Lesson 6: Law relating to Special Economic Zones

# Salient features of the Act

The Special Economic Zone Act, 2005 is a law that helps create special areas called Special Economic
Zones (SEZs). These areas are designed to attract businesses and investments.

Some key features of the law include:

-Making it easy for businesses to set up and operate in SEZs

-Providing tax benefits and incentives to businesses in SEZs

-Creating a single window for businesses to get all necessary approvals-

-Giving each SEZ its own authority to make decisions

-Setting up special courts to quickly resolve disputes and investigate crimes in SEZs

# Setting Up a Special Economic Zone (SEZ)

Who Can Set Up SEZs?

Any private/public/joint sector company, State Government, or its agencies, as well as foreign
companies, can set up SEZs in India.

Step-by-Step Procedure

1. Identify the area: The person or organization wanting to set up the SEZ identifies a suitable area.

2. Make a proposal: The person or organization makes a proposal to the State Government.

3. Optional direct proposal: Alternatively, the person or organization can make a proposal directly to
the Board.

4. State Government proposal: If the State Government wants to set up an SEZ, it can forward a
proposal directly to the Board of Approval.

5. Proposal format: All proposals must be made in a prescribed format with required details.

-Every proposal under sub-sections (2) to (4) shall be made in such form and manner

6. State Government review: The State Government reviews the proposal and sends it to the Board
with its recommendations within a fixed period.

7. Board's decision: The Board reviews the proposal and decides whether to approve, modify, or reject
it.
8. Central Government's role: The Central Government prescribes requirements for SEZ establishment,
including minimum land area and terms and conditions. Different requirements may be prescribed for
different types of SEZs.

9. Board's communication: If the Board approves the proposal, it communicates the approval to the
Central Government. If it approves with modifications, it communicates the modifications to the
proposer. If it rejects the proposal, it records the reasons and communicates the rejection to the Central
Government.

10. Central Government's approval: The Central Government grants a letter of approval to the
Developer within a prescribed time. The letter outlines the terms and conditions, obligations, and
entitlements.

11. Co-Developer provision: Any person or State Government providing infrastructure facilities or
undertaking authorized operations in the SEZ can be considered a Co-Developer.

12. Developer's role: The Developer can allocate space, provide infrastructure services, and enter into
agreements with entrepreneurs for approved units.

# What are Infrastructure Facilities?

Infrastructure facilities refer to the basic necessities required for the development of a Special Economic
Zone (SEZ). These include:

- Industrial facilities (e.g., roads, utilities)

- Commercial facilities (e.g., offices, warehouses)

- Social facilities (e.g., housing, healthcare)

- Other necessary facilities (as prescribed by the government)

# Setting Up and Approving an SEZ

According to Section 4 of the SEZ Act:

1. Approval: The Developer gets approval for setting up an SEZ.

2. Submitting Particulars: The Developer submits the exact details of the identified area to the Central
Government.

3. Verification: The Central Government checks if the specified requirements are met.

4. Notification: If everything is in order, the Central Government officially notifies the identified area as
an SEZ.
# Guidelines for Notifying a Special Economic Zone (SEZ) {Sec 5}
When the Central Government (C.G.) decides to notify an area as an SEZ, they must consider the
following guidelines:

1. Boost Economic Activity: The SEZ should generate new economic activity and growth.

2. Increase Exports: The SEZ should promote the export of goods and services.

3. Create Jobs: The SEZ should create new employment opportunities.

4. Attract Investment: The SEZ should attract investment from both domestic and foreign sources.

5. Develop Infrastructure: The SEZ should lead to the development of necessary infrastructure facilities.

6. Maintain National Interests: The SEZ should not compromise India's sovereignty, integrity, security,
or friendly relations with other countries.

