EXPORT PROCESSING ZONE

Export Processing Zones in India was set up by the government of India with the aim to initiate infrastructural development and tax holidays in various industrial sectors in the country. EPZ has incessantly accelerated the economic growth of the country by ensuring a flourishing export production. The export processing zones in India came into existence soon after the political independence, when India proclaimed the first Industrial Policy evolution in the year !"#$. It was from then that the actual industrial growth begun in India, which resulted in the constitution of the export processing zones later. Export promotion has always been the chief concern of the government of India and it strictly follows the I%I policy while carrying out all its activities. The main reasons behind setting up the EPZ in India have been listed as

under& Ensuring better infrastructural facilities in the industrial units that were set up in the export processing zones in India Introducing the privilege of tax holidays

Establishing !'' percent export(oriented system in the EPZ in India EPZ in India are entirely devoid of all )inds of duties, levies, and taxes

Implementing tax holidays in the importing of goods li)e capital goods, raw materials, and consumer goods as well. The units in export processing zones follow the automatic route set by the government of India which offers !'' percent foreign direct investment in the zone The rules set by the government of India are executed and implemented by the development commissioner of the respective export processing zones in India %ome of the significant features of the Export Processing Zones in India have been enumerated as under& The activities that are carried out in the EPZ in India are not liable to be licensed apart from the IT enabled sectors The units set up in the export processing zones in India can select their desired locations by following certain parameters as prescribed by the state governments

The export processing zones in India religiously follows the active export(import policy The units in EPZ in India are totally custom bonded

The proposals for the units in Export processing zones in India are entitled to follow the automatic route for approval as enforced by the state governments The proposals which do not fall under the procedure of automatic route system are governed or approved by the *IP+

The activities in EPZ in India belonging to the ,omestic Tariff -rea sector are converted into Export oriented units to meet the parameters set for the export production by the government

!'' percent *,I is granted to these zones

%ome of the most eminent free(trade and Export Processing Zones in India and their contact details have been listed below& %anta .ruz Electronics Export Processing Zone *alta Export Processing Zone India was one of the first in -sia to recognize the effectiveness of the Export Processing Zone /EPZ0 model in promoting exports, with -sia1s first EPZ set up in 2andla in !"34. 5ith a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances6 absence of world(class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the %pecial Economic Zones (SEZs) Policy was announced in April 2000. Export Processing Zones (EPZs) Export Processing Zones /EPZs0 can be summarized as a unit bearing clusters of specially designed zones of aggressive economic activity for the promotion of export. The main concept of Export Processing Zones was conceived in the early !"7's to promote the growth of the sic)ening export business of India. *urther, the meaning of Export Processing Zones /EPZs0 can be broadly defined as an area en8oying special government of India support with respect to fiscal incentives, tax rebates and other exclusive benefits for the growth of export. Export Processing Zones /EPZs0 also encompasses pre(defined infrastructural facilities and regulations pertaining to establishment of such zones and environmental stipulations, respectively. These Export Processing Zones of India were established to help the growth of Indian export commodities, especially from the fast growing sectors. Objectives o setting !p o Export Processing Zones (EPZs) !.
2.

Encourage and generate the economic development Encourage *oreign ,irect Investments /*,I0 To channel the sources of foreign exchange within the system in a phased manner *oster the establishment and development of industrial enterprises within the said zones

9. #.

4. Encourage and generate wider economic activities by encouraging foreign investments for the development of the zones 3. To channel the foreign exchange earnings for the further development of these zones and explore new areas for the development of Indian exports 7. Encourage establishment and development of Indian industries and business enterprises and facilitate with proper infrastructure :enerate employment opportunity

$. ".

;pgrade labor and management s)ills -c<uire advanced technology for increased productivity

!'. Ensure world class <uality of products Export Processing Zones in India !. =. 9. #. 4. 3. 7. 2andla *ree Trade Zone /2-*TZ0, 2andla, :u8arat %anta .ruz Electronic Export Processing Zone /%EEPZ0, %. .ruz, >aharashtra .ochin Export Processing Zone /.EPZ0, .ochin, 2erala *alta Export Processing Zone /*EPZ0, *alta,5est +engal >adras Export Processing Zone />EPZ0, >adras, Tamil ?adu ?oida Export Processing Zone /?EPZ0, ?oida, ;ttar Pradesh @isa)hapatnam Export Processing Zone /@EPZ0, @isa)hapatnam, -ndhra Pradesh

