Impact of GST and foreign Trade Policy on Special Economic Zone

GST Special Economic
Zone
SHIV KUMAR LOHIA
GST CONSULTANT
E-MAIL: CASHIVLOHIA@GMAIL.COM
MOBILE: +91-9582932062

Special Economic Zone GST
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CONTENTS
Introduction..........................................................................................................................................................2
SEZ Legislature......................................................................................................................................................3
SEZ COMP0NENTS ................................................................................................................................................4
SEZ RegulATORS ...................................................................................................................................................5
SEZ developers / units status and registration under GST .................................................................................6
SEZ supply in GST..................................................................................................................................................9
SEZ supply as per SEZ Act 2005..........................................................................................................................11
Compliances in GST............................................................................................................................................12
Operation of SEZ.................................................................................................................................................13
Special Provisions for Special Economic Zones in SEZ Act 2005 .......................................................................14
SEZ transactions .................................................................................................................................................16
Deemed Export...................................................................................................................................................21
Refund procedure for Suppliers (dta) of SEZ.....................................................................................................22
SEZ Registration process ....................................................................................................................................24
Aproval regulations............................................................................................................................................26
Processing and non processing Area .................................................................................................................28
sez timelines.......................................................................................................................................................30
foreign trade policy on sez.................................................................................................................................33
Net foreign exchange earnings (nfe) .................................................................................................................37
monitoring reqirements.....................................................................................................................................38

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IMPACT OF GST ON SEZ
INTRODUCTION
A SEZ is a specified demarcated duty-free territory, which for the purpose of trade
operations is deemed to be considered outside the customs territory of India. Set up
primarily to promote exports, even GST regime continues to incentivize SEZ units by
extending due benefits for their authorized operations.
A SEZ is required to follow two separate set of compliances. Firstly compliances
governed by the SEZ Act, 2005, such as submission of periodical progress reports and
secondly, compliances required to be undertaken in terms of indirect tax laws. While
the former are likely to continue without any major changes, the latter would now
be modified in line with the GST law.
Supplies made to SEZ units and SEZ developers were exempted from payment of
duty under the earlier law as deemed exports. Day by day the number of SEZ units
and SEZ developers are increasing. So also the domestic business sector supplying
goods and service to these units. Hence it is expedient to know the implications of
the new GST regime on the SEZs. In this article the implications of GST laws on the
SEZ units have been analyzed.

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SEZ LEGISLATURE
• Chapter X-A of the Customs Act along with the SEZ Rules
2003 and SEZ (Customs Procedure) has been rescinded with
effect from 10 February 2006
• All the rules and notification under other laws in relation to the
SEZ shall remain in force to the extent they are not inconsistent
with the SEZ Act 2005 and Rules made there under
• Provisions of the SEZ Act, 2005 override inconsistent
provisions of any other law in force at the time of
commencement of the SEZ Act, 2005
SEZ ACT
2005
SEZ RULES
2006
SEZ
LEGISLATURE

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SEZ COMP0NENTS
• Developer : Person who obtains Letter of Approval from the Central
Government to establish the SEZ and undertake authorized operations
 Co-developer : Co-developer is a person who intends to provide infrastructural
facilities in an SEZ along with a developer
 SEZ Units: Units in SEZ can undertake Manufacturing, Rendering of services, Trading,
Warehousing In relation to authorized operation of the SEZ
• Contractor: Contractor can be appointed by developer / co-developer to
undertake authorized operations in SEZ. Contractor can avail all exemptions,
drawbacks and concessions available to the Developer / co-developer.
SEZ
DEVELOPER
CO-
DEVELOPER
CONTRACTOR
SEZ UNIT

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SEZ REGULATORS
 Central government: Overall authority for governing, notifying the SEZ and
granting the letter of approval
 State government: Receives and forwards the proposal with recommendations to
the Board of Approval
 Board of approval: Considers proposals for setting up SEZ and Units in SEZ
 Approval committee: Considers proposals for setting up of Units in SEZ,
monitoring performance, and supervises import / procurement by Developer/
Units in SEZ
 SEZ authority: Undertakes measures for the development, operation and
management of the SEZ
 Development Commissioner: For administrative control of the SEZ

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SEZ DEVELOPERS / UNITS STATUS AND REGISTRATION UNDER GST
Section 2(19) of CGST ACT 2017 defines “Special Economic Zone” shall have the same
meaning as assigned to it in clause (za) of section 2 of the Special Economic Zones Act,
2005.
Section 2(za) of SEZ act states "Special Economic Zone" means each Special Economic
Zone notified under the proviso to sub-section (4) of section 3 and sub-section (1) of
section 4 (including Free Trade and Warehousing Zone) and includes an existing
Special Economic Zone;
Section 2(20) of CGST ACT 2017 defines “Special Economic Zone developer” shall have
the same meaning as assigned to it in clause (g) of section 2 of the Special Economic
Zones Act, 2005 and includes an Authority as defined in clause (d) and a Co-Developer
as defined in clause (f ) of section 2 of the said Act.
As per SEZ act 2005
"Co-Developer" means a person who, or a State Government which, has been
granted by the Central Government a letter of approval under sub-section (12) of
section 3.