# Processing and Non-Processing Areas {Sec 6}

The Central Government can divide the Special Economic Zone (SEZ) area into three parts:

1. Processing Area: For setting up units that manufacture goods or provide services.

2. Trading/Warehousing Area: Exclusively for buying/selling or storing goods.

3. Non-Processing Area: For activities not related to manufacturing, trading, or warehousing.

# Tax Exemptions {Sec 7}

Units or Developers in SEZs are exempt from paying:- Taxes, Duties, CESS (a type of tax) on goods and
services:

- Exported from the SEZ

- Imported into the SEZ

- Bought from the Domestic Tariff Area

# Board of Approval {Sec 8}

The Central Government sets up a Board of Approval within 15 days of the SEZ Act starting. This Board:

- Has members appointed by the Central Government

- Meets regularly to discuss SEZ-related matters

- Has rules for its meetings and decision-making process

# Duties, Powers, and Functions of the Board of Approval {Sec 9}
The board has duty to promote and Ensure the orderly development of Special Economic Zones
(SEZs).

The Board has the power to:

[Link] or Reject Proposals: Decide on proposals for setting up an SEZ.

2. Approve Authorised Operations: Grant approval for authorised operations to be carried out in an
SEZ.

3. Approve Infrastructure Facilities: Decide on proposals for providing infrastructure facilities in an

SEZ.

4. Grant Licenses: Grant licenses to industrial undertakings setting up in an SEZ, as per the Industrial
Development and Regulation (IDR) Act.

5. Dispose of Appeals: Handle appeals related to SEZ matters, as per Sections 15(4) and 16(4) of the
Act.

6. Perform Other Functions: Carry out additional tasks assigned by the Central Government.

# Suspension of Letter of Approval and Transfer of SEZ

The Board has the power to suspend the approval given to a Developer in certain situations:

Reasons for Suspension:

1. Developer fails to perform duties.

2. Developer repeatedly disobeys Board directions.

3. Developer breaks terms and conditions of approval.

4. Developer's financial situation is unstable.

Process of Suspension:

1. Board gives 3-month written notice to Developer.

2. Notice states reasons for proposed suspension.

3. Developer can respond with reasons against suspension within 3 months.

Alternative to Suspension:

Instead of suspension, the Board can allow the approval to continue with additional terms and
conditions. These terms and conditions must be followed by the Developer.

# Development Commissioner and Their Functions

The Central Government (C.G.) appoints a Development Commissioner to oversee one or more
Special Economic Zones (SEZs). The Development Commissioner has a team to assist them.
Responsibilities of the Development Commissioner:

1. Guide Entrepreneurs: Help entrepreneurs set up units in the SEZ.

2. Promote Exports: Ensure effective promotion of exports from the SEZ.

3. Coordinate with Governments and Agencies: Work with central and state governments, and
agencies to achieve the above goals.

4. Monitor Performance: Keep track of the Developer's and Units' performance in the SEZ.

5. Additional Responsibilities: Carry out other tasks assigned by the C.G. or delegated by the Board.

In summary, the Development Commissioner plays a crucial role in ensuring the speedy
development of the SEZ and promoting exports.

# Development Commissioner{ Sec 12}

The Development Commissioner is in charge of the Special Economic Zone (SEZ) and has the power
to:

- Supervise officers and employees

- Ask Developers or Units for information to monitor their performance

# Approval Committee {Sec 13}

The Central Government (C.G.) sets up an Approval Committee for each SEZ. This committee has
specified powers and functions.

- For existing SEZs, the committee must be formed within 6 months of the Act starting.

- For new SEZs, the committee must be formed within 6 months of the SEZ being established.

Decisions and Orders

All decisions, orders, and instructions from the Approval Committee must be signed by:

- The Chairperson

- An authorized member

# Powers and Functions of the Approval Committee {Sec 14}

The Approval Committee is responsible for:

1. Approving Imports: Allowing Developers to import goods from the Domestic Tariff Area for
authorized operations.

2. Approving Services: Permitting Developers to hire service providers from outside India or the
Domestic Tariff Area.
3. Monitoring Utilization: Keeping track of how goods, services, and warehouses are used in the
SEZ.

4. Approving Foreign Investments: Allowing foreign collaborations and investments in SEZ units.

5. Ensuring Compliance: Monitoring that Developers and entrepreneurs follow the conditions of
their approval or permission.

6. Additional Responsibilities: Performing other tasks assigned by the Central Government or State
Government.

# Setting Up a Unit in an SEZ {Sec 15}

To set up a unit in a Special Economic Zone (SEZ), follow these steps:

1. Submit a Proposal: Send a proposal to the Development Commissioner, stating your intention to
set up a unit.

2. Forwarding Proposal: The Development Commissioner forwards the proposal to the Approval
Committee.

3. Approval Committee's Decision: The Approval Committee can:

- Approve the proposal with or without modifications

- Impose terms and conditions

- Reject the proposal

4. Opportunity to be Heard: Before modifying or rejecting a proposal, the Approval Committee

must give the applicant a chance to present their case.

