1. What is a Special Economic Zone (SEZ)?

Special Economic Zone (SEZ) is a specifically delineated duty free enclave

and shall be deemed to be foreign territory for the purposes of trade
operations and duties and tariffs.

2. Who can set up a SEZ?

Any private/public/joint sector company, State Government, or State
Government agency can set up a Special Economic Zone (SEZ).

3. What is a Multi-Product SEZ?

"Special Economic Zone for multi-product" means a SEZ where units may be
set up for manufacture of two or more goods in a sector OR goods falling in
two or more sectors or For Trading & Warehousing or Rendering of two or
more services in a sector or services falling in two or more sectors According
to the rules prevailing at the time of writing, the SEZ should have a minimum
area of 1000 hectares (unless it is a product-specific SEZ or port/airport
based SEZ) and at least 50% of the area should be earmarked as industrial
area.

4. What is sector Specific SEZ?

Special Economic Zone for specific sector" means a SEZ meant exclusively
For one or more products in a sector OR For one or more services in a sector.

5. How can Domestic suppliers supply to SEZ units?

Supplies from Domestic Tariff Area (DTA) to SEZ are treated as exports.. At
the time of hosting, DTA supplies to SEZ are entitled to:
Drawback / Duty entitlement passbook (DEPB); Advance License / DFRC
Exemption from all State & Central Taxes / levies
Income Tax benefits as applicable to physical exports under Section 80 HHC
of the Income Tax Act.

6. What is Domestic Tariff Area (DTA)?

"Domestic Tariff Area" means the whole of India (including the territorial
waters and continental shelf) but does not include the areas of the Special
Economic Zones

7. Can foreign companies set up a unit in a SEZ?

Yes, a foreign company can take the Automatic Approval Route to set up a
unit in an SEZ.

8. What is the obligation of a SEZ unit?

Handbook of Procedures, Vol. 1 and Vol. 2, published under the provisions of
the paragraph 2.4 of the SEZ Policy, details the obligations of a unit to be set
up within an SEZ. Some of the key factors are:

SEZ units have to achieve net positive foreign exchange earnings as per the
 formula given in paragraph Appendix 14-II (Para 12.1) of the handbook
mentioned above. A legal undertaking to this effect has to be given by the
unit to the Development Commissioner

Net Foreign Exchange inflow – Net Foreign Exchange outflow > 0

SEZ 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
SEZ units have to execute a bond with the Zone Customs for their operations
in the SEZ

Any company set up with Foreign Direct Investment (FDI) has to also be
incorporated under the Indian Companies Act to operate in India.

9. What is the role of the Development Commissioner?

The Development Commissioner (DC) is the nodal officer for SEZs. He is
mandated to assist in the resolution of problems faced by the SEZ developer
or the units in the SEZ.

10.What are the rules that govern the setting up of units in a SEZ in
India?
There are two documents that govern the setting up of units in a SEZ:
1. The SEZ Act of India, 2005
2. The SEZ rules 2006

These documents can be downloaded from the website www.sezindia.nic.in

11.Is 100 % Foreign Direct Investment allowed for setting up units in a

SEZ?
YES
(except for a few prohibited list of industries eg. armaments, drugs and such
sensitive items).

12.Who will give approvals for the establishment of a SEZ?

The Board of Approvals (BOA) is authorized to give approvals to the
developer for the establishment of a SEZ. The Board consists of
representatives of various government departments relevant for the SEZs.
The composition of the Board is given under Clause 8 of the SEZ Act.

13.Who governs the Special Economic Zone (SEZ)?

The Board delegates the authority to govern the SEZs to Development
Commissioners appointed for specific SEZs.

14.Who is responsible for the maintenance of a SEZ?

The Developer of a SEZ is responsible for its maintenance.
15.What are the obligations of the Unit under the Scheme?
SEZ units have to achieve positive net foreign exchange earned over five
years i.e. Exports (FOB value of all exports) - Imports (CIF value of all imports)
> 0. Please see Clause 53 of Chapter VI of the SEZ Rules, 2006 for a more
detailed explanation

For this purpose, a Legal Undertaking is required to be executed by the unit

with the Development Commissioner

Any company set up with FDI has to be incorporated under the Indian
Companies Act with the Registrar of Companies for undertaking Indian
operations

The units have to maintain proper records of accounting

Annual Performance Reports must be submitted to the Development

Commissioner

The units are also to execute a bond with the zone Customs for their
operations in the SEZ.

16.Who monitor the functioning of the units in SEZ?

Performance of the SEZ units monitored by a Unit Approval Committee
consisting of Development Commissioner, Custom and representative of
State Govt. on annual basis.

17.What is the practical role of Development Commissioner?

Development Commissioner is the nodal officer for SEZs and help in
resolution of problem, if any, faced by the units / developer.

18.Are SEZs controlled by Government?

