An insight into Annual Performance Report (APR) under SEZ Laws

 Disha Maheswari

APR of a Manufacturing SEZ unit

Meaning

APR refers to an annual performance report to be prepared by an SEZ unit post commencement of production by it. The preparation of APR has to be done independently by each SEZ unit located in SEZ area. An APR, which has to be duly certified by an independent Chartered Accountant [[i]], has to be filed with the Development Commissioner of the subject unit, who shall place the same before the Approval Committee for consideration [[ii]]. The Approval Committee does annual review of the performance of every unit and the compliance with the conditions of approval on the basis of the APR.

Due date of filing / submission of the APR

The APR has to be submitted by a SEZ unit within 90 days from the end of the Financial Year (“FY”) in which commercial production of the unit has been initiated and every year thereafter. The form for the same, i.e., Form-I (format enclosed as Annexure – A), has been prescribed by the Rules issued under the SEZ Act.

Purpose of APR

The basic purpose of the APR is to identify the annual performance of the SEZ unit using the net foreign exchange earnings in a specified period by the SEZ unit.

Net foreign exchange earnings

The Net Foreign Exchange Earnings (“NFE”) earned by a SEZ unit has to be computed using the following formula:

(For detailed aspects of the formula refer Annexure – B)

Units which would fall within the purview of monitoring

The units which would fall within the purview of monitoring (by the Approval Committee) are as follows [[iii]]:

• In case a unit has completed less than 5 years from the date of commencement of production, it will be monitored for the number of completed years;
• Annual monitoring in the case of old units which have completed more than 5 years will be undertaken only for such years which fall in the subsequent block of 5 years.

It is pertinent to note that units which have not completed one year of operation from the date of commencement of production will not be monitored;

Criteria for annual monitoring [[iv]]

• Units with negative NFE in the 1^st and 2^nd year shall be placed under the Watch List to watch their performance
• If a unit continues to have a negative NFE by the end of 3^rd year, a Show Cause Notice will be issued.
• If the negative performance continues till the end of 5^th year, the Development Commissioner shall initiate penal action under the provisions of Foreign Trade (Development and Regulation) Act, 1992 and the rules made there under.
  

Penal provisions

• As stated above, if the negative performance continues till the end of 5^th year, the Development Commissioner shall initiate penal action under the provisions of Foreign Trade (Development and Regulation) Act, 1992 and the rules made there under.
• Any SEZ unit, while undertaking the Bond-Cum-Legal Undertaking (“BLUT”) (format prescribed in Form-H of the Rules) undertakes that in case of any default in filing the APR within the prescribed time limit or in case of wrong submission, the permission granted for the prescribed operations may be withdrawn and / or the permission for further imports and sales in the Domestic Tariff Area (“DTA”) may be stopped.

APR of a Software Technology Parks of India (“STPI”) unit

India has earned itself a reputation of an IT superpower. Software Technology Parks of India has played a seminal role in accomplishing this status. Today, STPIs across over the country are synonymous with excellent Infrastructure and Statutory support aimed at furthering growth of Information Technology in the country.

Software Technology Parks of India (STPI), is a society set up by the Ministry of Communications and Information Technology, Government of India in 1991, with the objective of encouraging, promoting and boosting the Software Exports from India.

STPI maintains internal engineering resources to provide consulting, training and implementation services. Services cover Network Design, System Integration, Installation, Operations and maintenance of application networks and facilities in varied areas.

The objectives of the Software Technology Parks of India are:

• To promote the development and export of software and software services including Information Technology (“IT”) enabled services / Bio- IT
• To provide statutory and other promotional services to the exporters by implementing STPs / Electronics and Hardware Technology Parks (“EHTP”) Schemes and other such schemes which may be formulated and entrusted by the Government from time to time.
• To provide data communication services including value added services to IT / IT enabled Services (“ITES”) related industries
• To promote micro, small and medium entrepreneurs by creating conducive environment for entrepreneurship in the field of IT / ITES
  

APR and due date of filing / submission of the APR

APR has to be submitted by a STPI unit by 30^th June following the close of FY. The form for the same, is available on http://www.hyd.stpi.in/downloads/download.html. It is to bring to specific attention that each designated STPI has its own website and the user is always advised to download the STPI form from concerned STPI designated website