5. Appeal Process: If an applicant is unhappy with the Approval Committee's decision, they can
appeal to the Board of Approvals within the specified time and manner.

# Cancellation of Letter of Approval {Sec 16}

The Approval Committee can cancel an entrepreneur's Letter of Approval if:

1. Reasonable Opportunity: The entrepreneur is given a fair chance to present their case.

2. Non-Compliance: The Approval Committee believes the entrepreneur has broken the terms and
conditions or obligations of the approval.

Effects of Cancellation

- From the cancellation date, the Unit will no longer receive exemptions, concessions, benefits, or
deductions.

Appeal Process

- Anyone unhappy with the Approval Committee's decision can appeal to the Board of Approvals
within the specified time.
# Setting Up and Operating an Offshore Banking Unit in an SEZ {Sec 17}
To set up and operate an Offshore Banking Unit in a Special Economic Zone (SEZ), follow these steps:

1. Apply to RBI: Submit an application to the Reserve Bank of India (RBI) in the prescribed format.

2. RBI Approval: RBI reviews the application and grants permission if satisfied.

3. Terms and Conditions: RBI specifies the terms and conditions for setting up and operating an
Offshore Banking Unit in the SEZ through a notification.

# Single Application Form and Returns {Sec 19}

The Central Government (C.G.) can:

1. Simplify Application Process: Create a single application form for Developers and entrepreneurs
to obtain licenses, permissions, registrations, or approvals under multiple Central Acts.

2. Authorize Bodies: Empower the Board, Development Commissioner, and Approval Committee to
make decisions on SEZ development, unit setup, operation, and other related matters.

3. Standardize Returns: Prescribe a single form for Developers and entrepreneurs to submit returns
or information under multiple Central Acts.

Additionally, if someone is unhappy with a designated Court's order, they can:

1. Appeal to High Court: File an appeal within 60 days of receiving the order.

2. Extension of Time: The High Court may allow more time if it believes the applicant had a valid
reason for missing the deadline.

# Agency Inspection and Enforcement

Section 20: Central Government can appoint an officer/agency to inspect and ensure compliance
with Central Acts by Developers/entrepreneurs.

Section 21: Central Government can authorize an officer/agency to enforce notified offences in
SEZs, with powers of investigation, inspection, search, or seizure.

Section 22: Authorized officer/agency can investigate, inspect, search, or seize in SEZs/Units with
prior notice to the Development Commissioner, if they believe a notified offence has been
committed or is likely to be committed.

# Tax Provisions for SEZs

- Income Tax (Section 27): Income Tax Act, 1961 applies to Developers and entrepreneurs in SEZs,
with modifications.
- Duration of Goods and Services (Section 28): Central Government specifies the period for tax-free
goods and services in SEZs.

- Duties on Goods Removed (Section 30): Goods moved from SEZ to Domestic Tariff Area are
subject to customs duties, including anti-dumping, countervailing, and safeguard duties.

# SEZ Authority
- Constitution of Authority (Section 31): Central Government constitutes an Authority for each
SEZ to exercise powers and discharge functions.

- Duties of the Authority (Section 34): The Authority must undertake measures for the
development, operation, and management of the SEZ, including:

- Developing infrastructure

- Promoting exports

- Reviewing SEZ performance

- Levying user charges or fees

- Performing prescribed functions

- Reporting Requirements (Section 39): Every SEZ Authority must furnish returns, statements,
and particulars to the Central Government regarding export promotion, SEZ operation, and Unit
maintenance.

# SEZ Regulations
- Identity Cards (Section 46): Every person in an SEZ must have an identity card issued by the
Development Commissioner, containing specified details.

- Overriding Effect (Section 51): The provisions of this Act take precedence over any inconsistent
laws or instruments.

- SEZ Status (Section 53): An SEZ is considered a territory outside India's customs territory for
authorized operations, and can be deemed a port, airport, inland container depot, land station, etc.