Law relating to Special Economic Zones: formula sheet

Key formulas

Short title and extent (s.1)

Special Economic Zones Act, 2005 | extends to the whole of India

Commencement is by notification; different dates may be fixed for different provisions. Most provisions began on 10 February 2006.

Domestic Tariff Area (s.2(i))

DTA = whole of India (incl. territorial waters and continental shelf) − areas of SEZs

SEZ areas are excluded from the DTA.

Developer (s.2(g))

Person or State Government granted a letter of approval under s.3(10); includes an Authority and a Co-Developer

Letter of approval is granted by the Central Government.

Entrepreneur (s.2(j))

Person granted a letter of approval by the Development Commissioner under s.15(9)

The entrepreneur sets up the Unit. Do not confuse the approving authority with the Developer's.

Unit (s.2(zc))

Unit set up by an entrepreneur in an SEZ; includes existing Unit, Offshore Banking Unit and Unit in an IFSC

Applies whether set up before or after commencement.

Authorised operations (s.2(c))

Operations authorised under s.4(2) and s.15(9)

Under s.4(2) the Board may authorise the Developer to undertake operations the Central Government may authorise.

Export (s.2(m))

(i) SEZ to outside India; (ii) DTA to Unit/Developer; (iii) Unit to another Unit/Developer

Supplies from the DTA into an SEZ count as exports.

Import (s.2(o))

(i) from outside India into SEZ; (ii) from another Unit/Developer

Covers goods and services, physical or otherwise.

Services (s.2(z))

Tradable services covered by GATS + may be prescribed + earn foreign exchange

All three limbs are joined by 'and'.

Who approves what

SEZ establishment, Developer operations, infrastructure, FDI, appeals → Board (s. 9) | Unit proposals → Approval Committee (s. 14, s. 15) | Letter of approval → Development Commissioner (s. 15(9))

Use this one-line split to place any authority quickly.

Unit approval route

Proposal to Development Commissioner → submitted to Approval Committee → approve / approve with modifications / reject → letter of approval by Development Commissioner

Sections 15(1), (2), (3) and (9).

Hearing on modification or rejection

Modify or reject only after a reasonable opportunity of being heard and after recording reasons

Proviso to section 15(3). Plain approval without modification needs no hearing.

Appeal against Committee order

Aggrieved person → appeal to the Board within the prescribed time; late appeal admitted if sufficient cause is shown

Section 15(4) and (5). The appellant must also get a reasonable opportunity of being heard (s. 15(7)).

Composition of Approval Committee

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

Section 13(2). All are ex officio members.

Quorum and decisions

Quorum = one-half of total Members; decisions by general consensus of Members present; if no consensus, matter goes to the Board

Section 13(5).

Validity of acts

No act of the Committee is questioned merely for a vacancy or defect in its constitution

Section 13(6).

Manufacture doubt

Approval Committee unable to decide if a process is manufacture → refers to the Board; Board decides by notification, binding on all Central Ministries and Departments

Proviso to s. 14(1)(d) and s. 9(3).

Who may establish an SEZ

Central Government / State Government / any person, jointly or severally (Section 3(1))

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

Three proposal routes

Person → State Government (s.3(2)); Person → Board directly (s.3(3)); State Government → Board (s.3(4))

Under the direct route in s.3(3), the Board may approve and the person must then obtain State Government concurrence within the prescribed period.

Suo motu route

Central Government may, after consulting the State Government and identifying the area, set up and notify an SEZ without referring to the Board (proviso to s.3(4))

All three conditions apply together: consultation, no Board reference, area identified.

Role of State Government on a s.3(2) proposal

State Government may forward the proposal with its recommendations to the Board within the prescribed period (s.3(6))

The word is 'may'. Board then acts under s.3(7).

Board's powers

Approve with conditions / modify / reject (s.3(7))

Central Government may prescribe minimum land area and conditions, and Developer's terms, obligations and entitlements (s.3(8)). Different minimum areas may be prescribed for classes of SEZs.

Board's communication

Approve without modification → tell Central Government; approve with modifications → tell person/State, and once accepted tell Central Government; reject → record reasons, tell Central Government, which informs the person/State (s.3(9))

Rejection needs recorded reasons.

Letter of approval to Developer

Central Government grants within prescribed time, on terms approved by Board (s.3(10))

More than one Developer is allowed where one lacks the prescribed minimum contiguous land; each is a Developer for the land in its possession.

