Govt Eases Land Requirement Norms for Special Economic Zones

The government on 12 August relaxed SEZ rules concerning minimum land requirement and sale of units to make the scheme more attractive for investors.

A notification to give effect to the changes in the SEZ Rules was issued 12 August. To revive investors interest in special economic zones, Commerce and Industry Minister Anand Sharma had announced certain measures on April 18.

The govt. has eased land norms for SEZs. Seen here is the Mundra SEZ in Gujarat. AFP.

The package of reforms include reducing the Minimum Land Area Requirement by half for different categories of SEZs, an exit policy by allowing transfer of ownership of SEZ units including sale and doing away with minimum land requirement criteria for IT/ITES zones.

For multi-product SEZ, minimum land requirement has been brought down from 1,000 hectares to 500 hectares. For Sector-Specific SEZs, it has been brought down to 50 hectares. The norm was also relaxed for setting up of zones in north eastern states, hilly regions, Goa and Union Territories.

The norm was also eased for setting up exclusive SEZs for electronics hardware and software, handicrafts and agro-based food processing zones. While minimum land requirement norm has been done away with for IT/ITES SEZs, the developers would have to adhere to minimum build up area criteria.

The requirement of one lakh square meters will be applicable for seven major cities - Mumbai, Delhi (NCR), Chennai, Hyderabad, Bangaluru, Pune and Kolkata.

For the class B-cities (which are 15 including Ahmedabad and Bhubaneswar), minimum built up area would be 50,000 sq. mtrs, while for category C (all other cities) 25,000 sq. mtrs built up area norm will be applicable.

Flexibility to set up additional units in a sector specific SEZ has been provided by introducing 'Sectoral Broad-Banding' to encompass similar or related areas under the same sector.

On the issues relating to vacant land, the existing policy allows for parcels of land with pre-existing structures not in commercial use to be considered as vacant land for the purpose of notifying an SEZ. It was decided that "additions" to such pre-existing structures and activities being undertaken after notification would be eligible for duty benefits similar to any other activity in the SEZ.

SEZ, once an attraction for investors, lost the sheen following imposition of MAT and DDT, certain provisions in the proposed direct tax regime (DTC) as well as global slowdown. Exports from these zones grew by about 31 per cent year- on-year to Rs 4.76 lakh crore in 2012-13.

The Commerce Ministry said that an SEZ unit may opt out of the zone by transferring its assets and liabilities to another entity by way of transfer of ownership including sale of SEZ units subjected to conditions like prior clearance from the Approval Committee.

Besides, it said, the unit will be transferred to the buyer if it is "...operational for a minimum period of 2 years after the commencement of production as on the date of transfer; the transfer fulfils all eligibility criteria applicable to unit and the applicable duties and liabilities, if any, as well as export obligation".

[SEZ Office Memorandum dated 12th August 2013]

Subject: Amendment to Special Economic Zones Rules, 2006.

In order to revive investors’ interest in Special Economic Zones, Hon’ble Commerce & Industry Minister announced certain measures on 18th April, 2013. Based on the announcements necessary amendment to SEZ Rules, 2006 have been carried out vide Notification dated 12th August, 2013. A copy each of the both English and Hindi version of the notification are enclosed.

[No. D.12/45/2009-SEZ]

Government of India

Ministry of Commerce and Industry

(Department of Commerce)

