SEZ update Dept. of Commerce instructs DCs not to block transfer of used assets into SEZs and issues guidelines for SEZ development

In brief :- The Department of Commerce, Ministry of Commerce and Industry has issued Instruction Nos. 65 and 66 on 27 October, 2010 and Nos. 67 and 68 on 28 October, 2010 to Development Commissioners (“DCs”) on certain important aspects of development of Special Economic Zones (“SEZs”) and on transfer of used goods by SEZ units.

  •   Instruction No. 65 provides for broad guidelines to govern the development of SEZ to ensure environmentally sustainable and well planned development of SEZs.
  •   Instruction No. 66 requires SEZs to be energy efficient and such SEZ buildings to be designed as per these guidelines or to be certified by the designated authority.
  •   Instruction No. 67 has put in abeyance the operation of the applicable duty on sale of power from the SEZ to Domestic Traffic Area (“DTA”) in order to give effect to the customs notification on the same subject.
  •   Instruction No. 68 orders the DCs not to take unilateral decisions restricting transfer of used goods from the DTA into an SEZ and clarifies that the Special Economic Zones Act, 2005 or Special Economic Zone Rules, 2006 (“the SEZ Rules”) do not impose any restrictions on such transfers.

Overview of the Instructions

Instruction No. 65

  • · In view of the broad guidelines that are prescribed under this instruction, it is likely that the Board of Approvals would consider the parameters prescribed in the guidelines while approving SEZs and their development.
  • · The guidelines clarify that the provisions of the Land Acquisition Act, 1894 and the Resettlement and Rehabilitation Policy framed by the Ministry of Rural Development would need to be adhered to for land acquisition and resettlement for SEZs. A developer may be guided by parameters such as:

-Location;

-Availability of land and water resources;

-Type of land being acquired (cultivable or otherwise);

-Potential for development as a self contained entity with environmental sustainability;

-Creation of facilities such as industrial training centres, ITI’s, vocational training programmes and other such community development programmes

  • · An SEZ developer is required to make a development plan following the guiding factors provided in the instruction.
  • · The instruction clarifies the role of the State Government as a facilitating agency for the development of the SEZ in a balanced manner. For this purpose, the State Governments may identify areas as regulated or non- regulated depending on where the SEZs are located. For an SEZ falling in regulated areas, the State Government may develop detailed guidelines on land use, floor space level, environment, safety measures etc. that would need to be adhered to by the SEZ while preparing and approving its master plan.
  • · In case of SEZ falling in a non-regulated area, the master plan should conform to the state government guidelines or to the urban development guidelines of the Central Government, if there are none prescribed by the State Government.
  • · It is proposed that the authority for approving building plans for SEZs is delegated to the Unit Approval Committee (“UAC”). The Master Plan approval should be granted in a time bound manner within 45 days of submission of Draft Master Plan related documents. This would include clearance of the land ceiling provisions.
  • · The developer should ensure good telecommunications facilities (including video conferencing facility in the office of the Developer and the DC in the SEZ).
  • · Developers are expected to provide low cost housing to employees on rental / long term lease basis as per the National Urban Housing Policy 2007. Housing facilities created in the non-processing area are required to be used by persons who are working for establishments relating to SEZ developers, units and / or are users of infrastructure facilities created in the SEZ.
  • · Developers are required to provide adequate physical infrastructure including mass transportation facilities, water, drainage, power etc. and State Governments should ensure that this is taken care of.
  • · SEZ developers should make a conscious attempt to bring small scale units in the SEZs.
  • · The State Governments have been requested to consider taking appropriate steps to declare SEZs as industrial townships under Article 243Q of the Constitution.

Instruction No. 66

• All new buildings within an SEZ are required to be in compliance with the green guidelines prescribed in the Instruction No. 66. Certification of such compliance would be issued by Indian Green Building Council (“IGBC”) or Green Rating for Integrated Habitat Assessment (“GRIHA”) or other agencies.

• The guidelines cover optimisation of use of energy, power consumption, waste efficiency and management, plantations, site preservation and restoration, internal transportation, air quality, IT infrastructure and materials to be used for construction.

Instruction No. 67

• The instruction puts in abeyance the provisions of the SEZ Rules pertaining to sale of power from the SEZ to DTA. This gives full effect to the customs notification on the same subject allowing sale of surplus power to DTA on payment of applicable duty.

Instruction No. 68

• Instruction No. 68 clarifies that DCs cannot restrict any procurement of used capital goods from DTA for use in the SEZ by an SEZ unit.

• Instruction No. 11 issued by the Ministry of Commerce and Industry dated 12 August, 2009 prescribes detailed guidelines for transferring of used / second hand goods from DTA to SEZ and these have to be adhered to by the Unit as well as the UACs / DCs while approving the movement of such goods into the SEZ.

• In case of any ambiguity, the DCs have been instructed not to take any unilateral decisions and refer the case to the Department of Commerce.

Conclusion

Instruction No. 65 provides broad guidelines for development of SEZs but these may require consensus at the State Government level and therefore, may be difficult to implement in practice.

Instruction No. 66 requires developers to adopt green practices in the SEZs and is an effective step to ensure green development. However, this will increase the cost of compliance for SEZ developers.

Instruction No. 68 authoritatively puts to rest the controversy surrounding the ability of SEZ units to procure used capital goods from the DTA. The instruction dissects the income-tax benefit from the status of SEZ unit holder and freely permits movement of such goods from the SEZ Rules perspective.

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