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“Developer” means a person who, or a State Government which, has been granted
by the Central Government a letter of approval under sub-section (10) of section 3
and includes an Authority and a Co-Developer
Registration
As per section 22(1) of the CGST Act 2017, read with rule 8(1) of CGST rules 2017 every
supplier is liable to be registered under this Act in the State or Union territory, other
than special category States, from where he makes a taxable supply of goods or
services or both, if his aggregate turnover in a financial year exceeds twenty lakh
rupees. In respect of special category states, the threshold limit for registration has
been fixed at Rs 10 lakhs.
Section 25 (2) of the CGST Act 2017, stipulates that, a person seeking registration
under this Act shall be granted a single registration in a State or Union territory, and
also that a person having multiple business verticals in a State or Union territory may
be granted a separate registration for each business vertical, subject to such
conditions as may be prescribed.
Rule 8 of the Final Registration Rules under GST mandates that a person having a
unit(s) in a Special Economic Zone or being a Special Economic Zone developer shall
make a separate application for registration as a business vertical distinct from his
other units located outside the Special Economic Zone.
Thus it is quite clear from the above provisions that under the GST regime, every unit
in the special Economic zone and the SEZ developers have to take separate
registration as a separate business verticals in each state, irrespective of the
registration of the units located outside the SEZ in that state.
SEZ is a distinct person
According to section 25(5) of the CGST Act 2017, where a person who has obtained
registration in a State or Union territory in respect of an establishment, has an
establishment in another State or Union territory, then such establishments shall be

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treated as establishments of distinct persons for the purposes of this Act. Accordingly
since the Act and the Rules framed there under require the SEZ units, SEZ Developers
to take separate registration in each state wherever they are located in addition to the
registration of the units located outside the SEZ area in that state, the SEZ unit or the
SEZ developer and the other units located outside the SEZ area are considered as
distinct persons for the purpose of this act.
Few Examples:
1. A supplier in the Domestic Tariff area of State of Karnataka, supplying goods or
services or both to a unit located in the Karle SEZ of Karnataka such a supply will be
treated as inter-state supply of goods and services irrespective of the fact that both the
supplier or goods or services and the recipient of goods or services are located within
the same state.
2. A supplier in SEZ in the State of Tamil Nadu supplies goods or services to a DTA unit in
Tamil Nadu. The supply will be treated as inter-State supply despite the fact that goods
did not move inter-State
3. A supplier in SEZ in the State of Kerala supplies goods or services to a SEZ unit in
Kerala. The supply will be treated as inter-State supply despite the fact that goods did
not move inter-State.
SEZ
Unit
Another
vertical
unit

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SEZ SUPPLY IN GST
As per Section 7(5) (b) of the Integrated Goods and Services Tax Act, 2017 (IGST Act)
supply of goods or services or both to or by a Special Economic Zone Developer or a
Special Economic Zone unit shall be treated to be a supply of goods or services or both
in the course of inter-State trade or commerce.
Proviso (i) to Sub-section (1) of Section 8 of the IGST Act specifically states that, supply
of goods to or by a Special Economic Zone developer or a Special Economic Zone unit
shall not be treated as an intra state supply.
Special Treatment to SEZs under section 16 of the IGST Act.
 As per
Section 16(1) “zero rated supply” means any of the following supplies of goods or services
or both, namely:––
(a) Export of goods or services or both; or
(b) Supply of goods or services or both to a Special Economic Zone developer or a Special
Economic Zone unit.
Thus supply of goods or services or both to a Special Economic Zone developer or a
Special Economic Zone unit has been rated as zero rated supply (export).
 Notification No. 18/2017 -Integrated Tax (Rate) (New Delhi, the 5th July, 2017)
Exempts services imported by a unit or a developer in the Special Economic Zone for
authorized operations, from the whole of the integrated tax leviable thereon under
section 5 of the Integrated Goods and Service Tax Act, 2017.
 Notification No. 64/2017- Customs (New Delhi, the 5th July, 2017)
Exempts all goods imported by a unit or a developer in the Special Economic Zone for
authorized operations, from the whole of the integrated tax leviable thereon under sub-
section (7) of section 3 of the Customs Tariff Act, 1975 read with section 5 of the
Integrated Goods and Service Tax Act, 2017
Suppliers of goods and services to SEZ can avail of one of the following options on their
supplies:

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a) Make their supplies under bond or Letter of Undertaking without payment of IGST
and claim Input Tax Credits; or
b) Make supplies on payment of IGST and claim refund of taxes paid.
Suppliers to SEZ unit or developers under either of the above options will be subjected
to such conditions, safeguards and procedure as may be prescribed in this regard.
Except for the above special treatment in the nature of supply and zero rating, the SEZ
unit or SEZ developer is subject to all other provisions of the GST laws.

