Operation of SEZ in India, the important machinery in the business world

SEZ in India

A Country’s major objective is to increase its business growth in various aspects of areas such as Trade, Commerce, Export, Import and Information Technology, etc. For such growth, various attempts have been made to rise the country and its economic growth in the Global Market. One of such attempts is the creation of the Economic Processing Zone (EPZ) or Network Free Trade Zone. The creation of such a mechanism was successful to an extent as the disadvantages were more than the advantages. The problems were discussed by the experts to increase the business growth of the country. The first Network Free Trade Zone was started in Shannon, Ireland 1959. This was created by the Free Trade Zone act of the United States. India too had a rich history of Network Free Trade Zone prior to the introduction of economic liberalization. The Kandla Port at Kutch is the first Free Trade Zone in the world, established on 1 January 1965. China too recognized the importance of the Network Free Trade Zone and started it in 1984. These whole incidences affected the establishment of SEZ in India.

After such efforts India in 2000 created a different concept known as Special Economic Zone (SEZ). The mechanism of SEZ has a broader meaning such as free trade zones, export-processing zones, industrial parks, economic and technology development zones, high-tech zones, science and innovation parks, free ports, enterprise zones, and others. The SEZ was started to improve the Country’s import and export and also for the improvisation of industrial growth and the flow of Foreign Direct Investment in India.

The Special Economic Zone supply from and to receive a bizarre treatment of procedures of operation than for the rest of the business. This was due to the reasonable enjoyment of tax exemption and the deduction of other taxes of the SEZ business. The Special Economic Zone since focuses on the Foreign Growth with respect to international market even the SEZ location is within the geographical location they are considered as foreign territory for taxation procedures. Sale in Domestic Tariff Area are being treated as goods of import and is applicable for custom duties. In some cases, SEZ’s can be created by foreign companies in India.

India went to another level of creating a Statutory provision for the SEZ to keep a check on the SEZ’s stability and protection of its regime in India which will create confidence in the minds of the people. Special Economic Zone Act 2005 was created and passed by the Parliament in May 2005 and received the President’s assent in June 2006. Separate rules and regulations were created by the Ministry of Commerce on discussion with various senior officials in the field. After the creation of the SEZ Act and SEZ Rules and Regulations, the statutory provision came into force from February 2006.

The main objectives of the SEZ Act are:

  • generation of additional economic activity
  • promotion of exports of goods and services
  • promotion of investment from domestic and foreign sources
  • creation of employment opportunities
  • development of infrastructure facilities

Currently, there were 7 Central Government Special Economic Zones (SEZs) and 12 State/Private Sector SEZs prior to the enactment of the SEZs Act, 2005.  In addition to the existing SEZ, 416 proposals for the setup of SEZs in the country have been accorded formal approvals.  Presently, there are 351 SEZs which are notified, and out of which 232 SEZs are declared to be operational.

The State Government plays a vital role in the setup as they are seated in the inter-ministerial committee while taking important decisions. The State Government has the duty to ensure basic and advanced infrastructure as the primary objective of the SEZ is the improvised business and infrastructure.

Amendments in the SEZ Rules 2006

The are various amendments which have been made to the SEZ Rules, 2006:

  1. Prescribing minimum built-up area for Biotechnology and Gem & Jewelry Sectors for SEZ in India
  2. The SEZ Rules prescribed minimum processing area for Free Trade Warehousing Zone (FTWZ)
  3. The inclusion of specific provisions regarding the grant of in-principle approval and its extension as per the procedures.
  4. The 2006 amendment provided for a lease period of not less than five years as against the earlier provision 82nd Annual Report 2011-12 of lease period being co-terminus with the validity of Letter of Approval;
  5. Stipulating the Upper limit of the area required for multi-product SEZs at 5000 hectares, with the State Governments having the option to prescribe a lower limit;
  6. Revising the minimum processing area uniformly at 50% for multi-product SEZs as well as sector-specific SEZs;
  7. The type of land has to be mentioned in the application form of SEZ as per the 2006 Rules.
  8. Reimbursement of duty in lieu of drawback for the supply of goods to SEZ developers against Indian rupees;
  9. The term “vacant land” is defined for the purpose of SEZs business.
  10. The process of Clubbing of contiguous existing notified Special Economic Zones as per the Rule
    notwithstanding that the total area of resultant Special Economic Zones exceeds 5000 hectares
  11. A number of other amendments to delegate powers is made to simplify the procedure for the efficiency in the operation of SEZ
  12. The SEZ Authority Rules, 2006 have been amended for the smooth functioning of zones, and SEZ Authority has been set up accordingly for such purpose.
  13. Routing proposal for setting up of SEZ through Development Commissioner, to facilitate developers and for better administrative efficiency.
  14. The 2006 amendments include all the existing legislation/rules for generation, transmission and distribution of power and prescribes a time limit of 10 years for constructing the minimum built-up area prescribed under Rule 5.
  15. The 2006 amendment also added a new provision that once an SEZ is notified and becomes operational, the validity of the Letter of Approval will continue as long as the SEZ remains notified.
  16. The prescription about various forms and procedures for the smooth functioning of SEZ is updated in the 2006 amendment.

You can check the list of SEZ in India here: https://en.wikipedia.org/wiki/List_of_special_economic_zones_in_India

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