass or size is necessary to give rise to the desired economic multiplier. The combined utilized area under all EPZs and FTZs in India is 2100 acres i.e. less than 1000 hectares, the minimum size stipulated for green field SEZ. The simultaneous conversion of existing EPZS I FTZs into SEZs provides an opportunity to test and fine tune the SEZ policy before being finally applied to green field SEZs.

3. Experience of comparable countries shows that decisions such as location selection, number of SEZ's be promoted and the focus for investment attraction have largely been influenced by national govt. In the Indian SEZ model, states are being encouraged to take these choices while the central govt. is largely focusing on policy-making and facilitation. This has resulted in a number of proposals from states for developing SEZs. Since much of the funding for SEZ's is envisaged through private sector/banks, soundness of the business model, competitive differentiation and market forces would be the key determines of bank ability of these projects.

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10

DO ZONES MAKE DIFFERENCE? HOW?

GDP PER CAPITA

US+EU

Export 1996

Share 1993

Share

Growth 93-96 102 Countries with Zones 28 High income (> 9385) 42% 28%

World Trade World Trade 75% 41% 12% 12% 74% 46% 10% 10%

16 Upper-middle ($3035 to $9385) 62% 37Lower-middle ($ 765 to $ 72% 3035)* 21 Low income (< $765) 126 Countries without zones 59% 39%

10% 25%

9% 26%

22 High income 28 Upper-middle 30 Lower-middle 46 Low income

45% 33% 1% 57%

19% 3% 2% 1%

19% 4% 3% 1%

Special Economic Zone. GOVERNMENT POLICY ABOUT SEZ:

11

A new policy has 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 SEZs 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.

ROLE OF STATE GOVERNMENT:

State Governments will have a very important role to play in the establishment of SEZ. Representative of the State Government, who is a member of the Inter-Ministerial Committee on private SEZ, is consulted while considering the proposal. Before recommending any proposals to the Ministry of Commerce & Industry (Department of Commerce), the States must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.

Special Economic Zone. SETTING UP OF SEZ :

Who can set up SEZs?

12

Any private/public/joint sector or State Government or its agencies can set up Special Economic Zone (SEZ).

1. Can Foreign Companies set up SEZs?

Yes.

2. How can one apply for setting up of SEZs?

15 copies of application, indicating name and address of the applicant, status of the promoter along with a project report covering the following particulars may be submitted to the Chief Secretary of the State: Location of the proposed Zone with details of existing infrastructure and that proposed to be established; Its area, distance from the nearest seaport / airport / rail / road head etc. Financial details, including investment proposed, mode of financing and viability of the project. Details of foreign equity and repatriation of dividends etc., if any Whether the Zone will allow only certain specific industries or will be a multi-product Zone.

The State Government shall, forward it along with their commitment to the following to the Department of Commerce, Government of India:

That area incorporated in the proposed Special Economic Zone is free from environmental restrictions;

Special Economic Zone.

That water, electricity and other services would be provided as required;

13

That the units would be given full exemption in electricity duty and tax on sale of electricity for self generated and purchased power;

To allow generation, transmission and distribution of power within SEZ; To exempt from State sales tax, octroi, mandi tax, turnover tax and any other duty/cess or levies on the supply of goods from Domestic Tariff Area to SEZ units;

That for units inside the Zone, the powers under the Industrial Disputes Act and other related labour Acts would be delegated to the Development Commissioner and that the units will be declared as a Public Utility Service under Industrial Disputes Act.

That single point clearances system and minimum inspections requirement under State Laws/Rules would be provided.

The proposal incorporating the commitments of the State Government will be considered by an InterMinisterial Committee in the Department of Commerce. On acceptance of the proposal, a letter of permission will be issued to the applicant

3. Are there any terms & conditions for setting up of SEZ?

Only units approved under SEZ scheme would be permitted to be located in SEZ. The SEZ units shall abide by local laws, rules, regulations or bye-laws in regard to area planning, sewerage disposal, pollution control and the like. They shall also comply with industrial and labour laws as may be locally applicable.

Such SEZ shall make security arrangements to fulfill all the requirements of the laws, rules and procedures applicable to such SEZ.

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14

The SEZ should have a minimum area of 1000 hectares and at least 25 % of the area is to be earmarked for developing industrial area for setting up of units.

Minimum area of 1000 hectares will not be applicable to product specific and port/airport based SEZs.

Wherever the SEZs are landlocked, an Inland Container Depot (ICD) will be an integral part of SEZs.

Detailed guidelines on setting up of SEZ in the Private/Joint/State Sector is given in Appendix 14-II.N of Handbook of Procedures Volume I.