Notification

After letter of approval, Developer submits exact particulars of the area; Central Government notifies if s.3(8) and other prescribed requirements are met (s.4(1))

Additional area may be notified later. Existing SEZs are deemed notified and established.

Setting up a unit

Proposal → Development Commissioner → Approval Committee → letter of approval by Development Commissioner (s.15(1), (2), (3), (9))

Appeal against the Approval Committee's order lies to the Board (s.15(4)).

General exemption (section 7)

Exports from, imports into, or DTA procurement by a Unit or Developer = exempt from taxes, duties and cess under First Schedule enactments

Always add: subject to prescribed terms, conditions and limitations.

Concessions to Developer and entrepreneur (section 26(1))

Customs exemption on imports and on exports; excise exemption on DTA supplies; drawback; service tax exemption; STT exemption for IFSC; CST exemption

Each applies for authorised operations. The STT exemption is for taxable securities transactions entered into by a non-resident through the International Financial Services Centre.

Manner and conditions (section 26(2))

Central Government prescribes manner, terms and conditions of the benefits

Use this to show the concessions are conditional.

Duration (section 28)

Central Government prescribes the period goods or services stay without payment of taxes, duties or cess

The Act itself fixes no number of days or years. Do not quote one.

Domestic clearance (section 30)

Goods removed from SEZ to DTA = customs duties (including anti-dumping, countervailing and safeguard duties, where applicable) as leviable on such goods when imported

Rate and tariff valuation are those in force on the date of removal; if that date is not ascertainable, on the date of payment of duty.

State exemptions (section 50)

State Government may notify policies and enact laws to exempt Developers and entrepreneurs from State taxes, levies and duties

It may also delegate State Act powers to the Development Commissioner.

Section 44 - existing SEZs

All provisions of the Act EXCEPT sections 3 and 4 apply, as far as may be, to every existing SEZ

Remember the exclusion: sections 3 (proposal and approval) and 4 (establishment) do not apply to existing zones.

Section 53(1) - customs territory

SEZ = territory outside the customs territory of India, from the appointed day, for authorised operations

It operates for authorised operations only. It applies from the appointed day without any separate notification.

Section 53(2) - port, airport etc.

SEZ deemed a port, airport, ICD, land station and land customs station under section 7 of the Customs Act, 1962, from the date notified by the Central Government

Different dates may be notified for different SEZs. It applies as the case may be.

Section 52 - provisions not applying

Chapter XA of the Customs Act, 1962, SEZ Rules 2003 and Customs Procedure Regulations 2003 cease to apply from the notified date

Pre-Act offences remain governed by the old law; past actions are deemed taken under the corresponding provisions if not inconsistent.

Proviso to section 4(1)

An existing SEZ is deemed notified and established under the Act

This is why section 4 need not apply to existing zones.

Power under section 49(1)

Central Government + notification → specified provision (a) shall not apply, or (b) applies with exceptions, modification and adaptation

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

Excluded from the power

Sections 54 to 56 of the SEZ Act cannot be switched off or modified; nor can provisions relating to making of rules or regulations

Do not say the whole Act can be modified.

Labour proviso

No modification on: trade unions, industrial and labour disputes, labour welfare including conditions of work, provident funds, employers' liability, workmen's compensation, invalidity and old age pensions, maternity benefits

Learn the list as a group; examiners often test it.

Parliamentary control, section 49(2)

Draft laid before each House for 30 days in total (one or more successive sessions); both Houses disapprove or modify before the end of the next session → not issued, or issued as modified

It is a draft laid before issue, not a notification laid after issue.

State power, section 50

State Government notifies policies and takes steps for law: (a) exemption from State taxes, levies and duties; (b) delegation of State-Act powers to Development Commissioner

Applies to the Developer or entrepreneur.

Income-tax link, section 27

Income-tax Act applies to Developer or entrepreneur for authorised operations, subject to modifications in the Second Schedule

The Act text refers to the Income-tax Act, 1961; mention this when quoting the section.

Designated courts

State Government + concurrence of Chief Justice of High Court → designates courts for civil suits and notified offences (s. 23(1))

Only the designated court may try such suits or notified offences (s. 23(2)), subject to the provisos for pre-commencement cases.

Appeal to High Court

Appeal within 60 days from communication of decision or order; further period up to 60 days for sufficient cause (s. 24)

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

Offences by companies: persons in charge

Company + every person in charge of and responsible for business = deemed guilty (s. 25(1))

Defence: offence without his knowledge, or he exercised all due diligence. The burden is on him to prove it.