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SEZ SUPPLY AS PER SEZ ACT 2005
“Export” means –
(i) taking goods, or providing services, out of India, from a Special Economic Zone, by
land, sea or air or by any other mode, whether physical or otherwise; or
(ii) Supplying goods, or providing services, from the Domestic Tariff Area to a Unit or
Developer; or
(iii) Supplying goods, or providing services, from one Unit to another Unit or Developer,
in the same or different Special Economic Zone
“Import” means-
(i) Bringing goods or receiving services, in a Special Economic Zone, by a Unit or
Developer from a place outside India by land, sea or air or by any other mode, whether
physical or otherwise; or
(ii) Receiving goods, or services by, Unit or Developer from another Unit or Developer of
the same Special Economic Zone or a different Special Economic Zone;

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COMPLIANCES IN GST
Return Compliances
Any supply made by SEZ to DTA, without the cover of a bill of entry is required to be
reported by SEZ unit in GSTR-1. The supplies made by SEZ on cover of a bill of entry shall
be reported by DTA unit in its GSTR-2 as imports in GSTR-2. The liability for payment of
IGST in respect of supply of services would, be created from GSTR 1 table.
Also, any zero rated supply (export) by SEZ is to be reported as export in GSTR 1.
All procurements by another SEZ or outside Indian Custom territory will be constitute as
Import and will be reported in GSTR 2.
Invoice Compliances
No specific format of invoice has been prescribed in the Invoice Rules for the issue of
invoice in respect of the supplies made by the SEZs. Thus Invoice rules applicable to
exports will apply to invoices issued by SEZ for export out of India and with suitable
modification to supplies to DTA.
Refund Compliances
Unlike previous regime, the onus of filing refund has been shifted from SEZ units to the
suppliers. Therefore, the SEZ units would not be required to go through the hassles of
claiming refund for supplies which did not enjoy upfront exemption. However, there is
no clarity for reverse charge transactions wherein, the liability to pay GST would be on
the service recipient. In such case, it needs to be ascertained whether the SEZ unit is
required to pay tax and then claim refund.
Export Compliances
The procedure for export from Special Economic Zone through seaports or airports or Inland
Container Depot or Container Freight Station or Land Customs Station or by Post or by Courier or
by Personal Carriage, as the case may be, shall be as under:—
The Unit shall file Shipping Bill, in quadruplicate, with the Authorized Officer of Customs in the
Special Economic Zone together with relevant documents, namely, invoice, packing list and
Currency Declaration Form (GR) (in duplicate).

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OPERATION OF SEZ
 A developer is authorized to Develop, Operate and Maintain the SEZ
 Operation and maintenance not defined in the Act / Rules
 Operation and maintenance can be for the infrastructural facilities in SEZ (as
inferred from the definition of infrastructure)
 Developer / Co-developer can appoint contractors for development, operation and
maintenance of SEZ
 Duty free material not available for operation and maintenance of educational
institutions, hospitals, hotels, residential and/or business complex, leisure and
entertainment facilities or any other facilities in the non-processing area of SEZ
 Goods for personal use/ consumption by officials, workmen, staff, owners or any other
person in relation to a Unit or Developer, not eligible for exemptions/ drawbacks/
concessions or any other benefit
 If goods/ parts imported or procured from DTA are defective/ unfit for use/ damaged/
become defective after import/ procurement, may be sent outside SEZ without
payment of duty for repairs or replacement, to the supplier or his authorized dealer or
be destroyed

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SPECIAL PROVISIONS FOR SPECIAL ECONOMIC ZONES IN SEZ ACT 2005
 As per Section 26 of SEZ ACT 2005
Every Developer and the entrepreneur shall be entitled to the following exemptions,
drawbacks and concessions, namely: -
(a) exemption from any duty of customs, under the Customs Act, 1962 or the Custom
Tariff Act, 1975 or any other law for the time being in force, on goods imported into, or
service provided in, a Special Economic Zone or a Unit, to carry on the authorized
operations by the Developer or entrepreneur;
(b) exemption from any duty of customs, under the Customs Act, 1962 or the Customs
Tariff Act, 1975 or any other law for the time being in force, on goods exported from, or
services provided, from a Special Economic Zone or from a Unit, to any place outside
India:
(c) exemption from any duty of excise, under the Central Excise Act, 1944 or the Central
Excise Tariff Act, 1985 or any other law for the time being in force, on goods brought
from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorized
operations by the Developer or entrepreneur;

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(e) Exemption from service tax under Chapter-V of the Finance Act, 1994 on taxable
services provided to a Developer or Unit to carry on the authorized operations in a
Special Economic Zone;
(f) Exemption from the securities transaction tax
leviable under section 98 of the Finance (No. 2) Act, 2004 in case the taxable securities
transactions are entered into by a non-resident through the International Financial
Services Centre;
(g) Exemption from the levy of taxes on the sale or purchase of goods other than
newspapers under the Central Sales Tax Act, 1956 if such goods are meant to carry on
the authorized operations by the Developer or entrepreneur.
 Section 51(1) The provisions of this Act shall have effect notwithstanding anything
inconsistent therewith contained in any other law for the time being in force or in any
instrument having effect by virtue of any law other than this Act.
 Section 53(1) A Special Economic Zone shall, on and from the appointed day, be deemed
to be a territory outside the customs territory of India for the purposes of undertaking
the authorized operations.
 Section 53(2) A Special Economic Zone shall, with effect from such date as Central
Government may notify, be deemed to be a port, inland container depot, land station
and land customs stations, as the case may be, under section 7 of the Customs Act,
1962: Provided that for the purposes of this section, the Central Government may notify
different dates for different Special Economic Zones.

