Recently Government of India imposed Export Duty on Certain Steel Items Vide Notification 28/2022 – Cus, Dated 21st May’2022. Immediately doubts were raised whether such Export Duty is Applicable for Supplies from Domestic Tariff Area) DTA to SEZ? In this Article let’s Discuss on this issue.
Introduction to SEZ
Special Economic Zones (SEZ) in India is a specially delimited enclave. Most importantly, the economic laws in this geographical area are different from the prevailing laws in other parts of India. An SEZ is deemed as a Foreign Territory for matters that relate to the Trade Tariffs, Duties, and Operations.
To instill confidence in investors and signal the Government’s commitment to a stable SEZ policy regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive SEZ policy was Introduced.
The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received Presidential assent on the 23rd of June, 2005.
After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments.
It was based on the SEZ model in China, which is quite successful in terms of export competitiveness, employment generation, GDP growth, and attracting foreign investment.
The SEZ Rules. 2006 provide for: “Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting business in SEZs”
Objectives of the SEZ Act
The Main Objectives of the SEZ Act are:
> Generation of Additional Economic Activity
> Promotion of Exports of Goods and Services
> Promotion of Investment From Domestic and Foreign Sources
> Creation of Employment Opportunities
> Development of Infrastructure Facilities
It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.
Incentives in Special Economic Zones
The salient features of the SEZ scheme are:
> A designated duty-free enclave to be treated as a territory outside the customs territory of India for the purpose of authorised operations in the SEZ.
> No licence required for import.
> Manufacturing or service activities allowed.
> The SEZ unit shall achieve Positive Net Foreign Exchange to be calculated cumulatively for a period of five years from the commencement of production.
> Domestic sales subject to full customs duty and import policy in force.
> SEZ units will have freedom for subcontracting.
> No routine examination by customs authorities of export/import cargo.
> SEZ Developers /Co-Developers and Units enjoy Direct Tax and Indirect Tax benefits as prescribed in the SEZs Act, 2005.
> Duty free import / domestic procurement of goods for development, operation, and maintenance of SEZ units.
> Tax exemption for offshore banking units in SEZ.
> Exemption from Central Sales Tax, Service Tax, and State Sales Tax. These have now been subsumed into the Goods and Services Tax (GST) and supplies to SEZs are zero rated under the IGST Act, 2017.
> Single window clearance for Central and State level approvals.
> Exemption from capital gains tax – Subject to Conditions.
> Export Duty
Customs duty is a variant of Indirect Tax and is applicable on all goods imported and a few goods exported out of the country. Generally. Customs Duties are Levied on Imported Goods. On the other hand, Exports are Encouraged by Providing Incentives. However, in a few cases a country may Restrict Exports and wish to protect its home industries and make available adequate supplies of Goods specially, Raw Materials, Commodities and Inputs for Industries for Further Value Creation in their own Country and to Mitigate Shortage or Scarcity of Goods. Therefore, to Discourage Exports from the Country, Export Duty is imposed. Also Export Duties are Levied to Prevent Raising of Prices and Contain Inflation in the Domestic Market.
Export Duties act as an effective means of protection for domestic industries and Duty is Levied on goods exported from a country based on Specific, ad valorem (on Certain Percentage of FOB Value), or compound—i.e., a combination of both.
Export Duty : Provision in Indian Tariff Act, 1975
Section 8: Emergency power of Central Government to increase or levy export duties. –
(1) Where in respect of any article, whether included in the Second Schedule or not, the Central Government is satisfied that the export duty leviable thereon should be increased or that an export duty should be levied, and that circumstances exist which render it necessary to take immediate action, the Central Government may, by notification in the Official Gazette, direct an amendment of the Second Schedule to be made so as to provide for an increase in the export duty leviable or, as the case may be, for the levy of an export duty, on that article.
Examples of Export Duty:
As per Second Schedule of Customs Tariff Act, 1975 following are some of the Examples of Items on which Export Duty is Levied.
♦ Black pepper Rs. 5 per kilogram
♦ Cardamom Rs. 50 per kilogram
♦ Groundnut kernel Rs. 1,500 per tonne
♦ Raw sugar, white or refined sugar 20%
♦ Raw wool 25%
♦ Raw cotton Rs. 10,000 per tonne
♦ Coir yarn 15%
♦ Electrodes of a kind used for furnaces 20%
♦ Bauxite (natural), not calcined 30%
♦ Manganese ore Rs. 20 per tonne
♦ Mica including fabricated mica 40%
Recently Government Vide Notification 28/2022 – Cus, Dated 21st May’2022, Notified Export Duty on 11 Iron and Steel Intermediates to Increase Local Availability of these Goods and to Contain Raising Domestic Prices which may affect adversely the Downstream Industries, Real Estate Industry and other Direct Consumers.
Supplies from DTA to SEZ : Whether Export Duty Applicable?
Now on this Subject let’s discuss
As per Third Proviso to Rule 27 of SEZ Rules, 2006 (Inserted Vide Notification 19th Sep’2018)
“Provided also that supplies from Domestic Tariff Area to Special Economic Zones shall attract Export Duty, in case, export duty is leviable on items attracting export duty.”
Conclusion
Moving in to rein in input prices and control runaway inflation, the government on May 22 imposed an export duty of 15% on select pig iron, flat-rolled products of iron or non-alloyed steel, bars and rods and various flat-rolled products of stainless steel and another 45% on iron ore pellet etc. vide Notification 28/2022 – Cus, Dated 21st May’2022
So, as per Third Proviso to Rule 27 of SEZ Rules, 2006, it is Very Clear that Export Duty on Certain Steel Items is Applicable in case of Supplies from DTA to SEZ.
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Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.
Author : SN Panigrahi, GST & Foreign Trade & Project Consultant, Practitioner, International Corporate Trainer, Mentor & Author. He is also an Authorized Training Partner (ATP) Instructor, PMI (USA). Author can be Reached @ snpanigrahi1963@gmail.com; Mobile : 9652571117
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