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Submission requesting for clarification in terms of compliances required to be undertaken under Special Economic Zones Act, 2005 and rules thereunder
Submission requesting for clarification in terms of compliances required to be undertaken under Special Economic Zones Act, 2005 and rules thereunder

May 19, 2021

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As you are aware, Department of Commerce (DoC), Ministry of Commerce and Industries, recently issued clarification  vide No – K – 43013 (16)/1/2021 – SEZ dated 5th February 2021 and Instruction no.195 dated 5th February 2021. 

Based on feedback from Industry, we have highlighted the following inconsistencies in the above clarifications:

VALUATION TO BE ADOPTED FOR CLEARANCE OF CAPITAL GOODS FROM SPECIAL ECONOMIC ZONES (SEZ) TO DOMESTIC TARIFF AREA (DTA)

  • SEZ units import capital goods which are used for authorised operations, without payment of custom duties as the same is exempt under S.26 of Special Economic Zones Act, 2005 (SEZ Act).
  • However, when SEZ unit disposes off these capital assets to DTA units, applicable custom duty needs to be paid at the time of removal of goods from SEZ.
  • Rule 49 of Special Economic Zones Rules, 2006 (SEZ Rules) provides that such capital goods should be valued at depreciated value.
  • However, SEZ units face issues when sale price of capital goods is higher than depreciated value as per Rule 49 of SEZ Rules. Jurisdictional customs officers demand customs duty on sale price. As a result, the units have to pay higher customs duty on such transactions, although the benefit availed at the time of procurement was on the lower amount. Officers rely on the provision contained in S. 30 of SEZ Act which provides that goods removed from SEZ shall be subject to customs duties under Customs Tariff Act, 1975 as leviable on such goods when cleared to DTA.
  • This issue has been brought in the past and even in the recent clarification issued by Ministry of Commerce (MoC) vide No – K – 43013 (16)/1/2021 – SEZ dated 5th February 2021, the issue has not been addressed as was clarified that “value of goods cleared from SEZ to DTA for customs valuation purpose should always be based on transaction value and other provisions of customs law”.
  • We have highlighted that the above clarification fails to take into account the provisions of S. 51 of SEZ Act which provides that the SEZ Act will have an overriding effect on all other laws in case there is any contradiction between the SEZ Act and any other statute. Accordingly, Rule 49 of SEZ Rules which provides for allowing benefit of depreciation, will prevail over the Customs Tariff Act, 1975.
  • Hence, the benefit of depreciation under Rule 49 of SEZ Rules ought to be provided for determining customs duty at the time of removal of goods from SEZs.

Recommendation: In this regard, we have requested DoC to issue clarification in suppression to clarification issued by MoC vide No – K – 43013 (16)/1/2021 – SEZ dated 5th February 2021, stating that clearance of capital goods by SEZ units should be valued as per Rule 49 of SEZ Rules, irrespective of the transaction value.

FILING BILL OF ENTRY (BoE) FOR DUTY PAID GOODS CLEARED FROM SEZ UNIT

  • S. 2(23) of Customs Act, 1962 defines the term “import” to mean “bringing into India from a place outside India”.
  • Further, S. 2(o) of SEZ Act defines “import” to mean:

- bringing goods or receiving services, in SEZ, 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
- receiving goods, or services by, Unit or Developer from another Unit or Developer of the same SEZ or a different SEZ”

  • Accordingly, movement of goods from SEZ to DTA cannot be termed as import, specifically goods which were brought into SEZ on payment of duty and are then subsequently cleared to DTA.
  • Further as per Rule 49(4) of SEZ Rules, no further duty is required to be paid on goods cleared from SEZ to DTA, if such goods were imported into SEZ after payment of applicable duty.
  • However, in the clarification issued by MoC vide Instruction No 195 dated 5th February 2021, it was clarified that there is no requirement of filing BoE on domestic procurements made by SEZ which are subsequently cleared to DTA unit, whereas BoE is required for goods imported into SEZ and cleared to DTA.
  • It may be noted that goods which were brought into SEZ with payment of duty and are then subsequently cleared to DTA do not qualify as imports. Hence, there should be no requirement of BoE for clearance of such duty paid goods.

Recommendation: In this regard, we have requested DoC to issue a clarification that no BoE is required for clearance of imported goods to DTA on which duty was already paid at the time of import and where the import duty on such goods is 'Nil’ at time of clearance of such goods from SEZ to DTA.

We hope you will find this useful.

We will keep you posted on further developments in this regard.


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