4. What is the approval mechanism for the units?

All approvals to be given by the Unit Approval Committee headed by the Development Commissioner. Clearance from the Department of Policy and Promotion/Board of Approvals, wherever required will be obtained by the Development Commissioner, before the Letter of Intent is issued.

5. Criteria to be adopted for automatic approval of units under EOU/SEZ scheme?

Approval for new unit

Proposals for setting up units under EOU/SEZ scheme under automatic route shall be considered by the Unit Approval Committee taking into account the following: -

(i) Residence proof in respect of individual/partnership firms of all Directors/Partners. (Passport/ration card/driving license/voter identity card) or any other proof to the satisfaction of Development Commissioner;

(ii)

Income

Tax

return

of

all

the

promoters

for

the

last

three

years;

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15

(iii) Experience of the promoters;

(iv) Marketing tie-ups

(v)

In

case

of

EOUs,

inspection

of

the

project

site

by

an

Officer

(vi) A report from other DCs as to whether any case under SEZ/EOU Scheme in regard to diversion of goods etc. is pending.

Wherever necessary, the above may be verified through personal interview with the promoters of the project. In the event of the promoters being a well-established entity, the procedure of personal interview may be dispensed with.

The Unit Approval Committee shall meet on Monday, every week. In case of the absence of Development Commissioner, the meeting will be held by the next senior officer in the Zone. The unit shall intimate the problems being faced by them in advance. In the meetings, apart from the promoters, the other concerned agency with which difficulties are being faced by the unit may also be called.

Recycling of ferrous and non-ferrous metal proposals will be considered only if the unit has Ingots making facility and proposes to achieve value addition.

6. What is the obligation of the Unit under the Scheme?

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16

SEZ units have to achieve positive net foreign exchange earning as per the formula given in paragraph Appendix 14-II (para 12.1) of Handbook of Procedures, Vol.1. For this purpose, a Legal Undertaking is required to be executed by the unit with the Development Commissioner.

The units have to provide periodic reports to the Development Commissioner and Zone Customs as provided in Appendix 14-I F of the Handbook of Procedures, Vol.1.

The units are also to execute a bond with the Zone Customs for their operation in the SEZ.

INCENTIVE/ FACILITIES TO SEZ DEVELOPER :

Developer of SEZ may import / procure goods without payment of duty for the development, operation and maintenance of SEZ. Income tax exemption for a block of any 10 years in 15 years at the option of developer. Income Tax exemption also extended to Investor's in SEZs u/s 10 (23) G of IT Act Exemption from Service Tax 100% FDI permitted to develop township within the SEZ with residential areas, markets, playgrounds, clubs, recreation centers etc. Generation, Transmission and Distribution of Power in SEZs allowed. Full freedom in allocation of developed plots to approved SEZ units on purely Commercial basis and complete authority to provide services like water, electricity, security, restaurants, recreation centers etc. on commercial lines. Develop Standard Design Factory (SDF) building in exiting Special Economic Zones. Infrastructure facility permitted to be transferred for operations & management (O&M) along with income-tax exemptions u/s 80-I-A of IT Act.

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ADVANTANGE TO SEZ UNITS:

SEZ has the following facilities and incentives: The SEZ Act also provides a number of incentives to units proposed to be set up in SEZs. SEZ units may be set up for carrying on manufacturing, trading or service activity. A unit set

Regulatory:

100% FDI allowed through automatic approval No sectoral restrictions Sales to hinterland of India (DTA) permitted with incentives on achieving Positive Net Foreign Exchange (NFE) Sub-contracting allowed to units in DTA All SEZ activities on self certification basis 100% FDI permitted in real estate within SEZ Public Utility status to in-zone units thus preventing flash-strikes by workers Thrust on one-stop clearance and single-point interface for all matters relating to SEZ with powers of various government departments delegated to DC

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Access to cheaper global capital through International Financial Services Center Banking Units in SEZ /

18

Offshore

Fiscal advantage:

ESZ units may import or procure from the domestic sources, duty free, all their requirements of capital goods, raw materials, consumables, spares, packing materials, office equipment, DG sets etc. for implementation of their project in the Zone without any license or specific approval.

Duty free import/domestic procurement of goods for setting up of SEZ units. Goods imported/procured locally duty free could be utilized over the approval period of 5 years. Domestic sales by SEZ units will now be exempt from SAD. Domestic sale of finished products, by-products on payment of applicable Custom duty. Domestic sale rejects and waste and scrap on payment of applicable Custom duty on the transaction value.

