Finmin tightens eligibility norms for duty sops to SEZs, suppliers

NEW DELHI: The finance ministry has decided to tighten eligibility norms for duty concessions available to special economic zones (SEZs), supplies from the domestic tariff area (DTA) to SEZs and also developers of greenfield SEZs. Documentation requirements have, however, been simplified in the SEZ (Customs Procedure) Regulations 2003 which will come into force from August 15.
The finance ministry has now made it clear that supplies to SEZs will not be eligible for Duty Entitlement Pass Book and duty drawback entitlements unless payments for such supplies are made in foreign exchange. The going will be tough for SEZ units in case the developer decides to shut shop. Units in such SEZs would have to pay duties on unutilised material, manufactured goods and capital goods at the time of closure of the zone.
Supplies from SEZs will be governed only by the provisions of the Customs Act 1962 and not by the Central Excise Act since these zones will be considered ‘foreign territory’ for trade, duties and taxes. All supplies from SEZ to the domestic market will be treated as imports. Similarly, all supplies from DTA to SEZs will be treated as exports. RBI has already allowed SEZ units to pay DTA suppliers in foreign currency. SEZs will also have a clear demarcated processing area and a non-processing area. The places where processing or manufacturing of ex-port goods takes place will be known as processing area. All ancillary infrastructure like residential accommodation, hospitals and schools meant for those working at SEZs will be classified as non-processing area. The processing area will have specified entry and exit points, manned by customs.
All goods supplied from the SEZ to the DTA will be supported by a bill of entry. Similarly, a bill of export (shipping bill) will have to be filed for all supplies from the DTA to the SEZ.
SEZ developers or the unit will have to execute a multi-purpose bond with the customs authority in the zone along with a security or surety prior to commencing duty-free procurement or import of goods in the zone. This guarantee is to make sure that exempted duties are recovered in case exports do not take place. Status holders like government-recognised export houses and trad-ing houses, however, need not furnish a bank guarantee. As per the rules, motor vehicles for personal use, goods consumed by workers, staff of the SEZs will not be permitted without payment of duty. All inputs that go into export production will be duty-free.
The SEZ regulation broadly envisages all procedural aspects to be followed by the zone in daily operations. This covers all aspects includ-ing import, export, inter-unit transfer and clearance of goods to DTA.