Special Economic Zone Scheme: formula sheet

Key formulas

Who may set up an SEZ (section 3(1))

Central Government / State Government / any person, jointly or severally

Purpose: manufacture of goods, rendering services, both, or a Free Trade and Warehousing Zone.

Proposal routes (section 3)

Person → State Government → Board; or Person → Board directly; or State Government → Board; or Central Government suo motu

Direct proposal to the Board: after Board approval, the person must obtain State Government concurrence within the prescribed period. The Central Government may notify a zone suo motu after consulting the State Government, without referring it to the Board.

Board decision (section 3(7) and 3(9))

Board: approve (with or without conditions), modify or reject

On rejection the Board records reasons and communicates to the Central Government, which informs the State Government or person.

Letter of approval (section 3(10))

Board approval → Central Government grants letter of approval to Developer

More than one Developer can be approved where one Developer lacks the prescribed minimum contiguous land. Each is a Developer for the land in its possession.

Co-Developer (section 3(11) and 3(12))

Agreement with Developer + Board approval + letter of approval = Co-Developer

Applies to a person or State Government providing infrastructure or undertaking authorised operations.

Approval Committee functions (section 14(1))

Approves Unit proposals, DTA procurement and services, monitors utilisation and compliance

It also allows foreign collaborations and FDI for a Unit. Doubt on whether a process is manufacture goes to the Board of Approval. Until the Committee is constituted, the Development Commissioner acts.

Statutory exemptions (section 26(1))

Developer and entrepreneur: customs, excise, drawback, service tax, STT (IFSC non-residents) and CST exemptions

Subject to section 26(2): the Central Government prescribes the manner and conditions. The text names pre-GST levies. For GST treatment, study zero rated supplies.

Unit setting-up flow

Proposal → Development Commissioner → Approval Committee → Letter of approval by Development Commissioner

Section 15(1), (2), (3) and (9). The proposal is in the prescribed form and manner.

Decision options of Approval Committee on a unit proposal

Approve without modification | Approve with modifications and conditions | Reject

Section 15(3). For modification or rejection, give a reasonable opportunity of being heard and record reasons.

Appeal against Approval Committee order

Approval Committee order → Appeal to the Board within the prescribed time

Section 15(4). A late appeal can be admitted if the appellant shows sufficient cause (section 15(5)). The appellant must be heard before disposal.

Composition of Approval Committee

Development Commissioner (Chairperson) + 2 Central officers + 2 revenue officers + 1 economic affairs (financial services) officer + 2 State officers; Developer's representative is a special invitee

Section 13(2). That is 8 members including the Chairperson; the Developer's representative is not a member.

Quorum and decision rule

Quorum = one-half of total Members; decisions by general consensus of Members present

Section 13(5). If there is no consensus, the matter is referred to the Board.

Existing units

Existing Unit is deemed set up under the Act and needs no approval under it

Proviso to section 15(1).

Section 7 general exemption

Goods or services exported out of, imported into, or procured from the DTA by a Unit or Developer = exempt from taxes, duties or cess under First Schedule enactments

Subject to prescribed terms, conditions and limitations.

Section 26(1)(a) customs on imports

Exemption from customs duty on goods imported into, or services provided in, an SEZ or Unit for authorised operations

Covers the Customs Act, 1962, the Customs Tariff Act, 1975 and any other law.

Section 26(1)(b) customs on exports

Exemption from customs duty on goods exported from, or services provided from, an SEZ or Unit to any place outside India

Export duty is also exempt.

Section 26(1)(c) excise on DTA goods

Exemption from excise duty on goods brought from the DTA to an SEZ or Unit for authorised operations

Under the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985.

Section 26(1)(d) drawback

Drawback or other admissible benefits on goods or services brought from the DTA into an SEZ or Unit, and on services provided by service providers outside India

Linked to authorised operations.

Section 26(1)(e), (f), (g) other taxes

Exempt: service tax on services to a Developer or Unit; STT on non-resident transactions through an IFSC; CST on goods (other than newspapers) for authorised operations

These are the legacy taxes named in the Act's text.

Section 30 DTA clearance

Goods removed from SEZ to DTA = customs duties as on import, at rate and valuation on the date of removal (or date of payment if removal date is not ascertainable)

Includes anti-dumping, countervailing and safeguard duties where applicable.

Section 26(2) and Section 28

Benefits follow prescribed manner and conditions; Central Government may prescribe the period goods or services may remain in a Unit or SEZ without tax

Do not say exemption is unconditional.

Who exercises the power

Central Government, by notification

Not the State Government and not the Board. States have a separate power under section 50 for State taxes, levies and duties.

Scope of the power

SEZ Act (except sections 54 to 56) + any other Central Act + rules, regulations, notifications, orders, directions

Provisions relating to making of rules or regulations are excluded.

Two kinds of direction

(a) shall not apply; (b) shall apply only with exceptions, modification and adaptation

Either can be for one SEZ, a class of SEZs or all SEZs.

Labour proviso

No modification on trade unions, labour disputes, labour welfare, provident funds, employers' liability, workmen's compensation, pensions, maternity benefits

Labour laws continue to apply in SEZs.

Parliamentary control

Draft laid before each House for a total of 30 days

Both Houses agreeing to disapprove stops the notification; agreeing to a modification means it is issued only in that form.

Duty on DTA clearance

Customs duty = duties as leviable on the goods when imported, applied on the value of the goods removed

Section 30(a). Includes anti-dumping, countervailing and safeguard duties where applicable. Subject to conditions in the rules.

Rate and valuation date

Rate of duty and tariff valuation = those in force on the date of removal from the SEZ

Section 30(b). If the date of removal cannot be ascertained, use the date of payment of duty.