Income Tax:

Physical export benefit

Special Economic Zone.

100% IT exemption (10A) for first 5 years and 50% for 2 years thereafter. Reinvestment allowance to the extend of 50% of ploughed back profits Carry forward of losses

19

Foreign Direct Investment:

100% foreign direct investment is under the automatic route is allowed in manufacturing sector in SEZ units except arms and ammunition, explosive, atomic substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes , cigars and manufactured tobacco substitutes.

No cap on foreign investments for SSI reserved items

Banking/Insurance/External Commercial Borrowing:

Setting

up

Off-shore

Banking

Units

allowed

in

SEZs.

OBUs allowed 100% Income Tax exemption on profit for 3 years and 50 % for next two years. External commercial borrowings by units up to $ 500 million a year allowed without any maturity restrictions. Freedom to bring in export proceeds without any time limit.

Special Economic Zone.

20

Flexibility to keep 100% of export proceeds in EEFC account. Freedom to make overseas investment from it.

Commodity hedging permitted. Exemption from interest rate surcharge on import finance. SEZ units allowed to write-off unrealized export bills.

Normal Sales Tax:

Exemption

to

sales

made

from

Domestic

Tariff

Area

to

SEZ

units.

Income Tax Act.

Service Tax:

Exemption from Service Tax to SEZ units.

Environment:

SEZs permitted to have non-polluting industries in IT and facilities like golf courses, desalination plants, hotels and non-polluting service industries in the Coastal Regulation Zone area

Exemption from public hearing under Environment Impact Assessment Notification

Companies Act :

Enhanced limit of Rs. 2.4 crores per annum allowed for managerial remuneration Agreement to opening of Regional office of Registrar of Companies in SEZs. Exemption from requirement of domicile in India for 12 months prior to appointment as Director.

Special Economic Zone.

Drugs and Cosmetics:

21

Exemption from port restriction under Drugs & Cosmetics Rules.

Sub-Contracting/Contract Farming:

SEZ units may sub-contract part of production or production process through units in the Domestic Tariff Area or through other EOU/SEZ units

Agriculture/Horticulture processing SEZ units allowed to provide inputs and equipments to contract farmers in DTA to promote production of goods as per the requirement of importing countries.

DISADVANTAGES:

Revenue losses because of the various tax exemptions. Most players are interested in setting up SEZs with an eye on the real estate bounty so that they can acquire at cheap rates and create a land bank for themselves. The number of units applying for setting up EOUs is not commensurate the number of applications for setting up SEZs leading to a belief that this project may not match up to expectations.

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22

CHALLENGES & OPPORTUNITIES IN SEZs DEVELOPMENT:

CHALLENGES:

1. SEZ projects manifested with multidimensional project risks Inadequate Social and Economic Analysis Availability of Land Location- Insistence near a Port Rehabilitation of the Displaced Infrastructure constraints- External & Internal Cluster Vs Isolated Financial Challenges- Fungibility, Revenue Forecasting Multi-disciplinary policies and multiple authorities Human Resources

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23

2. Economic cycles may impact the occupancy of the zone and consequently its viability Holding on to un-leased lands Impacts of the Global Economy- Manufacturing & Services

3. Inadequate experience of developers to successfully manage and execute all aspects of setting up an SEZ Zeal for Non Processing area development- Epitome of real Estate Development. Industrial Development is a different ball game. Getting carried away by the boom in Services Sector.

OPPORTUNITIES:

1. Huge Investments including FDI 2. High Employment Potential- Skilled & Un-skilled 3. Regional Social & Economic Development 4. Technology Transfer 5. Adoption of Global Best Practices 6. Improvements and additions to Infrastructure 7. Increasing Competitiveness 8. Fresh Boom in Manufacturing and Engineering 9. Development of Globally Competitive Human Resources 10. Reduce Income Inequalities and Disparities

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PROBLEMS OF SEZS-

The rationale for SEZs is supposed to be that there are huge infrastructure and institutional problems with India, so in order to win on exports growth, the way out is to create enclaves with good infrastructure (particularly urban infrastructure) and generous tax treatment. The government seems to be ready with generous tax concessions, but no relaxations to labour law are proposed. Does it make sense to undertake distortionary policies which artificially prop up exports, e.g. by tools such as export subsidies, tax breaks, or manipulation of exchange rates? Economic growth is accentuated by openness, not by faking exports. So I am not enthusiastic about doing SEZs "in order to boost exports". We need a sound, well-run country, which will (by the way) import a lot and export a lot.