SEZ "EO# " STP ( SPECI$% ECONO&IC ZONE ) ' Introd!ction ' %pecial Economic Zone /%EZ0 %cheme was introduced by the :overnment with effect from !.#.=''' with the ob8ectives to provide an internationally competitive and hassle(free environment for earning of foreign exchange, attracting *oreign ,irect Investment /*,I0, generation of employment and to facilitate transfer of technology. %pecial Economic Zones are considered to be growth engines to boost manufacturing augment exports and generate large scale employment. The uni<ue feature of the %EZ %cheme is that an %EZ is considered to be foreign territory for the purposes of trade operations, duties and tariffs. %upplies of goods A services into %EZ from ,omestic Tariff -rea /,T-0 are treated as exports and goods A services coming from %EZ into ,T- are to be treated as if these are being imported. The %EZ scheme envisages association of private sector with the development of %EZ. %EZs could be set up in the public, private, 8oint sector or the %tate governments. ,evelopers of an %EZ are eligible for duty free procurementBimport of goods and services for the purpose of development, operation and maintenance of zone. Objectives o t(e Specia) Econo*ic Zone Sc(e*e' >a8or ob8ectives of the %pecial Economic Zone %cheme are a. :eneration of additional economic activity. b. Promotion of exports of goods and services c. Promotion of investment from domestic and foreign sources d. .reation of employment opportunities e. ,evelopment of infrastructure facilities f. >aintenance of sovereignty and integrity of India, the security of the %tate and friendly relations with foreign %tates. Incentives"+aci)ities to Specia) Econo*ic Zone #nits '

i,

C!sto*s and Excise

%EZ unit may import or procure from the domestic sources, public or private bonded warehouses, or international exhibitions held in India, duty free, all goods, namely capital goods, raw materials, consumables, spares, pac)ing materials, office e<uipment, ,: sets etc. without any licence or specific approval, including goods re<uired for setting up of unit. :oods importedBprocured locally duty free may be utilized within validity period of CDP.

ii,

Inco*e Tax

iii.

!''E Income Tax exemption under section !'- of the Income Tax -ct, !"3! for first 4 years, 4'E for 9 years thereafter to the %EZ units /for unit set up prior to !.#.=''40 !''E Income Tax exemption under section !'-- of the Income Tax -ct, !"3! for first 4 years, 4'E for next 4 years and for next 4 years 4'E of the profit if such profit is reinvested to the %EZ units who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the !st day of -pril, =''3. Cess' The %ez units are exempted from payment of .ess on goods exported out of %EZ or procured from ,T-.

iv,

+oreign -irect Invest*ent

*,I upto !''E is allowed through the automatic routeF for all manufacturing activities in %pecial Economic Zones /%EZ%0, except for the following activities& -rms and ammunition, explosives and allied items of defence e<uipment, defence aircrafts and warships -tomic substances. ?arcotic and Psychotropic substances and hazardous chemicals. ,istillation and brewing of alcoholic drin)s. .igarettesB.igars and manufactured tobacco substitutes. %ectoral norm as notified by government shall apply to foreign investment in services. The cases not covered by automatic route are considered and approved by the +oard of -pprovals. *Automatic route& *,I up to !'' per cent is allowed under the automatic route in all activitiesBsectors except where the provisions of the consolidated *,I Policy, paragraph on GEntry outes for investmentH issued by the :overnment of India from time to time, are attracted. *,I in sectorsBactivities to the extent permitted under the automatic route does not re<uire any prior approval either of the :overnment or the eserve +an) of India. Government Route& *,I in activities not covered under the automatic route re<uires prior approval of the :overnment which are considered by the *oreign Investment Promotion +oard /*IP+0, ,epartment of Economic -ffairs, >inistry of *inance. Indian companies having foreign investment approval through *IP+ route do not re<uire any further clearance from the eserve +an) of India for receiving inward remittance and for the issue of shares to the non( resident investors.

v,

O .s(ore /an0ing #nits (O/#s)

%etting up of Dff(shore +an)ing ;nits allowed in %EZs. These ban)s are virtually foreign branches of the ban)s but located in India. These D+;s are exempted from .ash eserve atio /. 0, %C /%tatutory Ci<uidity atio0 and would give access to %EZ units and %EZ developers finance at international rates. The ma8or incentive available to Dff(shore +an)ing ;nit is !''E income(tax exemption for 4 consecutive years and 4'E for next 4 years under %ection $'C- of the Income Tax -ct /%econd %chedule to the %EZ -ct0 -pplication for setting up of Dff(shore +an)ing ;nit need to be made to the eserve +an) of India in *orm( @I prescribed under %ection =9 of the +an)ing egulation -ct, !"#" The guidelines governing the operation of Dff(shore +an)ing ;nits are indicated in the ?otification ?o.*E>- 7!B=''=( + dated 7.".=''= issued by the eserve +an) of India.

