Introduction: The Ministry of Commerce and Industry, through G.S.R. 881(E), has introduced the Special Economic Zones (Fifth Amendment) Rules, 2023, amending the existing regulations. This amendment specifically addresses Information Technology (IT) and Information Technology Enabled Services (ITES) Special Economic Zones (SEZs), introducing non-processing areas to further enhance development.
Detailed Analysis:
1. Rule Introduction (Section 2): The rules, effective upon publication in the Official Gazette, are named the “Special Economic Zones (Fifth Amendment) Rules, 2023.” Rule 11B is introduced after rule 11A of the Special Economic Zones Rules, 2006.
2. Non-processing Areas for IT/ITES SEZs (Section 11B):
- Developers can request the demarcation of a non-processing area within an IT or ITES SEZ.
- Non-processing areas can host businesses engaged in IT or ITES services under conditions set by the Board of Approval.
- Specific guidelines dictate that a non-processing area must consist of complete floors, with appropriate access control mechanisms.
3. Repayment of Tax Benefits (Section 11B, Sub-rules 5-6):
- Developers must repay tax benefits attributable to the non-processing area without interest.
- Repayment is calculated based on the benefits provided for the processing area, as specified by the Central Government.
- A Chartered Engineer issues a certificate to determine the repayment amount.
4. Area Requirements (Section 11B, Sub-rule 7):
- The demarcation of a non-processing area is subject to restrictions to prevent a decrease in the processing area below specified thresholds based on city categories.
5. Limitations for Non-Processing Area Businesses (Section 11B, Sub-rules 8-9):
- Businesses in non-processing areas are restricted from availing rights or facilities available to SEZ Units.
- No tax benefits are available for the operation and maintenance of common infrastructure in such SEZs.
- Businesses in non-processing areas must adhere to Central Acts, rules, and orders applicable to entities operating in the domestic tariff area.
Conclusion: The Special Economic Zones (Fifth Amendment) Rules, 2023, provide a nuanced framework for the development of Information Technology and Information Technology Enabled Services Special Economic Zones. The introduction of non-processing areas aims to facilitate the growth of IT zones while ensuring compliance with regulations and maintaining a balance between tax benefits and area requirements. This amendment reflects the government’s commitment to fostering a conducive environment for IT and ITES industries within the SEZ framework.
MINISTRY OF COMMERCE AND INDUSTRY
(Department of Commerce)
NOTIFICATION
New Delhi, the 6th December, 2023
G.S.R. 881(E).—In exercise of the powers conferred by section 55 of the Special Economic Zones Act, 2005 (28 of 2005), the Central Government hereby makes the follo0wing rules further to amend the Special Economic Zones Rules, 2006, namely: –
1. (1) These rules may be called the Special Economic Zones (Fifth Amendment) Rules, 2023.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. After rule 11A of the Special Economic Zones Rules, 2006, the following rule shall be inserted, namely: –
“11 B. Non-processing areas for Information Technology or Information Technology Enabled Services Special Economic Zones:-
(1) Notwithstanding anything contained in rules, 5,11,11A or any other rule, the Board of Approval, on request of a Developer of an Information Technology or Information Technology Enabled Services Special Economic Zones, may, permit demarcation of a portion of the built-up area of an Information Technology or Information Technology Enabled Services Special Economic Zone as a non-processing area of the Information Technology or Information Technology Enabled Services Special Economic Zone to be called a non-processing area.
(2) A Non-processing area may be used for setting up and operation of businesses engaged in Information Technology or Information Technology Enabled services, and at such terms and conditions as may be specified by the Board of Approval under sub-rule (1),
(3) A Non-processing area shall consist of complete floor and part of a floor shall not be demarcated as a non-processing area.
(4) There shall be appropriate access control mechanisms for Special Economic Zone Unit and businesses engaged in Information Technology or Information Technology Enabled Services in non-processing areas of Information Technology or Information Technology Enabled Services Special Economic Zones, to ensure adequate screening of movement of persons as well as goods in and out of their premises.
(5) Board of Approval shall permit demarcation of a non-processing area for a business engaged in Information Technology or Information Technology Enabled Services Special Economic Zone, only after repayment, without interest, by the Developer, —
(i) tax benefits attributable to the non-processing area, calculated as the benefits provided for the processing area of the Special Economic Zone, in proportion of the built up area of the non-processing area to the total built up area of the processing area of the Information Technology or Information Technology Enabled Services Special Economic Zone, as specified by the Central Government.
(ii) tax benefits already availed for creation of social or commercial infrastructure and other facilities if proposed to be used by both the Information Technology or Information Technology Enabled Services Special Economic Zone Units and business engaged in Information Technology or Information Technology Enabled Services in non-processing area.
(6) The amount to be repaid by Developer under sub-rule (5) shall be based on a certificate issued by a Chartered Engineer.
(7) Demarcation of a non-processing area shall not be allowed if it results in decreasing the processing area to less than fifty per cent of the total area or less than the area specified in column (3) of the table below:
TABLE
| Sl. No.
(1) |
Categories of cities as per Annexure IV-A
(2) |
Minimum built-up processing Area
(3) |
| 1. | Category ‘A’ | 50,000 square meters |
| 2. | Category ‘B’ | 25,000 square meters |
| 3. | Category ‘C’ | 15,000 square meters |
(8) The businesses engaged in Information Technology or Information Technology Enabled Services Special Economic Zone in a non-processing area shall not avail any rights or facilities available to Special Economic Zone Units.
(9) No tax benefits shall be available on operation and maintenance of common infrastructure and facilities of such an Information Technology or Information Technology Enabled Services Special Economic Zone.
(10) The businesses engaged in Information Technology or Information Technology Enabled Services Special Economic Zone in a non-processing area shall be subject to provisions of all Central Acts and rules and orders made thereunder, as are applicable to any other entity operating in domestic tariff area.”
[F. No. K-43014(16)/9/2021-SEZ]
VIPUL BANSAL, Jt. Secy.
Note.-The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (i), vide notification number G.S.R 54(E), dated the 10th February, 2006 and lastly amended vide notification number G.S.R. 824(E), dated the 7th November, 2023.
