The SEZ scheme is an extension of the existing EOU / STP / HTP schemes. With an idea to boost exports, rope in investments, development of infrastructure and generate employment, the Government introduced the concept of SEZs in the year 2000.

In its efforts of doing so, the Government recognized the importance of fact that such a scheme would require special fiscal and regulatory norms, which led to the making of a separate legislation namely the Special Economic Zones Act, 2005, and the Special Economic Zones Rules, 2006.

1. The SEZs and the activities therein are governed by the SEZ Act, 2005 ("the Act") and the SEZ Rules, 2006 ("the Rules").

2. The Board of Approvals ("BOA") constituted u/s 8 of the Act (responsible for approval of an SEZ).

3. The Central Govt. (to issue its concurrence to the BOA's approval)

4. The Development Commissioner appointed in terms of Section 11 of the Act.

Any person intending to set up an SEZ may make an application in Form – A read with Rule 3 to the State Govt. giving details of the said proposal. The State Govt. may approve the said proposal within a period of 45 days from the date of receipt of such an application in terms of Section 3 of the Act read with Rule 4(1) of the Rules. Alternatively an application may also be made directly to the Board of Approvals and the NOC from the State Govt. may be obtained subsequently.

On receipt of such an application, the Board may grant its approval in Form – B, issued by the Dy. Secretary / Director in the Ministry of Commerce in terms of Sec. 9 of the Act read with Rule 6. Upon receipt of the letter of approval from the BOA, the developer is required to furnish an intimation to the Central Govt. Giving details of the SEZ as required in terms of Rule 7 and the Govt., on being satisfied with the proposal and compliance of the developer with the terms of the letter of approval, issue a notification declaring the specified area as an SEZ under Rule 8.

Once an area is declared an SEZ, the Govt. appoints a Development Commissioner who is an officer of the Central Govt., not below the rank of a Deputy Secretary to the Govt. of India, as the Development Commissioner under Section 11 of the Act who would be principally responsible for monitoring and ensuring strict adherence to the legal framework and the day-to- day operations of the SEZ.

The Development Commissioner is also authorised to demarcate the processing, non processing areas and areas where goods to be exported or to imported from DTA may be stored prior to their clearance by the specified officer.

Under the provisions of Sections 26 to 30 of the Act, every developer or an Entrepreneur setting up a unit in an SEZ, qualifies for exemption from duties of Customs, Excise, Income Tax and all other levies of the State or the Centre in terms of Sales Tax or VAT and the supplies made by domestic vendors qualify for benefits extended to physical exports. For Income-tax exemptions, certain special provisions are introduced in the Income-tax Act, 1961 laying down conditions and restrictions for such exemptions.

Imports or procurement from the DTA are exempted from the levy of duties/taxes.

The developer is required to submit a list of Equipments, Services, Machinery etc., duly certified by a Chartered Engineer and the same is required to be approved by the Approval Committee, headed by the Development Commissioner.

On receipt of an approval under Rule 10 the developer can procure the goods / services so approved. The exemptions and concessions can be availed subject to certain conditions.

The procedure for clearance of import cargo is slated out under Rule 29. A brief understanding of the same is as under:

1. The developer or the unit is required to file a Bill of Entry for Home Consumption with the authorised officer posted at the SEZ, specifically bearing inter alia an endorsement as "Special Economic Zone Cargo".

2. The authorised officer shall assign a running serial No. to the Bill of Entry and assess the same on the basis of the Transaction Value.

3. This assessed bill of entry is to be treated as a permission to transfer the goods to the SEZ developer or the unit as the case may be.

4. In case the cargo arrives at the port prior to the completion of the assessment, the authorised officer may grant an endorsement on the fifth copy of the B/E authorising the transshipment of the goods to the SEZ.

5. In case of FCL containers, the seal is verified at the time of delivery out of the port and at the entry gate of the SEZ.

6. In case of LCL / break bulk cargo, the markings on the packages need to be verified and the movement to the SEZ can be permitted under customs escort or transshipment procedure at the option of the importer. However, no transshipment bond is required to be executed.