vi,

/an0ing"Externa) Co**ercia) /orro1ings

External commercial borrowings by units up to ;%, 4'' million a year allowed without any maturity restrictions. *reedom to bring in export proceeds without any time limit. *lexibility to )eep !''E of export proceeds in EE*. account. *reedom to ma)e overseas investment from it. .ommodity hedging permitted. Exemption from interest rate surcharge on import finance. 5rite(off of unrealized export bills allowed to %EZ units.

vii,

Exe*ption ro* Centra) Sa)es Tax

Exemption from payment of .entral %ales Tax on sales made from ,omestic Tariff -rea to %EZ units under section =3/!0/g0 of %EZ -ct, =''4 %ervices rendered to the %EZ developers or %EZ ;?IT - E P DPD%E, TD +E EIE>PTE, *rom payment of service tax under section =3/!0/e0 of the %EZ -ct, =''4. .+E. has issued ?otification ?o.!7B='!!( %T,dated !(9(='!!, to operationalise this exemption. The service provided in the %EZ and wholly consumed within

viii, Exe*ption ro* Service Tax

the %EZ are allowed upfront exemption. The %ervice provided outside the %EZ or is partially consumed within the %EZ, the exemption is allowed by way of refund.

ix, Re2!ire*ent !nder Environ*ent (Protection) $ct

Information Technology %EZ do not re<uire environment clearance. Jowever, environmental clearance as re<uired under the law is re<uired and the +oard of -pprovals does not include environmental clearance. *or development of %EZs, public hearing is not exempted and the process of Environmental Impact -ssessment /EI-0 as laid down in the notification of the >inistry of Environment would have to be adhered to.

x, Concession !nder Co*panies $ct

Enhanced limit of s.=.# crores per annum allowed for managerial remuneration. egional office of egistrar of .ompanies in %EZs. Exemption from re<uirement of domicile in India for != months prior to appointment as ,irector. Exemption from port restriction under ,rugs A .osmetics ules.

xi, Concession !nder -r!gs and Cos*etics $ct xii, S!b.contracting

%EZ units may sub(contract part of production or production process through units in the ,omestic Tariff -rea or through other ED;B%EZ units. %EZ units may also sub(contract part of their production process abroad. %EZ units may also underta)e 8ob(wor) from ,T- unit for export.

xiii, %abo!r %a1s or SEZ !nits

The labour laws of the land apply to all units inside the Zone. Jowever, the respective %tate :overnment may declare units within the %EZ as public utilities and may delegate the powers of the Cabour .ommissioner to the ,evelopment .ommissioner of the %EZ . Public Utility Status: %EZ have been declared as a public utility by the %tate :overnments of -ndhra Pradesh, >adhya Pradesh, >aharashtra, 5es +engal, 2arnata)a and ;ttar Pradesh from the inception of the Zone. Public utility status is at present given for six months at a time as per the Industrial ,isputes -ct to Prevent %tri)es without due notice. . Delegation of powers of Labour Commissioner to t e Development Commissioner & :overnments of -ndhra Pradesh, 5est +engal, 2arnata)a and ;ttar Pradesh have delegated the powers of Cabour .ommissioner to the ,evelopment .ommissioner of %EZ in respect of the units located in the zone.

ii, Exe*ption ro* E*p)o3ees4 Provident +!nd $ct and ESI $ct
-s per the >inistry of Cabour, in respect of %EZs, the %tate :overnment may apply for exemption to the .entral :overnment under %ection !3 /=0 of the EmployeesH Provident *und and >iscellaneous -ct to %EZ for 4 years. The decision is re<uired to be ta)en on case(to(case basis. In respect of the EmployeesH %tate Insurance -ct, !"#$, the %tate :overnment, being the appropriate :overnment, may ta)e a decision as per the powers provided under the -ct.

