Law min to decide fate of Essar SEZ

NEW DELHI: The decision on a possible derecognition of domestic steel major Essar’s SEZ in Hazira for flouting SEZ rules might finally vest in the hands of the law ministry. The commerce department has asked the revenue department to produce evidence substantiating its allegation that the SEZ land was not vacant when Essar applied for SEZ status. The two departments might have to approach the law ministry to establish whether the evidence available with the revenue department was enough to prove that Essar converted an existing unit into an SEZ and should thus lose the status and the tax benefits which came with it, sources said.

According to commerce ministry officials, the confusion about pre-existing structures at the Rs 1,000 crore Hazira SEZ site stemmed from the fact that Essar originally did not have plans of building an SEZ in the location. In 2004, Essar was actually planning to increase the capacity of its existing steel plant in Hazira. However, in 2005, it decided to invest in a steel SEZ instead of expanding its existing steel plant to benefit from the tax concessions given to SEZ units. It approached the government with a proposal for a steel SEZ in December 2005. The revenue department’s contention is that Essar had already built structures at the existing site before it applied for the SEZ status.

Essar officials, however, claim that the Rs 60 crore spent on the SEZ, before the SEZ was applied for, was on activities such as project planning, awarding of contracts, grant of advances and piling of the coastal area land by pouring concrete. This, they say, does not amount to building of structures. Under SEZ rules, a developer has to file an affidavit stating that the land area of the zone is vacant and without any industrial activity at the time of filing of the application.

“It might finally boil down to how we define vacant land. We may have to seek the legal department’s help for the purpose,” the commerce department official said.The commerce department wants to proceed cautiously on the case as the implication of the final decision would be huge.