What about the fiscal implications? The generous tax treatment of SEZs constitutes a threat to the high tax buoyancies that we have been seeing. If a lot of SEZs come up, and if they succeed, we could see two possibilities. On one hand, existing output could relocate from the taxed zone to the untaxed zone. This

Special Economic Zone.

25

would be very bad news. Or, a milder scenario, a lot of incremental output could take place in SEZs. This sounds nicer from a fiscal perspective, but it isn't. In this case, we will see a decline in the tax buoyancy. I have crunched the data, and it is not clear to me how FRBM targets will be met if tax buoyancies drop below 1.25. Or if I may say this differently, if tax buoyancies drop below 1.25, then a new level of political pain will be required, in cutting discretionary expenditures, in order to get back to FRBM targets.

CHAPTER 2.
A) RECOMMENDATIONS:
Draft SEZ Rules:

While drafting the Rules for Special Economic Zones (SEZ), there was a proposal for a minimum limit of 50 acres of land for developing sector specific SEZ. This sounded a positive step for faster growth for electronics manufacturing. However, in the final draft, the minimum proposed limit has been raised to 250 acres

Suggestion:
ELCINA recommends that the original figure of 50 acres be maintained and with a view to encourage SMEs, a minimum limit of 25 acres be fixed for electronic hardware units.

Special Economic Zone.

26

Procurement of materials on CT- 3 & Procurement Certificates for Export Oriented Units:
[A] Presently Export Oriented Units are required to get a Procurement Certificate for every consignment imported under concessional duty vides Not.25/99. This results in a lot of paper work and loss of time. The problem gets further compounded for those units, which are located in remote areas and far away from Excise office. The amount of time and effort involved in this exercise considering the number of procurements a unit has to make and for each consignment one has to get a certificate from Excise Department is huge. This requirement increases the transaction time and adds to the cost.

Suggestion:
The main purpose sought to be served by Procurement certificate is to ensure that EXPORT ORIENTED UNIT is registered, the material proposed to be procured is covered by LUT and necessary Bond is executed

by the unit. We suggest that PC/CT-3 should be issued based on estimated quarterly requirement of the Unit. The Unit should keep account of the material received against each PC/CT- 3, which can be audited by the Department from time to time. In case an annual audit is not sufficient, the Department may verify and audit records once in a quarter for all procurements made during this period.

Export Oriented Units manufacturing telecom equipment can import material

Without duties based on Procurement Certificate. The same procurement certificate cannot be entertained by a 100% EXPORT ORIENTED UNIT in India (making and exporting telecom components) to supply as a Deemed Export to the telecom equipment manufacturers.

Suggestion:

Special Economic Zone.

27

There is need to provide Deemed Export benefit in this case and allow use of the PC to buy from local telecom component mfrs which will accelerate use of indigenously produced equipments.

Re-warehousing of Materials procured by Export Oriented Units:

When the inputs are to be procured by 100% Export Oriented Units, whether imported or indigenously sourced, the present procedure requires verification & re-warehousing of goods by Central Excise & Customs authorities. This procedure adds to the transaction processing time and transaction cost. The problems are compounded with holidays and non-availability of concerned officials at times when the pressure is to manage working capital effectively. Export Oriented Units have to live with situations when material is available in the factory but cannot be used and, in the bargain, export commitments cannot be honored, leading to drop in exports.

Suggestion:
We suggest that the receiving of goods and re-warehousing be allowed on self-declaration basis. It is recommended that present procedure be dispensed with, at least for units with a good track record. This will improve the through put time and increase the competitiveness of the industry. This would be similar to facility of self-sealing for export and duty payment on monthly basis. ELCINA learns that the above suggestions have already been accepted and incorporated (for status holders) in the Foreign Trade Policy in 2004. However, the instructions are still awaited from CBEC without which the declaration in FTP has resulted in no relief.

Job-work for EXPORT ORIENTED UNIT:

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28

There is no denying the fact that if the Indian Industry is to measure up to the global challenge, it has to deliver the best quality products and services at a competitive prices. In order to ensure this, the industry needs to outsource certain manufacturing processes from outside units for cost benefit and such other considerations. Presently EXPORT ORIENTED UNIT units are required to get permission from the AC /DC, which is time consuming.

Suggestion:
It is submitted that the out-sourcing has become imperative worldwide. In many cases, it is not possible to wait for approval, as the time available for completing the order is often very tight. The suggestion is that this should be allowed on intimation basis. The units are anyway expected to keep complete account of the material.

