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Indirect Tax Laws and Practice · Special Economic Zone Scheme

Establishment and Approval of SEZ, Developers and Units

Updated 11 October 2026 · Fact-checked

Under the SEZ Act, 2005, the Board of Approval approves SEZs, developers' authorised operations and foreign investment. A person who wants a unit applies to the Development Commissioner, who sends it to the Approval Committee. If the committee approves, the Development Commissioner issues a letter of approval. Appeals go to the Board.

Understand Establishment and Approval of SEZ, Developers and Units

A Special Economic Zone has two kinds of players. The Developer builds and runs the zone. The Unit is the business that sets up inside the zone to manufacture, provide services, warehouse or trade. The Act sets up three bodies to control both.

The Board of Approval (the Board) is the top body. Its duty is to promote and ensure orderly development of SEZs (section 9). It approves, rejects or modifies proposals to establish SEZs. It approves the authorised operations of the Developer. It approves foreign collaborations and FDI for developers and units, except those exempt from approval under any law or by the Central Government. It also decides appeals and can suspend a developer's letter of approval and appoint an Administrator under section 10(1).

The Approval Committee works at the level of each zone (sections 13 and 14). It deals with units, not zone creation. It approves, modifies or rejects unit proposals. It approves import or procurement of goods from the Domestic Tariff Area (DTA) for the developer's authorised operations. It also approves services from outside India or from the DTA. It monitors utilisation of goods and services, and checks compliance with the conditions of letters of approval.

The Development Commissioner is the zone's local officer. He chairs the Approval Committee ex officio. A unit proposal is submitted to him. He forwards it to the Approval Committee. After approval, he grants the letter of approval and mentions every authorised operation in it (section 15(9)). The Board may also delegate powers and functions to one or more Development Commissioners (section 9(4)).

The flow to remember is: proposal to Development Commissioner, then Approval Committee decision, then letter of approval, with appeal to the Board if you are aggrieved.

Key rules to remember

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).

How to solve Establishment and Approval of SEZ, Developers and Units questions

For any question on approval, first identify who is acting and on what: a zone, a developer, or a unit. Then apply the body-wise powers.

  1. 1Identify the subject: establishment of a zone, developer's operations, or a unit proposal.
  2. 2Name the authority that has the power: Board for zone proposals, developer operations, FDI approval and appeals; Approval Committee for unit proposals and DTA procurement approvals; Development Commissioner for receiving proposals and issuing the letter of approval.
  3. 3Trace the procedure in order: proposal, forwarding, committee decision, letter of approval.
  4. 4Check the decision options and safeguards: modification or rejection needs a hearing and recorded reasons.
  5. 5Check remedies: appeal to the Board within the prescribed time, with condonation for sufficient cause.
  6. 6Check special conditions: deadlock in committee goes to the Board; a doubt on whether a process is manufacture goes to the Board.
  7. 7Write a conclusion that names the authority and the section.

Quickest way: Who does what in three lines

When to use it: Use it for MCQs that ask which authority approves or decides something.

  1. Zone or developer or FDI or appeal: Board of Approval.
  2. Unit proposal, DTA goods or services for the developer, monitoring: Approval Committee.
  3. Receiving proposal, chairing the committee, issuing the letter of approval: Development Commissioner.
  4. If the committee cannot agree or cannot decide on manufacture, the answer is the Board.

Common mistakes in Establishment and Approval of SEZ, Developers and Units

  • Saying the Board of Approval approves every unit.

    The word Board sounds like the main authority for everything.

    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.

    He issues the letter of approval, so students assume he decides.

    Fix: He forwards the proposal. The Approval Committee approves it. Then he grants the letter of approval.

  • Counting the Developer's representative as a committee member.

    The list in section 13(2) includes him.

    Fix: He is a special invitee under section 13(2)(f). He is not a Member of the Committee.

  • Forgetting the hearing and reasons when a proposal is modified or rejected.

    Students remember only the three decision options.

    Fix: Add that the committee must give a reasonable opportunity of being heard and record reasons.

  • Applying the approval requirement to existing units.

    Students read the procedure as universal.

    Fix: The proviso to section 15(1) deems existing units as set up under the Act, with no approval needed.

  • Stating that a committee vote by majority decides matters.

    Ordinary company law uses majority voting.

    Fix: Decisions are by general consensus of Members present. Without consensus the matter goes to the Board.

Worked examples

Example 1

Sunrise Software Ltd., an Indian company, wants to set up a service unit in an SEZ. Explain the procedure, and state what it can do if the proposal is rejected.

Show the solution
  1. Sunrise submits a proposal to the Development Commissioner concerned, in the prescribed form and manner (section 15(1)).
  2. The Development Commissioner submits it to the Approval Committee (section 15(2)).
  3. The Approval Committee may approve without modification, approve with modifications and conditions, or reject (section 15(3)).
  4. If it modifies or rejects, it must give Sunrise a reasonable opportunity of being heard and record reasons.
  5. On approval, the Development Commissioner may grant a letter of approval, which mentions every authorised operation (section 15(9)).
  6. If rejected, Sunrise may appeal to the Board within the prescribed time. A late appeal can be admitted if it shows sufficient cause, and it must be heard before the appeal is disposed of (section 15(4), (5), (7)).

Answer: Proposal to the Development Commissioner, then the Approval Committee's decision, then the letter of approval. If rejected, Sunrise appeals to the Board of Approval within the prescribed time.

Example 2

Which of the following is a power of the Board of Approval under section 9? (A) Approving a unit's proposal to manufacture (B) Approving foreign collaboration and FDI for a developer or unit (C) Issuing the letter of approval to a unit (D) Authenticating the Approval Committee's orders

Show the solution
  1. Option A: unit proposals are approved by the Approval Committee under sections 14(1)(d) and 15(3), not by the Board.
  2. Option B: section 9(2)(c) gives the Board power to approve foreign collaborations and FDI for developers or units, other than those exempt from approval under any law or by the Central Government.
  3. Option C: the Development Commissioner grants the letter of approval under section 15(9).
  4. Option D: the Chairperson or an authorised member authenticates the committee's orders under section 13(7).

Answer: Option B.

Exam tips

  • 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.
  • Link this topic with the SEZ Act objectives and the customs procedures in SEZs, since case scenarios often mix approval with incentives.

Practice questions from Special Economic Zone Scheme

Establishment and Approval of SEZ, Developers and Units in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Establishment and Approval of SEZ, Developers and Units: frequently asked questions

What are the main powers of the Board of Approval for SEZs?

The Board approves, rejects or modifies proposals to establish SEZs and approves the developer's authorised operations. It approves foreign collaborations and FDI, hears appeals and can suspend a developer's letter of approval. It can also decide by notification whether an activity is manufacture, and that decision binds all Central Ministries and Departments.

What does the Approval Committee do in an SEZ?

It approves, modifies or rejects unit proposals and approves DTA goods and services needed for the developer's authorised operations. It also monitors utilisation and compliance with the conditions of letters of approval. It is constituted for each SEZ, with the Development Commissioner as Chairperson.

What is the role of the Development Commissioner in setting up an SEZ unit?

He receives the unit's proposal and submits it to the Approval Committee. After approval, he may grant the letter of approval listing the authorised operations. Until the Approval Committee is constituted, he discharges its functions.

What happens if the Approval Committee cannot agree on a matter?

Decisions are by general consensus of the Members present. If it cannot decide by consensus, the matter is referred to the Board of Approval for its decision.