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SEZ TRANSACTIONS
Supply from SEZ to DTA
As per Section 30 of SEZ act 2005 Subject to the conditions specified in the rules made
by the Central Government in this behalf:-
(i)Domestic Tariff Area sale, of goods manufactured by a Unit shall be on submission of
import license, as applicable to the import of similar goods into India, under the
provisions of the Foreign Trade Policy
(ii)Domestic Tariff Area sale under sub-rule (1) of rejects or scrap or waste or remnants
arising during the manufacturing process or in connection therewith by the Unit shall
not be subject to the provisions of the Import Trade Control (Harmonized System) of
Classification of Export and Import Items.
(iii) Any goods removed from a Special Economic Zone to the Domestic Tariff Area shall
be chargeable to duties of customs including anti-dumping, countervailing and
safeguard duties under the Customs Tariff Act, 1975, where applicable, as leviable on
such goods when imported; and
(iv) the rate of duty and tariff valuation, if any, applicable to goods removed from a
Special Economic Zone shall be at the rate and tariff valuation in force as on the date of
such removal, and where such date is not ascertainable, on the date of payment of duty.
Supply from DTA to SEZ
Any goods imported or procured from Domestic Tariff Area, required for authorized operations,
shall be admitted into the Special Economic Zone subject to the following conditions, namely:—
(i)The Domestic Tariff Area supplier supplying goods to a Unit or Developer shall clear the
goods, as in the case of exports, either under bond or as IGST paid goods
(ii) The goods imported or procured from Domestic Tariff Area shall be brought into the
premises of Unit.
(iii) The goods, which require frequent entry into and exit from the Zone and which are not
required for carrying out authorized operations shall be allowed into or out of the Special
Economic Zone on the basis of general permission of the Specified Officer, who shall record the
reasons for such permission.

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(iv)Hazardous goods may be admitted into specially designated area or installation of Special
Economic Zone subject to such safeguards as may be specified by Specified Officer.
Merchant Export
Goods shall be exported directly from the Special Economic Zone or through any other
port where the merchant exporter files his shipping bill, in which case the goods shall
move directly from the Special Economic Zone to the said port of export on the basis of
pink shipping bill as if these were movement of goods from one warehouse to another;
Export document shall contain the name of the merchant exporter or the status holder
and the Unit. Merchant exporter or status holder, as the case may be, shall export goods
under a free Shipping Bill.
Warehouse Procurement
Procedure for procurement from warehouse shall be as under:—
(a) Where goods are to be procured from warehouse, a Unit or Developer shall file a Bill
of Entry with the Specified Officer
(b) The Unit or Developer shall submit Bill of Entry assessed by the Authorized Officer to
the Customs Officer in charge of the warehouse from where the Special Economic Zone
Unit or Developer intends to procure the goods.
(c) The Customs Officer in charge of the warehouse shall allow clearance of the goods
from the warehouse for supply to the Unit or Developer without payment of duty on the
cover of ex-bond Shipping Bill and on the basis of Bill of Entry duly assessed by the
Authorized Officer.
(d) Where the re-warehousing certificate by way of endorsement by the Authorized
Officer on the copy of ex-bond Shipping Bill is not received by the Customs Officer in
charge of warehouse within forty-five days from the date of clearance of the goods from
the warehouse, the Customs Officer in charge of the warehouse shall proceed to demand
applicable duty from the supplier.
Provided that for procurement of goods from Nominated Agency located in Special
Economic Zone, the procedure as specified by Specified Officer shall be followed and
there shall be no requirement of assessment of Bill of Entry or transfer of the goods under
the cover of ex-bond Shipping Bill.

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Procurement from another SEZ unit
(i) The receiving Unit or Developer shall file Bill of Entry for home consumption with the
Authorized Officer, in quintuplicate, giving description of the goods along with an invoice
and packing list for assessment.
(ii) On the basis of such assessed Bill of Entry, the goods shall be allowed to be transferred
to the receiving Unit or Developer under transshipment permit.
(iii) There shall be no requirement to file any additional document or bond(s) for the
purpose of transshipment of goods and the transshipment permission shall be stamped
on the Bill of Entry itself.
(iv) The supplying Unit shall submit the re-warehousing certificate to the Specified Officer
having jurisdiction over the supplying unit within forty-five days, failing which the
Specified Officer of the supplying Unit shall write to the Specified Officer having
jurisdiction over the receiving Unit or Developer for demand of duty from the receiving
Unit or Developer.
(v) Where the supplying and receiving Units or Developer are located in the same Special
Economic Zone, the provisions of sub rules (i) and (iv) shall not apply and the movement
of goods shall be allowed and such transactions shall be recorded in the regular books of
accounts of the receiving Unit or Developer and the supplying Unit and no Bill of Entry
shall be required to be filed.
Export from SEZ
The procedure for export from Special Economic Zone through seaports or airports or
Inland Container Depot or Container Freight Station or Land Customs Station or by Post
or by Courier or by Personal Carriage, as the case may be, shall be as under:—
(i) The Unit shall file Shipping Bill, in quadruplicate, with the Authorized Officer of Customs
in the Special Economic Zone together with relevant documents, namely, invoice, packing
list and Currency Declaration Form (GR) (in duplicate).
(ii) The goods shall not be subjected to routine examination and ‘Let Export Order’ shall
be given on the basis of self-certification by the Unit: PROVIDED that goods may be sealed
after examination, as per the norms prescribed for free shipping bills, at the option of the
Unit, by the Authorized Officer: Provided further that if services are exported in non-
physical form, the export value is to be furnished by the Unit on self-certification basis as
per the instructions of the Reserve Bank of India.
(iii) The Unit may export through Inland Container Depot located in the Special Economic
Zone, or through any port or airport or Inland Container Depot: Provided that in case of
export of large quantities of cargo where it may not be possible to ship the cargo from