Sale of Raw Material by Export Oriented Units:

For sale of raw material from EXPORT ORIENTED UNIT, presently the procedure requires permission from jurisdictional AC/DC. The sale of raw material is required because of certain materials getting obsolete due to fast changing requirements of the customers and also internal process and product quality up gradations. This is also a fact that it is difficult to get good buyer for obsolete material. Sometimes due to delay in approvals, the opportunity is lost and the unit has to bear the brunt of whole cost of obsolescence which could have been partly recovered.

Special Economic Zone.

Suggestion:

29

Approval requirement should be done away with. But the unit should make a report in the monthly return.

Availability of Bonding Facility:

After passing of the Bill of Entry, the same is sent to the Customs House for bonding activity, which takes more time due to physical constraints and leads to delays in the total clearance

Suggestion:
The bonding facility should be available at all Airports.

Stamp Duty by Maharashtra Government:

The stamp duty at port is to be paid to collecting authority for each consignment. This is required to be paid in person for each consignment adding additional one day for clearance.

Suggestion:
Single window for all charges like duty, warehouse charges, stamp duty, port charges etc.

EXPORT ORIENTED UNIT Registration & Green Card Registration:

Presently green card is issued by SEEPZ authority and one has to register for EXPORT ORIENTED UNIT at all the ports of imports separately. After revalidation of green card, the same procedure is followed. This takes 7-10 days at SEEPZ and again registration required to be done at each port which takes 7-10 days at each port resulting in: More documentation Delay in procedures Stops clearance till registration is completed, since original documents are required for registration at all ports.

Special Economic Zone.

Suggestion:

30

After issue of Green Card by SEEPZ, the EXPORT ORIENTED UNIT registration should be automatically valid at all ports.

Excise Duty on EXPORT ORIENTED UNIT Goods sold to DTA (U/S 3 of Central Excise Act 1944):

50% of effective duties in comparison with normal traders should be allowed for Export Oriented Units. Currently because of various amendments and anomalies in Notification No.23/2003-CE dt 31-3- 2003, this is not available to Export Oriented Units, especially where the basic customs duty in NIL. The anomaly is that it has been prescribed wef. 6-9-2004, that the 50% duty should not be less than the Excise Duty leviable on such goods made outside the 100% EXPORT ORIENTED UNIT.

Thus when BCD was 10%, EXPORT ORIENTED UNIT was paying 16.352% on sale to DTA,where as imported goods were paying 32.704%.

When BCD became Nil, EXPORT ORIENTED Units paid 10.32% against 20.64% paid on imports. From 69-2004, EXPORT ORIENTED UNIT has to pay 16.32% against 21.39% on imports. This has eroded the competitive position of EXPORT ORIENTED Units considerably.

Suggestion:

To discourage trading in cheap goods, imports into the country with NIL basic duty, this notification needs amendment to grant 50% effective duty benefit to Export Oriented Units.

Sales Tax on local procurement:

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31

CST reimbursements are not allowed on building material like steel, cement etc. to Export Oriented Units. Exemption should be provided from CST. Alternatively, this benefit should be given to boost manufacturing and facility building with the country.

Inter Unit Transfer:

Inter-unit-transfers between two Export Oriented Units (of the same organization) should at least be allowed to avoid excess inventory holding and consequent cost impact. Unnecessary imports and foreign exchange loss can be avoided with better materials management processes centrally for all EXPORT ORIENTED UNIT units of the same organization. Production line stoppages can also be avoided, if material is allowed to be transferred between two Export Oriented Units of the same organization.

CONCLUSION:

Thus it can be concluded that the government needs to enact legislation, create a focused administrative Infrastructure to govern SEZs, offer highly attractive incentives and locate zones in the best possible locations.

I get to know after some study that main purpose of SEZ is to promote Export to increase foreign exchange of the country & strengthen the GDP of the country. To promote Export, government give the land to the units / companies on the basis of more than 70-75 % production to be export. For only this reason government gives a lots of tax facilities to the units. So the point of increase domestic trade through SEZ is no more exists.

2nd point is linking up or networking within the SEZs. But its useful& effective only to the small no of SEZs. As per current statistics the no of SEZs will be more than 1000s in the next 2-3 yrs. Its more complicated to make co-ordination among all these SEZs. & This SEZs are not only in 1 states one in Tamil

Special Economic Zone.

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Nadu & another in Haryana & another in Mumbai . Its too much time consuming & critical to connect all these SEZs.

APPENDIX
A) BIBLOGRAPHY:
www.Agencyfaqs.com. www.indiantelevision.com. www.rediff.com. Economic Times. The Times of India. www.foreigntrade.com. SEZ in India economic perspectives. S. Arunachalam - special economic zones. www.sez.nic.in www.sezindiainvest.com www.nasscom.in