Excise Withdraws “Export” Status on Supplies in India to Duty Free SEZs and World Bank Projects

Budget 2015-16 has amended the Explanation to Rule 18 of Central Excise Rules, 2002 to limits the term ‘export’ to mean taking goods out of India to a place outside India. Thus the refund of excise duty will be restricted to exports out of the country. Refund of duty on supplies to SEZs or zero duty World Bank Projects or Supplies against duty free licences will not be allowed.

Since SEZs are considered deemed foreign territory, supplies made to SEZs are considered as exports as well. Therefore, the facility of rebate was extended to supplies made to SEZs as well.

The new definition places a restriction that runs contrary to the intention of the SEZ Rules as supplies to SEZ are also considered as export.

The domestic supplies to SEZs enjoy the export benefits in terms of Foreign Trade Policy as well as duty drawback.

SEZs will languish further. Only 199 out of 491 approved for SEZs are operational, accounting for about 25% of India’s total exports. Exports from these zones increased from Rs 22,840 crores in 2005-06 to Rs 4.94 lakh crores in 2013-14.

The move runs contrary to the recent move by the government that allowed dual use of SEZ infrastructure as it aimed to revive these zones. It is also against the SEZ Act passed by Parliament and the Foreign Trade Policy.