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the Special Economic Zone in one consignment, the Specified Officer may allow the export
of such cargo on execution of a Bond for the duty involved subject to the condition that
the Unit shall submit the proof of export within ninety days of removal of such cargo
under Bond, failing which applicable duty on the goods not exported shall be payable in
terms of the Bond.
Import of SEZ
 Applies to Approval Committee
 Application made through DC
 Furnish list of goods and services require for authorized operations to DC
 List to be certified by a Chartered Engineer
 Declares place of storage of goods to Specified Officer
 Inspection of goods
 Imported / Procured goods shall be inspected by Authorized Officer prior to
utilization
 Such goods to be kept separately in a clearly demarcated area
 Executes Bond-cum-Legal Undertaking
 Obtains Importer Exporter Code (IEC) or amends existing IEC to include the
address of importation before importing any goods
 Proper accounts to be maintained of import/ procurement / consumption and
utilization of goods (Rule 12(6))
 Quarterly and half yearly returns to be submitted in Form E to the Development
Commissioner
 Half yearly Certificate for the period ending 31st March & 30th
September from an independent Chartered Engineer certifying that
goods are utilized
 Certificate to be submitted to the Development Commissioner & Specified Officer
within 30 days of the period ending 31st March & 30th September

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Import under Lease Financing
 Import under lease financing shall be available under EOU/ SEZ
scheme. Domestic supply of capital goods to eligible categories of
deemed exports shall be eligible for benefits of deemed export even in
cases where supplies are under lease financing.

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DEEMED EXPORT
Section 147 of the Central Goods and Services Tax Act, 2017 empowers the Government
to notify, on the recommendation of the GST Council, certain supplies of goods as
deemed exports, where goods supplied do not leave India, and payment for such
supplies is received either in Indian rupees or in convertible foreign exchange, if such
goods are manufactured in India.
However this benefit has been restricted only on supply of goods and not services.
Further, while defining relevant date for the purpose of refund claim of deemed exports
explanation 2(b) to section 54 refers to only export of goods. Thus as per section 147 (6)
the status of deemed exports is available only for goods and not for services.
However, section 55(1) empowers the Government to notify class of persons who will
be entitled to claim refund of taxes paid on notified supplies of goods or services.
Government has so far vide notification number 48/2017 Central Tax dated 18th October
2017 notified following goods under section 147.
1. Supply of goods by a registered person against Advance Authorization
2. Supply of capital goods by a registered person against Export Promotion Capital
Goods Authorization
3. Supply of goods by a registered person to Export Oriented Unit
4. Supply of gold by a bank or Public Sector Undertaking specified in the notification
No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance
Authorization.

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REFUND PROCEDURE FOR SUPPLIERS (DTA) OF SEZ
Rule 89(1) CGST Rules 2017
In respect of supplies to a Special Economic Zone unit or a Special Economic Zone
developer, the application for refund shall be filed by the –
(a) Supplier of goods after such goods have been admitted in full in the Special Economic
Zone for authorized operations, as endorsed by the specified officer of the Zone.
(b) Supplier of services along with such evidence regarding receipt of services for
authorized operations as endorsed by the specified officer of the Zone.

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Rule 89(2) CGST Rules 2017
The application under sub-rule (1) shall be accompanied by any of the following
documentary evidences in Annexure 1 in Form GST RFD-01, as applicable, to establish that
a refund is due to the applicant, namely:-
I. A statement containing the number and date of invoices as provided in rule 46
along with the evidence regarding the endorsement specified in the second
proviso to 58 sub-rules (1) in the case of the supply of goods made to a Special
Economic Zone unit or a Special Economic Zone developer.
II. A statement containing the number and date of invoices, the evidence
regarding the endorsement specified in the second proviso to sub-rule (1) and
the details of payment, along with the proof thereof, made by the recipient to
the supplier for authorized operations as defined under the Special Economic
Zone Act, 2005, in a case where the refund is on account of supply of services
made to a Special Economic Zone unit or a Special Economic Zone developer.
III. A declaration to the effect that the Special Economic Zone unit or the Special
Economic Zone developer has not availed the input tax credit of the tax paid by
the supplier of goods or services or both, in a case where the refund is on
account of supply of goods or services made to a Special Economic Zone unit or
a Special Economic Zone developer.
Rule 96A (1) CGST Rules 2017
Refund of integrated tax paid on export of goods or services under bond or Letter of
Undertaking.-
Any registered person availing the option to supply goods or services for export without payment
of integrated tax shall furnish, prior to export, a bond or a Letter of Undertaking in FORM GST
RFD-11 to the jurisdictional Commissioner, binding himself to pay the tax due along with the
interest specified under sub-section (1) of section 50 with in a period of —
(a) 15 days after the expiry of three months from the date of issue of the invoice for export, if the
goods are not exported out of India; or
(b) 15 days after the expiry of one year, or such further period as may be allowed by the
Commissioner, from the date of issue of the invoice for export, if the payment of such services is
not received by the exporter in convertible foreign exchange.