iii, /ene its to -o*estic S!pp)ies"S!pp)ier to SEZ

%upplies from ,omestic Tariff -rea /,T-0 to %EZ are treated as physical exports and supplies are entitled to& . ,uty drawbac)B,EP+B,* .B-dvance Cicense . Exemption from payment of .entral Excise duty . .%T exemption . Exemption from %tate Cevies . ,ischarge of Export Dbligation, if any, on the supplier. Export Oriented #nderta0ings (EO#s) ' In the early sixties and seventies, *ree Trade Zone /*TZ0BExport Processing zone /EPZ0 were set up in India as enclaves, notified as .ustoms area, separated from ,omestic Tariff -rea /,T-0 by physical barriers with an intention to provide an internationally competitive duty free environment There were inherent limitations to the *TZBEPZ concept such as fixed geographical area, non(suitability for medium and large industrial units and for units which intended to set up manufacturing facilities near the source of raw material or specialized labour. EPZ% were therefore supplemented by variants li)e Export Driented ;nder ta)ings /ED;s0 which provided freedom of location at place of their choice sub8ect to long(term commitment by >inistry of .ommerce in !"$'. -t present there are more than =4'' functional ED;s located in different parts of India.

Objectives ' The main aims and ob8ectives of ED; %cheme are, in brief mentioned as under, a. +oosting exports b. Earning foreign exchange c. -ttracting foreign investment d. :enerating employment e. +ac)ward and forward lin)age by way of sourcing of raw material from and supply of finished goods to ,Tf. -ttracting latest technology into the country. g. ;pgrading the s)ill and creating source of s)illed man(power h. ,evelopment of bac)ward area. Incentives " aci)ities at a G)ance ' ,uty free imports or procurement from +onded 5arehouseBInternational Exhibitions of inputs, consumables, office or other capital goods /including second(hand .apital goods0 etc. Procurement of goods from ,omestic Tariff -rea without payment of .entral Excise duty. %upplies by ,T- manufacturer are eligible for deemed export benefits under chapter $ of *oreign Trade Policy, which include drawbac), refund of terminal excise duty and advance authorization. *ull reimbursement of .entral %ales Tax from >ar)et ,evelopment -ssistance />,-0 by ,epartment of .ommerce on goods purchased from ,T- against .(*orm for manufacture of goods for export. ,T- %ale /including advance ,T- sale0 upto 4'E of *.D.+ value of exports /i.e. Physical Exports0 permitted on payment of .oncessional rate of .entral Excise duty. Dnly positive net foreign exchange earnings /?*E0 to be achieved over a period of five years. ,uty free goods /except .apital :oods0 to be utilized over a period of 9 years. Export proceeds to be realized within a period of != months. etention allowed upto !''E of export earnings in EE*. account. %upplies made in ,T- under Paragraph 3." of *oreign Trade Policy A %upplies to other exporting unitsB+onded 5arehouse are counted for the purpose of fulfillment of positive ?*E. :oods allowed to be supplied duty free in ,T- against -dvance CicenceB,* . issued by ,:*T. Kob(wor)Bsub(contracting for and from ,T- permitted sub8ect to fulfillment of certain conditions. ImportBexport of goods including precious goods permitted through personal carriage A *oreign Post Dffice permitted. *,I upto !''E permitted as per the guidelines of ,epartment of Industrial Policy and Promotion. Exemption from Industrial Cicensing for manufacture of items reserved for %%I sector. %oftware ;nits allowed to use computer systems for training purposes /including commercial training0. ED;s allowed to install one fax machine and two computers outside the bonded area of the unit. ,epreciation upto !''E permissible on capital goods debonding, the duty to be paid on the depreciated value of the capital goods.

So t1are Tec(no)og3 Par0 (STP)"E)ectronic 5ard1are Tec(no)og3 Par0 (E5TP) Sc(e*es ' %oftware Technology Par) /%TP0 %cheme and Electronic Jardware Technology Par) /EJTP0 %cheme are sector specific ED; schemes and were introduced in year !""! and !""9 respectively. ;nder %TP scheme unit can be set up for the purpose of development of software, data entry and conversion, data processing, data analysis and control, data management or call center services for export out of India. ;nder EJTP scheme, unit can be set up for the purpose of manufacture and development of electronic hardware, or electronics hardware and software in an integrated manner for export out of India. -t the time of introduction of sector specific %oftware Technology Par) /%TP0 scheme in !""! and Electronic Jardware Technology Par) /EJTP0 %cheme in !""9, considering the highly technical nature of the re<uirement, it was felt that the >inistry dealing with similar type of wor) would be more appropriate. 5ith this intention, the %TP and EJTP %chemes were placed under the administrative control of >inistry of .ommunication A Information Technology unli)e general ED; %cheme which are placed under the administrative control of >inistry of .ommerce A Industry. The administration of %TPBEJTP scheme is done by the ,epartment of Information Technology /under the >inistry