7. Once the goods are allowed entry after the verification procedure at the gate or the designated area where the goods can be stored for examination prior to delivery to the developer or the unit, the authorised officer makes an endorsement regarding the verification of marks and numbers or inspection of seal on the Bill of Entry, subsequent to which the delivery can be given to the SEZ importer.

8. A copy of this endorsement is also required to be sent to the officer of Customs at the port of importation as an evidence of receipt of goods at the SEZ within 45 days of the removal of the goods from the Port / Airport of importation.

9. Once the delivery is given to the SEZ importer and a copy of the endorsement along with the receipt of the goods by the SEZ developer, the customs procedure is over.

In the case of import through courier mode, the delivery may be given by the courier under customs escort or transshipment mode in cases where the import is effected at a port away from the SEZ. In cases where the SEZ importer is not able to clear the goods duty free, the importer shall be eligible for refund under Section 74 of the Customs Act, 1962.

In the case of imports through post, a procedure similar to that of import through Ports/ Airports / ICD is to be followed. Only it becomes necessary to have the registration No. of the post office through which the goods are imported and the intimation
letter is required to be pasted on the reverse of the original Bill of Entry.

The procedure for completion of Customs / Excise related formalities is slated under Rule 30.

In cases where the goods are procured from the DTA, the following procedure may be adopted.

All supplies made to the SEZ developer or the unit in an SEZ, are exempted from the levy of taxes, such as Central Excise / Sales Tax etc.

The DTA supplier is required to send the goods to the SEZ under excise bond or under cover of Form ARE-1.

Where the goods are supplied without claiming any benefits such as the Drawback or DEPB, the goods are allowed to enter on ARE-1 alone. The authorised officer is required to endorse the ARE-1 with the remark "admitted in full".

A copy of this endorsed ARE-1 is required to be submitted by the DTA supplier to the Jurisdictional Central Excise as a proof of export. In case the goods are supplied by the DTA vendor under any of the export entitlements, a Bill of Export is also required to be filed along with the ARE-1. An endorsement to the effect that the goods have been admitted in full is required to be made on the Bill of Export too, in order to enable the DTA vendor claim export entitlements.

In case of Drawback, the DTA may claim the same, or issue a disclaimer certificate in order to enable the DTA vendor to claim the Drawback.

In case of supplies by the DTA under passbook scheme, the DTA vendor may apply to the Development Commissioner or the Jurisdictional Office of the DGFT for issuance of a Duty Entitlement Pass Book Credit.

An SEZ developer or a unit may also procure the goods from a bonded warehouse, where a Bill of Entry for Home Consumption is required to be filed with the authorised officer and an assessed B/E or one with the permission of transshipments treated as a permission for transfer of goods from a bonded warehouse. However, the vendor or the owner of the warehoused goods is also required to file a Pink Shipping Bill under Section 65 of the Customs Act, 1962 for export from bonded warehouse and a re-warehousing certificate issued by the authorised officer is required to be submitted along with an endorsement on the Pink Shipping Bill to the customs officer in charge of the warehouse where the goods were initially bonded.

In all the cases, i.e in the case of domestic supplies under ARE-1 or an excise bond or procurement from a bonded warehouse or an International Exhibition, an endorsement of receipt of goods at the SEZ by the authorised officer is required to be submitted with the authority in charge at the place of removal within 45 days of removal of goods.

In cases of supplies under claim of export entitlements, an endorsed copy of receipt on the Bill of Export can serve as
a proof of export for the purpose of claiming the export entitlement.

On arrival of goods in the SEZ, where the goods are under a claim of export entitlement, the goods may be subjected to examination as per existing norms in the case of regular exports. In such cases, the goods have to be stored in an area, clearly demarcated for this purpose however, in cases where the supplies are only under an ARE-1 or an excise bond, the goods may directly be delivered to the SEZ developer or the unit as the case may be without examination or after random examination checks.

Following important forms will be required from time to time from the Project Authority, Vendors etc.

• Form – A application for setting up of the SEZ

• Form – B letter of approval issued by the Dy. Secretary / Director in the Ministry of Commerce

• Form – D draft of bond cum legal undertaking to be executed by the developer, jointly with the Development Commissioner and the specified officer

• Form – E format of quarterly and half yearly reports to be submitted to the Development Commissioner

• Form – K permanent identity cards.