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SEZ REGISTRATION PROCESS
 Application to be made on the specified format (FORM – A) specifying:
 Details of applicant
 Location details of proposed SEZ
 Proposed financial / investment, shareholding details
 Details of identified area (viz. Total Area of SEZ , Processing Area, Non Processing
Area)
 Details of proposed activities in Processing / Non Processing Area
 Project report indicating economic and commercial viability of the proposal
 Undertaking to abide by the SEZ Act 2005
 Approval - Before recommending the proposal state governments ‘shall
endeavor’ that following benefits are available to the Unit/ Developer –
 Exemption from State and local taxes, levies and duties (including Stamp Duty) on
goods required for authorized operations
 Exemption from Electricity duty and tax on sale of electricity for self-
generated and purchased power
 Allow generation, transmission and distribution of power within SEZ
(subject to Electricity Act 2003)
 Water, electricity and other services to SEZ
 Delegation of power to DC under Industrial Disputes Act and other related Acts
 Declaration of SEZ as Public Utility Service under the Industrial Disputes Act
 Single point clearance system to units under State laws
 No Objection for SEZ activities if the proposed SEZ falls under a reserved or
ecologically fragile area

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 Letter of Approval
 LOA in a prescribed format (Form B) issued by Central Government (Ministry of
Commerce) within 30 days of communication of approval from BOA
 Developer required to implement the proposal within 3 years of issue of LOA
(subject to extension on case to case basis)
 LOA to specify the following:
o Location / area of SEZ
o Key terms and conditions for Developer
 Execute Bond-cum-Legal Undertaking
 Submit project implementation progress report every 6 months
 Suspension of LOA – BOA has powers to suspend the LOA and appoint an
Administrator as per the provisions specified in the Act
 LOA can be issued for a joint developer under proviso to section 3(10) in case the
one developer does not have minimum requisite area in its possession
 LOA shall also be issued by the Central Government to a Co-developer who intends
to provide infrastructure facilities or undertake authorized operation and has
entered into an agreement to that effect with the Developer

P a g e 26 | 39
APROVAL REGULATIONS
Multi Product SEZ
Authorized Operations
Size
Processing Area
COMPREHENSIVE
 Minimum contiguous area of
1,000 hectares (200 hectares in
specified states)
 Exclusive SEZ for Services to
have a minimum contiguous area
of 100 hectares
• Minimum 25% of SEZ
area to be demarcated
as processing area

P a g e 27 | 39
Sector specify SEZ
Authorized Operations
Size
Processing Area
Indicative Sectors-
Engineering, textile/ garments,
pharmaceuticals/chemicals,
handicrafts, gems & jwellery, electronic
hardware and software (incl. ITES), bio
tech and non-conventional energy
• Minimum contiguous area of 100
hectares (50 hectares in specified states)
• Electronic hardware and software
including ITES – 10 hectares with min.
built up processing area of 100,000 sq.
meters
• Bio tech, Non-conventional energy (incl.
solar energy equipment) and Gems &
Jwellery sector – 10 hectares
Minimum 50% area for
processing area (for
export related activities)

P a g e 28 | 39
PROCESSING AND NON PROCESSING AREA
Overview
 Developer specifies area of Processing / Non Processing area in proposal for setting
up of SEZ as submitted to BOA
 Procedure for demarcation not specified in the Act / Rules
 Developer post obtaining LOA and notification of SEZ may approach DC for
demarcation
 Layout of Processing / Non Processing area required to comply with specified
provisions
Demarcation
Development Commissioner responsible / authorized for demarcation of
SEZ into:
– Processing Area
– Exclusive area for Trading or Warehousing
– Non-Processing
Processing area
 An area in the SEZ demarcated by Development Commissioner for setting up
Units for activities of manufacturing of goods or rendering of services and
includes Free Trade and Warehousing Zone.
 Fully secured by a boundary wall or mesh wire fencing.
 The fence should be at least 2.4 meters above the plinth level.
 Top 60 centimeters of the fence should be barbed wire fencing with mild steel
angle.
 Specified entry and exit points.
 Restricted entry and exit into processing area.
 Land/Built up area can be leased only to entrepreneurs having LOA for Units.
 Prior approval of Approval Committee for leasing land / built up area in Processing
Area for creating exclusive facilities for exclusive use of Units (e.g. canteen,
telephone booths, crèche etc.).
 Identity cards to be issued by DC for entry of person to Processing Area.