Meaning of export in SEZ Act

Export = (i) SEZ to outside India, or (ii) DTA to Unit/Developer, or (iii) Unit to another Unit/Developer

Section 2(m). Supply from DTA to a Unit is an export even though goods do not leave India.

Meaning of import in SEZ Act

Import = (i) from outside India into SEZ by Unit/Developer, or (ii) receipt from another Unit/Developer

Section 2(o). Receipt from another Unit counts as import.

Core exemptions

Section 26(1): no customs duty on imports for authorised operations and on exports from SEZ; no excise duty on DTA goods brought in

Manner and conditions are prescribed under Section 26(2).

Notified offence (Section 21)

Central Government notifies an act or omission punishable under a Central Act → authorises an enforcement officer or agency

The officer has the powers of investigation, inspection, search and seizure given by the relevant Central Act.

Designated courts (Section 23)

State Government + concurrence of Chief Justice of High Court → designates courts for civil suits and notified offences

No other court may try such suits or offences, subject to the provisos on pending cases.

Appeal to High Court (Section 24)

60 days from communication + condonation up to a further 60 days

Appeal lies on any question of fact or law. High Court means the High Court of the State where the SEZ is situated.

Arbitration (Section 42)

Civil dispute between entrepreneurs / developers / entrepreneur and developer + no designated court → arbitration

The arbitrator is appointed by the Central Government. The Arbitration and Conciliation Act, 1996 applies. No reference on or after the date of designation of courts.

Appeal to Board (Sections 15(4) and 16(4))

Order of Approval Committee → appeal to Board within prescribed time

Late appeal may be admitted on sufficient cause. A reasonable opportunity of being heard must be given.

Cancellation of letter of approval (Section 16)

Persistent contravention + reasonable opportunity of being heard → cancellation by Approval Committee

Benefits stop from the date of cancellation, and benefits on capital goods, stock and unutilised raw materials must be remitted.

Quick revision

• Section 4: after the letter of approval, the Developer submits exact particulars of the identified area to the Central Government, which then notifies the area as an SEZ.
• The Central Government may notify additional area later as part of an already notified SEZ.
• Under Section 4(2), the Board may authorise the Developer to undertake operations the Central Government may authorise.
• Section 10: the Board may suspend a letter of approval for a period not exceeding one year and appoint an Administrator.
• Suspension needs at least three months' written notice and consideration of the Developer's cause shown.
• Instead of suspending, the Board may let the approval continue with further terms and conditions.
• After suspension, the Board invites applications to transfer the letter of approval, and the Developer must then transfer to the selected person.
• Section 26: exemptions cover customs duty, excise duty, service tax, and Central Sales Tax, as the Act is worded, for authorised operations.
• Section 26(1)(f) exempts securities transaction tax for non-residents' transactions through the International Financial Services Centre.
• Section 26(2): the Central Government prescribes the manner, terms and conditions for the benefits.
• Section 49 works by notification and cannot apply to sections 54 to 56 of the Act.
• Section 49 cannot modify laws on trade unions, industrial disputes, labour welfare, provident funds, employers' liability, workmen's compensation, pensions and maternity benefits; a draft notification is laid before Parliament for thirty days.

Common mistakes

• Treating the SEZ as part of the DTA for duty purposes. Fix: Remember that the DTA is the rest of India outside the SEZ. Movement between them is treated like import or export.
• Confusing a Developer with an entrepreneur. Fix: The Developer builds the zone and provides infrastructure. The entrepreneur sets up a Unit to carry on authorised operations.
• Saying the Board of Approval approves every unit. Fix: Units are approved by the Approval Committee. The Board hears appeals against the Approval Committee's orders.
• Saying the Development Commissioner approves a unit proposal. Fix: He forwards the proposal. The Approval Committee approves it. Then he grants the letter of approval.
• Saying SEZ goods cleared to the DTA are exempt or taxed at the SEZ-entry rate. Fix: Apply Section 30: customs duty as on import, at the rate and valuation in force on the date of removal.
• Treating a DTA supply to an SEZ unit as a domestic sale. Fix: The Act defines export to include supplying goods or services from the DTA to a Unit or Developer.
• Saying the State Government can modify laws under section 49. Fix: Section 49 is Central Government. Section 50 lets the State notify policies and laws for exemption from State taxes, levies and duties.
• Stating that all sections of the SEZ Act can be modified. Fix: Sections 54 to 56 are excluded. Remember the bracket.
• Treating a DTA supply to an SEZ Unit as a domestic sale only. Fix: Section 2(m)(ii) defines supply from the DTA to a Unit or Developer as export. Say so in your answer.
• Using the rate of duty on the date the goods were imported into the SEZ when they are cleared to the DTA. Fix: Section 30(b) fixes the rate and tariff valuation at the date of removal from the SEZ. Use the date of payment only if that date cannot be found.

Exam tips

• Expect definition-based MCQs. Learn the one-line difference between Developer, Co-Developer, entrepreneur and Unit.
• For case questions, name the section 3 route first, then the approval chain. This earns structured marks.
• Always keep the DTA versus SEZ contrast ready. It links to zero rated supply and refund topics.
• When quoting section 26, say the Central Government prescribes the manner and conditions under section 26(2).
• Use only section numbers you are sure of: 3, 14 and 26 are safe for this topic.
• For MCQs, decide first whether the question is about a zone, a developer or a unit. The answer authority follows from that.
• In descriptive answers, write the procedure in numbered order and cite the section numbers you are sure of: 9, 13, 14 and 15.
• Remember the Board's residual powers: deadlock in committee and doubt on whether a process is manufacture both go to the Board.