APR for IT / ITES SEZ Unit

The SEZ Unit which is into IT/ITES sector need to use the APR designated under STPI scheme and submit the duly certified form to the designed STPI for compliance under SEZ Laws

[Annexure – A]

FORM – I

ANNUAL PERFORMANCE REPORT FOR UNITS [Refer rule 22]

Period………

PERIOD OF REPORTING: ANNUAL (APRIL-MARCH)

1. Name of the Unit –

2. Item of manufacture/service activity.

3. EXPORT (INFLOW) (Rs. in lakhs)

a) FOB value of exports for the Year (indicate items of exports)

b) Cumulative value of exports for the five year period

c) Countries of exports

4. IMPORT (OUTFLOW) (Rs. in lakhs)

A. Raw materials and other inputs utilized

a) Opening balance of imported raw materials, consumables, components, packing materials etc.

b) CIF value of raw materials, consumables, components, packing materials etc. imported during the year

c) Cumulative value of raw materials, consumables, components, packing materials etc.

d) Value of imported raw materials, consumables, components, packing materials etc. or finished goods/ services received from other units in SEZs/EOUs/EHTPs/ STPs during the year

e) Total (c+d)

f) Value of imported raw materials, consumables, components, packing materials etc. or finished goods/ services transferred to other units in SEZs/EOUs/STP during the year

g) Closing balance of imported raw materials, consumables, components, packing materials etc.

h) Value of imported raw materials, consumables, components, packing materials etc. actually consumed during the year {(e)-[f+g]}

B. Capital goods

(i) Year-wise CIF value of capital goods imports and spares till end of the year under report

(ii) Value of imported Capital goods and spares received from other units in SEZ/EOU/EHTP/STP during the year

(iii) Total (i) + (ii)

(iv) Value of imported Capital goods, and spares transferred to other units in SEZ/EOU/EHTP/STP during the year

(v) Total value of imported capital goods and spares during the year (iii)-(iv)

(vi) Proportionate amortized value of imported capital goods taken for NFE calculations as per rule——of Special Economic Zones Rules, 2006

5. Other outflow of Foreign Exchange (Royalty, technical know-how fee, repatriation of Dividend/Profits, Payment of Sales Commission, Interest on overseas borrowings, etc.) during the year

6. Total outflow [4.A.(h)+4.B.(vi)+5]

7. Net Foreign Exchange Earnings for the year [3(a)-6]

8. Net Foreign Exchange Earning position at the end of previous year

9. Cumulative Net Foreign Exchange Earnings for the five year period [7+8]

Note: For details of calculation of NFE, please refer to rule………

Part – II

1. DTA SALES Value (Rs. in lakhs)

a) Sale of finished goods/services

b) Sales of rejects

c) Sale of by-product

d) Sale of Waste/Scrap/Remnant

e) Total

2. Capital structure of the enterprise

(i) Authorised capital

(ii) Paid up capital

B. Overseas investments:—

3. Employment Male/ Female

4. Investment in the Zone: (Rs. in lakhs)

a) Building

b) Plant and Machinery

(i) Indigenous

(ii) Import CIF value

(iii) Total (i) + (ii)

5. OTHER INFORMATION

(1) External commercial borrowing,

External commercial borrowing pending at the end of last year,

a) Less than three years Amount

b) More than three years

(2) Cases pending for foreign exchange realization, if any

Date of export

Name of importer

Address

Amount

(SIGNATURE)

with Seal of Co.

Note : The information given in the formats for APRs should be authenticated by the authorized signatory of the unit and certified by a Chartered Accountant.