P a g e 29 | 39
Non - Processing area
 Area in SEZ other than Processing Area and Free Trade / Warehousing area
 Boundary requirement is not specified
 Developer not allowed to sell the land in a SEZ
 Valid LOA with the entrepreneur necessary for Lease / Sub lease
 Developer allowed to allot land in Non-Processing Area for business and
social purposes (e.g. Educational Institutions, Hospitals, recreation &
entertainment facility, residential and business complexes)
 Only approved infrastructure for business / social facilities shall be entitled for
eligible for exemptions / concessions (to be discussed – whether non approved
facilities can be created in NPA)

P a g e 30 | 39
SEZ TIMELINES
S
No Description Prescribed time
1
State Government forwards proposal to BOA along with
recommendations 45 days
(from receipt of
proposal)
2
Concurrence of the State Government required (in case
proposal submitted by BOA) 6 months
(from date of approval
by BOA)
3
Grant of LOA by Central Government (Ministry of
Commerce) 30 days
(of receipt of
communication of
approval from BOA)
4
Acceptance of terms and conditions of LOA by the
Developer 30 days
(of the date of issuance
of LOA)
5 Validity of LOA
3 years of issuance of
LOA
Developer required to fulfill the following within the
validity period
-
Submit details of proposed operations for BOA’s
approval
(BOA if satisfied may
extend the
-
Submit details of identified area to Ministry of
Commerce for period by upto 2 years)
-
notification of SEZ
Demarcation of processing/ non processing
area

Filing of project implementation progress
report every 6

months from issuance of LOA
Commencement of operations

P a g e 31 | 39
S
No Description Prescribed time
6 BOA to approve authorized operations
No time period
prescribed
7 Notification of SEZ by Central Government
No time period
prescribed
8
Grant of approval by Approval Committee for
procurement of goods and services
No time period
prescribed
9
Demarcation of processing and non-processing area
by
No time period
prescribed
Development Commissioner
10
Deemed acceptance of the Bond- Cum-Legal
Undertaking if no 7 working days
communication from the office of the Development
Commissioner
(of submission of Bond-
Cum-
Legal Undertaking)
11
Developer to submit half yearly certificate for periods
ending 31st
30 days of the end of the
period
March & 30th September of every financial year from
a Chartered
(i.e. by 30th April & 30th
October)

P a g e 32 | 39
Engineer to Development Commissioner and Specified
Officer
12 Maintenance of records 7 years
(from the end of the
relevant
financial year)

P a g e 33 | 39
FOREIGN TRADE POLICY ON SEZ
Ineligible categories under MEIS
The following exports categories /sectors shall be ineligible for Duty Credit
Scrip entitlement under MEIS
(i) Supplies made from DTA units to SEZ units
(ii) Deemed Exports;
(iii) SEZ/ EOU /EHTP/ BTP /FTWZ products exported through DTA units
Advance Authorization shall be issued for:
(i) Physical export to SEZ.
Declaration of Input in shipping bill as per SION
(i) Wherever SION permits use of either (a) a generic input or (b) alternative input,
unless the name of the specific input together with quantity [which has been used in
manufacturing the export product] gets indicated / endorsed in the relevant shipping
bill and these inputs, so endorsed, within quantity specified and match the description
in the relevant bill of entry, the concerned Authorization will not be redeemed. In other
words, the name/description of the input used (or to be used) in the Authorization
must match exactly with the name/description endorsed in the shipping bill.
(ii) In addition, if in any SION, a single quantity has been indicated against a number of
inputs (more than one input), then quantities of such inputs to be permitted for import
shall be in proportion to the quantity of these inputs actually used/consumed in
production, within overall quantity against such group of inputs. Proportion of these
inputs actually used/consumed in production of export product shall be clearly
indicated in shipping bills.
(iii) At the time of discharge of export obligation or at the time of redemption, Regional
Authority shall allow only those inputs which have been specifically indicated in the
shipping bill together with quantity.
(iv) The above provisions will also be applicable for supplies to SEZs and supplies
made under Deemed exports. Details as given above will have to be indicated in the
relevant Bill of Export, ARE-3, Central Excise certified Invoice / import document / Tax
Invoice for export prescribed under the GST rules

P a g e 34 | 39
Currency for Realisation of Export Proceeds.
(i)Export to SEZ Units shall be taken into account for discharge of export obligation
provided payment is realised from Foreign Currency Account of the SEZ unit.
(ii) Export to SEZ Developers / Co-developers can also be taken into account for
discharge of export obligation even if payment is realised in Indian Rupees.
(iii) Authorization holder needs to file Bill of Export for export to SEZ unit / developer /
co-developer in accordance with the procedures given in SEZ Rules, 2006.
Sale of Unutilized Material
(i) In case an EOU / EHTP/ STP/BTP unit is unable to utilize goods and services,
imported or procured from DTA, it maybe:
(a) Transferred to another EOU / EHTP / STP / BTP / SEZ unit; or
(b) Disposed of in DTA with intimation to Customs authorities on payment of
applicable duties and/ or taxes and compensation cess. In addition, exemption
of duties of Customs leviable under First Schedule of the Customs Tariff Act,
1975 availed, if any on the goods , at the time of import will also be payable and
submission of import Authorization; or
(c) Exported.
Such transfer from EOU/EHTP/ STP/ BTP unit to another such unit would be treated as
import for receiving unit.
(ii) Capital goods and spares that have become obsolete/ surplus, may be exported or
transferred to SEZ unit, transferred to another EOU/EHTP/STP/BTP/on payment of
applicable GST and compensation cess or disposed of in DTA on payment of applicable
GST and compensation cess and duties of Customs leviable under First Schedule of the
Customs Tariff Act, 1975.
Benefit of depreciation will be available in case of disposal in DTA only when the unit
has achieved positive NFE taking into consideration the depreciation allowed. No duty
shall be payable other than the applicable taxes under GST laws incase capital goods,
raw material consumables, spares, goods manufactured, processed or packaged, and
scrap/ waste/remnants /rejects are destroyed within unit after intimation to Customs
authorities or destroyed outside unit with permission of Customs authorities.
Destruction as stated above shall not apply to gold, silver, platinum, diamond, precious
and semiprecious stones.

