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Sez

Phalgun (Audit Manager) (327 Points)

09 June 2012

Hi All,

1. Can any body tell the advantages of SEZ unit?

2. Is there any obligation to SEZ unit ?if the company fails to fulfill the conditions is there any penalty imposed on the company?

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6 Replies

bcshettyco (Chartered Accountant In Practice) (65 Points)
Replied 09 June 2012

Major incentives and facilities available to SEZ units include

Duty free import/domestic procurement of goods including those for development, operation and maintenance of SEZ units
*100% income tax exemption for SEZ units under section 10AA of the income tax act for First five years ,50% for next 5years there after and 50% of the ploughed back export profit for next 5years

(*subject to proposed DTC CODE)

Other exemptions from duties, taxes, cess, etc. (see section 7,26 and the second schedule to SEZ Act)
Exemption from Central sales Tax
Exemption from Service TaxExemption from State Sales Tax and other Levies

External commercial borrowing to US $ 500 million in a year without any maturity restriction through recognized banking channels
Single window clearance for various central and State level approvals

Obligations of the unit under the scheme :

1. SEZ units have to achieve positive net foreign exchange earnings as per the formula
given in paragraph Appendix 14-II of Handbook of Procedures, Vol.1. For this purpose, a
Legal Undertaking is required to be executed by the unit with the Development
Commissioner.
2. The units have to provide periodic reports to the Development Commissioner and Zone
Customs as provided in Appendix 14-I F of the Handbook of Procedures, Vol.1.

3.The units are also to execute a bond with the Zone Customs for their operation in the
SEZ.
4.Any company set up with FDI has to be incorporated under the Indian Companies Act
with the Registrar of Companies for undertaking Indian operations
5. The units have to maintain proper records of accounting.

Such units will be placed in watch list category .They should improve performance to achieve
NFE positive status by Third year. If the NFE performance continuance to be negative, SCN will
be issued by Development Commissioner and if the negative performance continues in the fifth
year, penal action will be taken after adjudication of the case under the provisions of Foreign Trade (Development & Regulation) Act.

Phalgun (Audit Manager) (327 Points)
Replied 09 June 2012

Thank U.

Phalgun (Audit Manager) (327 Points)
Replied 09 June 2012

In addition to above can u also clarify the below

1.What is the procedure to set up a unit in SEZ?

Phalgun (Audit Manager) (327 Points)
Replied 09 June 2012

Is it possible for EXIT of SEZ Units?

What is the exit options provided to an entrepreneur?

bcshettyco (Chartered Accountant In Practice) (65 Points)
Replied 09 June 2012

Procedure to set up a unit in SEZ :

For setting up a manufacturing, trading or service unit in SEZ, the promoter/unit has to submit
following details to Development Commissioner:
 Brief about the company & promoter
 Products to be manufactured
 Export Turn Over for five years
 Import Requirements (Capital Goods & Raw materials)
 Space Requirement
 Employment
After verification of the details the Development Commissioner will send a letter of willingness
to allot space subject to suitability of the proposal and availability of area.
Once the letter of willingness is received the unit/promoter has to apply in Form - F (5 copies) to
the Development Commissioner along with:
 Copy of letter of willingness to allot space in the Zone issued by CSEZ/Developer
 Application fees through a DD drawn in favour of "The Pay & Accounts Officer, Cochin
Special Economic Zone"
 Affidavit of undertaking in stamp paper of Rs.25/-
 Project Report indicating list of capital goods to be imported/procured, Descripttion of
raw materials and other imports, Technical Collaboration, Marketing Collaboration,
activities proposes etc. (including a write up on the background of the promoters
establishing their credentials and standing)
 Copy of Certificate of Incorporation along with Articles of Association and Memorandum
of Association in case of companies and attested copy of Partnership Deed in case of
Partnership Firms
 Income tax returns of proprietor/partners for the last 3 years. In case of company
audited balance sheet for the last 3 years.
 Copy of Pan Card of Promoters
 Proof of residence of promoter (Copy of Ration Card, Voter ID Card, Passport, Driving
License)
Letter of Approval (LOA) is thereupon issued by Zone Administration. The unit should issue a
letter accepting terms & conditions of the LOA on its letter pad.

bcshettyco (Chartered Accountant In Practice) (65 Points)
Replied 09 June 2012

Exit of SEZ units :

One condition under which SEZ Units operate is that there is a fixed period of approval during
which time the units must meet the condition of achieving positive NFE. This period is 5 years. It
is evident that upon completion of this period the unit has the option to exit from scheme
(though it may also opt to continue in the SEZ for a fresh period of 5 years) which would also
mean its physical departure from particular zone.

Exit options provided to an entrepreneur :
With approval of Development Commissioner a unit may exit from SEZ on payment of applicable
duties on the imported/indigenous capital goods, raw materials, components, consumables,
spares & finished goods in stock. If the unit has not achieved positive Net Foreign Exchange, the
exit will be subject to penalty that may be imposed under the Foreign Trade (Development &
Regulation) Act, 1992.
Development commissioner may permit one time option to exit to EPCG Scheme & on payment
of duty under that Scheme. (Rule 74)