[Annexure – B]

Rule 53 – Net Foreign Exchange Earnings

The Unit shall achieve Positive Net Foreign Exchange to be calculated cumulatively for a period of five years from the commencement of production according to the following formula, namely:—

Where:—

A: is Free on Board value of exports, including exports to Nepal and Bhutan against freely convertible currency, by the Unit and the value of following supplies of their products, namely:—

a) Supply of goods against Advance Licence or Duty Free Replenishment Certificate under the Duty Exemption or Remission Scheme or Diamond Imprest Licence under the Foreign Trade Policy;

b) Supply of capital goods to holders of licence under the Export Promotion Capital Goods Scheme under the Foreign Trade Policy;

c) Supply of goods to projects financed by multilateral or bilateral agencies or funds as notified by the Department of Economic Affairs, Ministry of Finance under International Competitive Bidding in accordance with the procedures of those agencies or funds, where the legal agreements provide for tender evaluation without including the customs duty;

d) Supply of capital goods, including those in unassembled or disassembled condition as well as plants, machinery, accessories, tools, dies and such goods which are used for installation purposes till the stage of production and spares to the extent of ten per cent. of the free on rail value to fertilizer plants;

e) Supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty;

f) Supply of goods to the power projects and refineries not covered in (e) above;

g) Supply to projects funded by United Nations Agencies;

h) Supply of goods to nuclear power projects through competitive bidding as opposed to International Competitive Bidding;

i) Supply made to bonded warehouses set up under the Foreign Trade Policy or under section 65 of the Customs Act and free trade and warehousing zones, where payment is received in foreign exchange;

j) Supply against special entitlements of duty free import of goods under the Foreign Trade Policy;

k) Export of services by services units including services rendered within Special Economic Zone or services rendered in the Domestic Tariff Area and paid for in free foreign exchange or such services rendered in Indian Rupees which are otherwise considered as having been paid for in free foreign exchange by the Reserve Bank of India;

l) Supply of Information Technology Agreement items and notified zero duty telecom or electronic items, namely, Color Display Tubes for monitors and Deflection components for colour monitors or any other items as may be notified by the Central Government;

m) Supply to other units and Developers in the same or other Special Economic Zone or Export Oriented Unit or Electronic Hardware Technology Park or Software Technology Park Unit or Bio-technology Park Unit provided that such goods and services are permissible for import or procurement by such Units and Developers;

n) Supply of goods to Domestic Tariff Area against payment in foreign exchange from the Exchange Earners Foreign Currency account of the Domestic Tariff Area buyer or Free Foreign Exchange received from overseas;

o) Supply of goods against free foreign exchange by a Free Trade and Warehousing Zone Unit.

Explanation: For the purposes of this sub-rule, the supplies under clause (m) shall be against procurement certificate, as applicable and the supplies under clauses (d) to (h) and (j) shall be as per the terms and conditions of the respective duty exemption notified by the Central Government, in the Ministry of Finance; and

B: consist of sum of the following: –

a) Sum total of the Cost Insurance and Freight value of all imported inputs used for authorized operations during the relevant period and the Cost Insurance and Freight value of all imported capital goods including goods purchased on high seas basis even though paid for in Indian Rupees and the value of all payments made in foreign exchange by way of export commission, royalty, fees, dividends, interest on external commercial borrowings during the first five-year period or any other charges;

b) Value of goods obtained from other Unit or Export Oriented Unit or Electronic Hardware Technology Park or Software Technology Park Unit or Bio-technology Park Unit or from bonded warehouses or procured from international exhibitions held in India or precious metals procured from nominated agencies;

c) The Cost Insurance Freight value of the goods and services, including pro-rata Cost Insurance Freight of capital goods, imported duty free or leased from a leasing company or received free of cost and/or on loan basis or on transfer for the period they remain with Unit.

Explanation: For the purposes of this sub-rule “Inputs” mean raw materials, intermediates, components, consumables, parts and packing materials;

d) For annual calculation of Net Foreign Exchange, value of imported capital goods and lump sum payment of foreign technical know-how fee shall be amortized at the rate of ten per cent every year from the first year to tenth year.

[i] Refer Rule 54 read with Annexure-I of the Special Economic Zone Rules, 2006

[ii] Refer Rule 22 of the Special Economic Zone Rules, 2006

[iii] Refer Rule 54 read with Annexure-I of the Special Economic Zone Rules, 2006

[iv] Refer Rule 25 and 54 read with Annexure-I of the Special Economic Zone Rules, 2006

(Article is been vetted by CA G.Murali Krishna)