BTL 702 - SEZ and DTA

 

The Banking Tutor’s Lessons

BTL 702                                                                          09-09-2024

SEZ   and   DTA

Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations, duties and tariffs.

Domestic Tariff Area (DTA) means the whole of India (including the territorial waters and continental shelf) but does not include the areas of the Special Economic Zones.

The salient features of the SEZ scheme are: -

a) They allow duty free import of goods and services for units and developers for their operations leading to a substantial saving in costs.

b) All supplies by DTA to SEZ are treated as exports and are zero rated in terms of application of GST.

c) SEZs are deemed to be an airport, port, Land Custom Stations, and Inland Container Depot under the Customs Act and a dedicated customs formation is there for ensuring clearance for exports, imports, deemed exports, intra SEZ sales, domestic procurement and domestic sales

d) SEZs ensure ease of doing business by ensuring online applications, reducing procedural complexities, bureaucratic hassles and other barriers to trade.

e) All Goods and services supplied by SEZ units to DTA are treated as imports into India and is subject to all procedures and rules applicable in case of normal imports into India

f) Economic laws are generally more liberal than rest of the country’s general economic laws.

g) No routine examination by customs authorities of export/import cargo.

 

Free Trade and Warehousing Zone (FTWZ)

Free trade Warehousing Zone (FTWZ) means a Special Economic Zone wherein mainly trading and warehousing and other activities related thereto are carried on. (Section 2(n) of SEZ Act).

Warehousing is normally done on behalf of a third party while trading is done by the SEZ unit itself.

 

Facilities offered to the units in SEZs

The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:

a) Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units

b) Exemption from Central Sales Tax, Service Tax and State sales tax. These have now subsumed into GST and supplies to SEZs are zero rated under IGST Act, 2017.

c) Other levies, if exempted by the respective State Governments.

d) Single window clearance for Central and State level approvals.

e) Supplies to SEZ are zero rated under IGST Act, 2017.

Benefits for a DTA supplier to an SEZ

The DTA supplier supplying goods or services to a Unit or Developer shall clear the goods or services, as in the case of export/zero-rated permitted under Goods and Services Tax laws or Central Excise law, or as duty or tax paid goods under claim of rebate, on the cover of documents laid down under the relevant Central Excise law for the purpose of export by a manufacturer or supplier.

Supplier of precious and semi-precious stones and synthetic stones and processed pearls from DTA to SEZ units shall be eligible for grant of Replenishment, provided that the application for the Replenishment Licence shall be made to the Development Commissioner.

Free on Board value of export of the Unit can be clubbed with Free on Board value of export of entrepreneur in the DTA or vice versa for the purpose of according status holder certificate.

Special Economic Zones (SEZs) VS. Export Oriented Units (EOUs)

Although both EOUs and SEZs were initiated to boost exports, there are differences between the two. An EOU can be set up anywhere in the country, provided it meets the scheme’s criteria. On the other hand, an SEZ is a specially demarcated enclave that is deemed to be outside the customs jurisdiction and therefore, a foreign territory. Thus, any sale made from within an SEZ to DTA is considered export while any sale made by an EOU to DTA is regarded as deemed exports. Sales from SEZs to DTAs are more common, compared to sales from EOUs to DTAs.

Being a clearly demarcated area, there is substantial control over the physical movement of goods to and from SEZs, but the same cannot be said about EOUs. In terms of taxability, an SEZ based establishment is not required to pay tax, while an EOU has to pay tax which it can claim as a refund later.

Minimum investment in plant and machinery and building is Rs. 1 crore for EOUs. This should be before commencement of commercial production, there is no such limit for SEZ.

Sekhar Pariti

+91 9440641014