In India, Special Economic Zones (SEZ) are the distinct geographical location that has separate economic laws that are more liberal as compared to Country’s domestic economic laws. SEZ law was introduced in order to provide a single window clearance on matters relating to central as well as State Government. The main objective of the SEZ Act was to promote exports, economic activity, employment opportunities, infrastructure facilities etc.
Though the SEZ Act was passed in 2005 and the concept of SEZ is quite old and has passed almost a decade, I have tried in this article to explain the procedure to be followed while setting up a SEZ unit in SEZ.
Before filing an application, the applicant needs to obtain a valid consent letter from the SEZ developer, where it intends to set up the SEZ unit and needs to arrange for projections and other documents prior to filing application. In respective of setting up of SEZ unit in SEZ, following procedure needs to be followed: -
1. In case of setting up of SEZ unit in Karnataka, applicant needs to be visit https://www.sezonline-ndml.com/ Applicant needs to create user id and password before filing the application. While creating the User ID, the applicant would require to provide basic details such as Name, Phone no, Email ID, User category (Unit/Developer).
2. A Demand Draft needs to be drawn in favour of “Pay and Accounts Officer’ of the concerned Special Economic Zone for an amount of Rs. 10,000/- and a Banker certificate needs to be obtained in respect of designated account is being maintained for SEZ unit.
3. Applicant needs to fill and submit the Application in Form-F through online mode (real time only, cannot be filled in offline mode) in the concerned SEZ website. Relevant details that the application requires is mentioned below: -
- Basic details such as Applicant name, Demand draft details, Director details etc.;
- Activity carried out in SEZ unit as to manufacture of goods / provision of service;
- Value in investment in plant and machinery by way of indigenous or import mode;
- Details of source of finance as to internal finance or Equity issue etc.;
- Value of procurement of capital goods and materials in respect of import or indigenous mode;
- Requirement of infrastructure in respect of Land, built-up area, water, power etc.;
- Details as to involvement of Foreign collaborator in respect of Foreign technology agreement.;
- Pattern of shareholding in the paid up capital by foreign equity and resident holding;
- Details of Foreign exchange outflow and inflow;
- Details of Letter of Approvals/Letter of Intents issued to applicant under SEZ/EOU/ STP/EHTP scheme.
- Once the application is filed, the applicant needs to submit the application in five copies along with annexures (in hard copy) to the concerned Development Commissioner of Special Economic Zone. Among other annexure, relevant and pertinent annexure includes:
- Detailed project report that includes detailed description of the business intended to carry, Foreign exchange earnings projection, Manpower projection and financial projections for the five years
- Consent letter from the SEZ developer that it intends to lease the premises
- Copy of affidavit stating that the details submitted are true and correct
- Declaration for not obtaining No Objection Certificate from pollution board (if applicable)
- Copy of draft Export contract or Master Service agreement
- Banker certificate for the purpose of opening separate account
- Upon submission of hard copy, the Development Commissioner shall verify the documents submitted and make a note of the details and forward the application before the Unit Approval Committee (UAC).
- Applicant needs to attend the UAC meeting as notified in the concerned SEZ website. The Unit Approval committee comprises of panel of authorities of various statutory department such as Income Tax, Service Tax, Customs, State authorities etc. before whom the applicant shall explain as to why they shall be issued a letter of Approval.
- The UAC shall scrutinize the application in terms of validity of the application, viability of the project, status of the applicant in terms of achievement of positive Foreign Exchange earnings, compliance of provisions of SEZ Act and Rules etc. If the UAC is satisfied that the applicant will comply with the above terms, they would issue Letter of Approval for carrying out the authorized operations by SEZ unit. In case the UAC disapproves the application, the applicant can challenge the rejection before the Board of Approval (BOA consists of various authorities of Central Government including nominee from State Government and other members)
- The Letter of approval shall be valid for a period of Five years from the date of commencement of production/ service activities
- Upon obtaining the Letter of Approval, the applicant needs to follow post approval procedures such as: -
- To confirm the acceptance of the terms and conditions specified in Letter of Approval within 45 days.
- To submit a valid lease deed entered with the SEZ developer within 6 months
- To execute a Bond-cum-Legal Undertaking (BLUT) in Form-H.
- Applicant needs to commence production / service within one year from the date of Letter of Approval.
- Date of commencement of production / provision of service needs to be intimated.
- To submit periodical performance reports as to Foreign exchange earnings, manpower
- To comply with conditions as stipulated in Letter of Approval.
The procedure outlined above is based on practical experience and understanding of the procedure. Though the procedure appears to be complex but a very interesting arena to explore. Needless to say that the write up is intended to have insight on procedural aspects to set up an SEZ unit and not intended to be professional advice and should not be relied upon unless based on expert advice. Author accepts no responsibility whatsoever and will not be liable for any losses, claims, damages which may arise because of the contents of this write up.
Trust the write up would help in understanding the procedures to set up SEZ unit in SEZs. Kindly share your views and suggestions are always welcome.
A.R Yashwanth Lathore
Indirect Tax consultant
Founder - Lathore and Associates