In all SEZs, the statutory functions are controlled by the Government. The
operation and maintenance are privatized in private SEZs.

19.Will there be a Customs House in a SEZ?

Yes. There will be an on-site Customs House.

20.What is the processing area in a SEZ?

The processing area is the bonded area within the SEZ where all
manufacturing, services and trading units are located.

21.What is the non-processing area (NPA) in a SEZ?

The NPA is the area outside the bonded area within the SEZ earmarked for
residential, commercial and recreational development.
22.Are all industries permitted in a SEZ?
Any type of industry can be located in a SEZ with the appropriate approvals
and clearances from the Pollution Control Board.

23.Can units operate both in the domestic tariff area (DTA) and SEZ
area?
A company can set up units both in the SEZ and DTA, provided separate
accounting procedures are maintained by the units. A unit in the DTA cannot
export to itself in the SEZ.

24.Can SEZ units sell to the domestic market?

Yes. SEZ units can sell goods and services, including rejects and scrap or
other by-products of the manufacturing process in the domestic market on
payment of applicable customs and excise duties.

25.Can SEZ units do job work for domestic companies for exports?
Yes. SEZ units can do contract work for domestic companies, provided all raw
material including semi-finished goods and consumables including fuel is
supplied by the DTA exporter. The finished goods must be directly exported
from the SEZ unit on behalf of the DTA exporter. The export document is
jointly in the name of the DTA unit and the SEZ unit. The DTA exporter is
eligible for refund of duty paid on the inputs by way of brand rate of duty
drawback.

26.Can SEZ units subcontract part of their production process (e.g.

finishing process) to units in the DTA?
Yes. SEZ units can subcontract to units in the DTA which are registered with
the excise department and also abroad with prior permission of the Specified
Officer given on an annual basis. The goods sent out for subcontracting have
to be returned to the SEZ within 120 days from the date of removal or within
a period as may be extended by the Special Officer in charge of this
procedure.

27.Can goods be exported directly from the sub-contractor's premises

in the DTA?
Yes. Goods can be exported directly from the DTA unit provided it is
registered with the Central Excise Department. This is allowed only by way of
direct export and not through third parties.

28.Can subcontracting be given to another SEZ unit within the same

SEZ or in another SEZ?
Yes.

29.Are sales permitted from one unit to another in a SEZ or from one
SEZ to another?
 Yes. Inter Unit Sales are permitted as per the Policy. Buyer procuring from
another unit pays in Foreign Exchange.

30.Are offshore banking units allowed to operate in a SEZ?

Yes. They operate as a bank outside India adopting international norms for
operations.

31.Are existing labor laws applicable in a SEZ?

All existing labor laws are applicable in a SEZ. Labor in a SEZ will be treated
as a Public Utility Service.

32.Are Local laws applicable in a SEZ?

Yes. Local laws are applicable in a SEZ unless specifically given exemption by
the State Government.

33.Are imports and exports faster from a SEZ?

Yes. Due to procedural ease as provided in the scheme and the on-site
Customs House, the turnaround time for imports and exports in a SEZ is
shorter. Loading and unloading costs are cheaper due to service tax
exemptions.

34.If one buy goods from DTA should they require paying State Sales
Tax and Excise?
NO. State has exempted the sales from DTA to SEZ from local levies and
taxes.

35.Routine examination of goods by customs in the EOU is common.

Will the same practice continue at the SEZ?
Customs examination is to the bare minimum. SEZ units function on self
certification basis.

36.What are the provisions relating to External Commercial Borrowing

(ECB) in SEZ?
External commercial borrowings by units up to $ 500 million a year allowed
without any maturity restrictions For details please see guidelines issued by
RBI (F.No. 4(2)/2002-ECB, dated 15.9.2002.

37.What are the incentive/facilities available for SEZ units?

15-year graded Income Tax Holiday

Exemption from Excise and Customs Duties

Exemption from Central Sales Tax / VAT

Exemption from Service Tax

 Exemption from local taxes

Single Window Clearance

100% FDI through automatic route

Domestic Sales on payment of applicable duty

External commercial borrowings by units up to $ 500 million a year allowed

without any maturity restrictions

Freedom to bring in export proceeds without any time limit

Flexibility to keep 100% of export proceeds in EEFC account

Offshore banking unit

On-site custom house

Self-certification

Warehouses/ICD

38.What are the facilities for Domestic suppliers to Special Economic

Zone?
Supplies from Domestic Tariff Area (DTA) to SEZ to be treated as physical
export. DTA supplier would be entitled to:

Drawback/DEPB

CST Exemption

Exemption from State Levies

Discharge of EP if any on the suppliers

Income Tax benefits as applicable to physical export under section 80 HHC of

the Income Tax Act.

39.What about the Licenses for Imports?

No License is required for imports, including second hand machineries.