of .ommunication A Information Technology0 through ,irector, %oftware Technology Par) of India /also )nown as ,irector, %TPI0. %oftware Technology Par) complex /where number of software technology par) unit can be located0BElectronic Jardware Technology Par) .omplex can be set up by the .entral :overnment, %tate :overnment, Public or Private %ector ;nderta)ings or any combination thereof. *urther, any private party may also set up a %oftware Technology Par) for the purpose of export of software developed by the units operating under %TP scheme. %uch infrastructure provider /for %TP units0 is allowed to import specified telematic infrastructure e<uipments without payment of duty under ?otification ?o.!49B"9(.us, dated !9($("9 /however, there is no corresponding .entral Excise exemption for purpose of procuring telematic infrastructure e<uipment duty free from the domestic mar)et0. %uch Private %oftware Technology Par)s are consisting of representatives of ,epartment of Information Technology, ,epartment of evenue, ,epartment of .ommerce etc., headed by the %ecretary /Information Technology0. -n %TP unit may be an individual unit by itself /stand alone0 or it may be one of such units located in an area designated as the %TP .omplex by the >inistry of Information Technology. The :overnment has already set up %oftware Technology Par)s at Pune, +angalore, +hubaneshwar, Jyderabad, Thiruvananthapuram, :andhinagar and ?oida. In these Par)s, all the re<uired infrastructural facilities are provided. *or setting up a unit under %TP scheme, application and procedure is the same as applicable to ED;s. In case of unit being set up for development of software and IT enabled services under %TP %cheme, the -pproval would be given by ,irector, %oftware Technology Par) of India /%TPI0. In the *oreign Trade Policy, under ED; %cheme, wherever any permission is re<uired to be obtained from ,evelopment .ommissioner, in case of %TP units, the same is given by officer designated by >inistry of .ommunication and Information Technology i.e. ,irector, %TPI. Therefore, in other words, it could be said that for the purpose of %TPBEJTP, the ,irector, %TPI has the same role as that of ,evelopment .ommissioner in case of ED; other than %TPBEJTP. The policy provisions governing %TP scheme are substantially same as for general ED; scheme. Jowever considering the specific needs of the software sector, specific provisions have been made for the %TPBEJTP units in the Policy as well as notifications issued by ,epartment of evenue governing the scheme. The sector specific provisions in respect of %TPBEJTP units are as follows& i. EJTPB%TP units are allowed to ma)e ,T- sale of software so developed through data communicationBtelecommunication lin)s. This is sub8ect to the condition that the ,irector of %TPI /%oftware Technology Par) of India0 certifies the valuation of such software sold in ,T-. ii. %TP units are allowed to import telematic infrastructure e<uipments for creating the central facility system for export of software without payment of duty. The .entral facilities so developed by %TP units for transmission of dataBsoftware for export are allowed to be utilized for the purpose of export by other %TP units and ,T- units engaged in development of software. In case of EJTP unit, such facility is not available. Jowever, agencyBsociety authorized to set up the EJTPB%TP .omplex are allowed to create .entral facility system for unit by unit located within such complex. iii. ;nder %TP scheme, the units are allowed to render consultancy services for development of software Lon siteM abroad and consultancy fee received by such units in convertible foreign currencies is deemed to be an export for the purposes of fulfillment of export obligation under the %cheme. iv. The %TP units are allowed to use the computer system for the purpose of training including commercial training provided the unit has achieved the prescribed ?*EP. Jowever, computer terminals are not allowed to be installed outside the bonded premises for the purpose of imparting training. In case of EJTP imparting training to the wor)ers only. v. The %TP units are allowed to share specific goods as mentioned in the ?otification ?os. 4=B=''9(.ustoms and ==B='''#(.E, both dated 9!.9.=''9 with other %TP units or ED;s belonging to the same owner.

Export Pro*otion Ind!stria) Par0 (EPIP) ' The Exports Promotion Industrial Par) /EPIP0, at 5hitefield is one of the first information technology par)s. EPIP A International Tech Par), +engaluru /ITP+0, has distinguished campuses of global >?.s li)e :E, T.%, -ccenture, %ymbian, 5ipro, :E >edical %ystems, i:-TE :lobal %olutions, %apient, ,ell, I+> and Dracle to name a few.

-t EPIP, 5hitefield, spread across more than 74' acres of land, has over 7','''N tech(savvy professionals wor) for more than =4'N companies in the fields of IT A ITE%, bioinformatics, software development, telecommunications, electronic and other hi(tech industries. The total revenue generated by this area is around !4,'''N crores per year.