Offences by companies: officers

Consent or connivance, or neglect → director, manager, secretary or other officer also guilty (s. 25(2))

Here the offence must be proved to be due to consent, connivance or neglect. For this section, company includes a firm or association; director of a firm means a partner.

Arbitration of disputes

Civil dispute between entrepreneurs/Developers + no designated court → arbitration by arbitrator appointed by Central Government (s. 42)

Not available on or after the date of designation. The Arbitration and Conciliation Act, 1996 applies (s. 42(3)).

Limitation in arbitration

Limitation Act, 1963 applies as if dispute were a suit and arbitrator a civil court (s. 43)

Arbitrator may admit a late dispute if sufficient cause is shown.

Notified offences and enforcement

Central Government notifies offence (s. 21(1)); authorises enforcement officer or agency (s. 21(2)); officer has powers under the relevant Central Act (s. 21(3))

The Act creates a single enforcement channel for notified offences in the SEZ.

Quick revision

• An SEZ is deemed a territory outside the customs territory of India for authorised operations (section 53(1)).
• The Central Government may notify dates from which an SEZ is deemed a port, airport, inland container depot or land station (section 53(2)).
• Different dates may be notified for different SEZs.
• The Developer submits exact particulars of the identified area after the letter of approval, and the Central Government notifies it as an SEZ (section 4(1)).
• Additional area can be notified later as part of the same SEZ.
• The Board promotes and ensures orderly development of SEZs and can approve or reject proposals (section 9).
• The Board can delegate powers to one or more Development Commissioners and is bound by written policy directions of the Central Government.
• The Central Government's decision on whether a question is one of policy is final.
• Existing SEZs are deemed notified under the Act; the Act applies to them as far as may be, except sections 3 and 4 (section 44).
• The State Government, with the Chief Justice of the High Court's concurrence, designates courts for suits and notified offences (section 23).
• Civil disputes among entrepreneurs or Developers go to arbitration only if no court is designated (section 42).
• Section 49 lets the Central Government disapply or modify laws for SEZs, but not sections 54 to 56 and not labour-related matters in the proviso; a draft is laid before Parliament.

Common mistakes

• Treating the DTA as only the area outside the SEZ within the mainland. Fix: Quote section 2(i): whole of India including territorial waters and continental shelf, excluding SEZ areas.
• Saying the Developer and the entrepreneur are both approved by the same authority. Fix: Developer: Central Government under section 3(10). Entrepreneur: Development Commissioner under section 15(9).
• Saying the Board of Approval approves Units. Fix: Remember that Units go to the Approval Committee under section 14(1)(d). The Board handles zone establishment, Developer operations and appeals.
• Saying the Development Commissioner approves the Unit proposal. Fix: He receives the proposal and submits it to the Committee. After approval, he grants the letter of approval.
• Saying the Board grants the letter of approval. Fix: The Board approves; the Central Government grants the letter of approval under s.3(10), on terms approved by the Board.
• Treating State Government recommendation as compulsory for every proposal. Fix: A person may apply directly to the Board under s.3(3). The Board may approve, and the person then obtains State concurrence within the prescribed period.
• Saying SEZ goods are exempt from duty even when sold in the DTA. Fix: Remember that section 30 makes goods removed to the DTA chargeable to customs duties as if imported.
• Quoting a fixed period of stay under section 28. Fix: Write that the Central Government may prescribe the period. The section itself gives no number.
• Saying the whole Act applies to existing SEZs without exception. Fix: Always add: except sections 3 and 4. Link this to the fact that these sections cover approval and establishment of new zones.
• Treating an SEZ as a port or airport from the appointed day. Fix: Keep them apart. The customs-territory rule is from the appointed day. The port, airport, ICD and land station deeming is from the date the Central Government notifies.

Exam tips

• Learn the definitions in section 2 almost word for word for DTA, Developer, entrepreneur, Unit, export and import. These are commonly asked as short notes.
• Always attach the section number, such as section 2(i), to each definition you write.
• For 'distinguish' questions, use a two-column layout of points: approval authority, role, place.
• Add a line on scope: the Act extends to the whole of India and commences on notified dates.
• Link the definitions to the later topics: SEZ establishment, approval committees and duty concessions.
• Draw a one-line table in your answer sheet's rough space: Board, Committee, Development Commissioner, Central Government, with two functions each. It keeps long answers organised.
• Cite section numbers for composition (13), functions of the Committee (14), Unit approval (15) and the Board (9). It shows precision.
• In fact-based questions, state the provision first, then apply it, then conclude. Do not skip the conclusion.