P a g e 35 | 39
(iii) In case of textile sector, disposal of left over material/ fabrics upto 2% of CIF value
or quantity of import, whichever is lower, on payment of duty on transaction value,
may be allowed, subject to certification of Central Excise/Customs officers that these
are left over items.
(iv) Disposal of used packing material will be allowed on payment of duty on
transaction value.
Scrap treatment
 Removal of Scrap/waste from SEZ - A SEZ unit/Developer/ Co-developer may
be allowed to dispose of in DTA any waste or scrap, including any form of
metallic waste and scrap, generated during manufacturing or processing
activity, without an Authorization, on payment of applicable Customs Duty.
 Import of scrap would take place only through following designated
ports and no exceptions would be allowed even in case of EOUs,
SEZs:- 1.Chennai, 2. Cochin, 3. Ennore, 4. JNPT, 5. Kandla,
6.Mormugao, 7. Mumbai, 8. New Mangalore, 9. Paradip, 10.Tuticorin,
11.Vishakhapatnam, 12.Pipava 13.Mundra, 14.Kolkata.
Procedure for conversion of SEZ into DTA
An IEC will remain valid irrespective of a firm’s status as a DTA unit or an EOU or a SEZ/
EHTP/STP/BTP unit and the procedure to be followed in case a firm/unit is de-bonded
and converted to DTA is as under:
(a)A unit which is an EOU or in SEZ/EHTP/STP/BTP after de-bonding will not surrender
the IEC obtained from its jurisdictional DC, SEZ.
(b) The jurisdictional DC, SEZ will send the original IEC file to concerned RA of DGFT after
de-bonding.
(c) RA becomes the custodian of such file and will allow de-bonded unit to make
necessary modification in IEC.
(d) The de-bonded unit to be eligible for benefits from the RA as per FTP.

P a g e 36 | 39
Maintenance of Accounts
(a) EOU / EHTP / STP / BTP unit shall maintain proper account, and shall file digitally
signed quarterly and annual report as prescribed in Annexure to Appendix 6 E of
Appendices & ANFs to DC / Designated Officer in DeitY / DoBT and Customs and Central
Excise authorities.
(b) Unit shall be able to account for entire quantity of each category of homogenous
goods imported / procured duty and/or tax free, by way of exports, sales / supplies in
DTA or transfer to other SEZ / EOU / EHTP / STP / BTP units and balance in stock.
However, at no point of time, units shall be required to correlate every import
consignment with its exports, transfer to other SEZ / EOU / EHTP /STP / BTP units, sales
in DTA and balance in stock. Any matter for clarification as to whether goods are
homogenous or not shall be decided by Units Approval Committee.

P a g e 37 | 39
NET FOREIGN EXCHANGE EARNINGS (NFE)
(a) EOU / EHTP / STP / BTP unit shall be a positive net foreign exchange earner. NFE
earnings shall be calculated cumulatively in the block period as per Paragraph 6.04 of
FTP, according to the formula given below. Items of manufacture for export specified in
LoP / LoI alone shall be taken into account for calculation of NFE.
Positive NFE = A – B> 0
Where
‘NFE’ is Net Foreign Exchange;
‘A’ is FOB value of exports by EOU / EHTP / STP / BTP unit
‘B’ is sum total of CIF value of all imported inputs and CIF value of all imported capital
goods, and value of all payments made in foreign exchange by way of commission,
royalty, fees, dividends, interest on external borrowings / high sea sales during first five
year period or any other charges. It will also include payment made in Indian Rupees on
high sea sales.
“Inputs” mean raw materials, intermediates, components, consumables, parts and
packing materials.
(b) If any goods are obtained from another EOU / EHTP / STP / BTP / SEZ unit, or
procured from an international exhibition held in India, or bonded warehouses or
precious metals procured from nominated agencies, value of such goods shall be
included under ‘B’.
(c) If any capital goods are imported duty and/or tax free or leased from a leasing
company, received free of cost and / or on loan basis or transfer, CIF value of capital
goods shall be included pro-rata, under ‘B’ for period it remains with units.
(d) For annual calculation of NFE, value of imported capital goods and lump sum
payment of foreign technical know- how fee shall be amortized as under:
1st – 10th year: 10%.
Provided that above amortization rates would be applicable only if an undertaking is
given by a unit that it will not exit to DTA in the first 10 years. For existing units,
proportionate Customs and excise duty must be paid where NFE is less than
depreciation already claimed, before exit.

P a g e 38 | 39
MONITORING REQIREMENTS
 Development Commissioner has been granted the power to monitor the
performance of the Developer and of the Units in the SEZ.
 Approval Committee has been granted the power to monitor
– the utilization of goods/ services/ warehousing/ trading in the SEZ;
– the compliance of conditions subject to which the letter of approval or
permission has been granted
 Developer is required to maintain proper accounts in a suitable format* of goods
imported or procured from the DTA/ consumption or utilization of goods/ production
of goods etc.
 Records are to be maintained for 7 years
 SEZ Rules specify detailed requirements and compliance to be followed/ fulfilled for
import of goods by various means

P a g e 39 | 39

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