New Delhi, dated the 12/08/2013

Notification
In exercise of the powers conferred by section 55 of the Special Economic Zones Act, 2005(28 of2005), the Central Government hereby makes the following rules further to amend the Special Economic Zones Rules, 2006, namely:
1.     (1) These rules may be called the Special Economic Zones (Amendment) Rules, 2013.
(2) They shall come into force on the date of their publication in the Official Gazette.
2.     In the Special Economic Zones Rules, 2006 (herein after referred to as the principal rules), in rule 2, in sub-rule (1), in clause (x), the following proviso shall be inserted, namely:-
“Provided that various categories comprising their respective products or services, similar or compatible with each other, including related ancillary services and Research and Development services of the sector and additional combination of products and services of a similar or compatible nature as approved by the Board of Approval shall constitute a single sector;”
3.     In rule 5 of principal rules, in sub-rule (2),-
(i)    in clause (a),-
(A)   for the words “one thousand hectares”, the words “five hundred hectares” shall be substituted;
(B)   in the first proviso, for the words “two hundred hectares”, the words “one hundred hectares” shall be substituted;
(ii)   for clause (b), the following clause shall be substituted, namely:-
“(b)(i) A Special Economic Zone for a specific sector or for one or more services or in a port or airport, shall have a contiguous area of fifty hectares or more:
Provided that for each contiguous fifty hectare land,-
(A)   in a Special Economic Zone; or
(B)   which is added to the Special Economic Zone,
an additional sector may be allowed:
Provided that the additional land requirement for an additional sector in a Special Economic Zone for a specific sector or for one or more services as per first proviso will be twenty five hectares when the Special Economic Zone is proposed to be set up in Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttarakhand, Sikkim, Jammu and Kashmir, Goa or in a Union territory.
(ii)   There shall be no minimum area requirement for setting up a Special Economic Zone for Information Technology or Information Technology Enabled Services, but a minimum built up processing area requirement shall be applicable, based on the category of cities, as follows:-
Table
Category of cities as per Annexure IVA
Minimum built up area requirement
Category ‘A’
1,00,000 sq mts
Category ‘B’
50,000 sq mts
Category ‘C’
25,000 sq mts
Provided that for a Special Economic Zone proposed to be set up exclusively for electronics hardware and software (including information technology enabled services) the area shall be ten hectares or more as well as a minimum built up processing area requirement as applicable for a Special Economic Zone for Information Technology or Information Technology Enabled Services, based on the category of cities, referred to in the Table:
Provided further that in case a Special Economic Zone is proposed to be set up exclusively for handicrafts, the area shall be ten hectares or more:
Provided also that in case a Special Economic Zone is proposed to be set up exclusively for bio-technology, non-conventional energy, including solar energy equipments or cell, or gems and jewellery sectors, agro-based food processing, the area shall be ten hectares or more with a minimum built up area as under:
(i)    forty thousand square meters in case of a Special Economic Zone proposed to be set up exclusively for bio-technology and non-conventional energy sectors, including solar energy equipments or cells and agro-based food processing sector but excluding a Special Economic Zone set up for non-conventional energy production and manufacturing;
(ii)   fifty thousand square meters in case of a Special Economic Zone proposed to be set up exclusively for the gems and jewellery sector:
Provided also that in case a Special Economic Zone for a specific sector is proposed to be set up in Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttarakhand, Sikkim, Jammu and Kashmir, Goa or in a Union territory, the area shall be twenty five hectares or more for the Special Economic Zones not covered under the first, second and third provisos:
Provided also that in respect of Special Economic Zones (other than Information Technology or Information Technology Enabled Services Special Economic Zones) located in B1 category cities as per classification indicated in Annexure-IV, the minimum built up area shall be fifty per cent of the area specified above and in respect of Special Economic Zones located in B2 category cities as indicated in Annexure IV, the minimum built up area shall be twenty five per cent of such area specified above:
Provided also that Board of Approval may allow additional sectors in the category where the minimum land area requirement is ten hectares:
Provided also that not less than fifty per cent of such area shall be earmarked for developing processing area.
(iii)  in clause (c), for the words “one thousand” the words “five hundred” shall be substituted.
4.     In rule 11 of the principal rules, in sub-rule (11), after second proviso, the following proviso shall be inserted, namely:-
“Provided also that addition or inclusion of any land to an existing Special Economic Zone , where such land contains a port, manufacturing unit, or structures in which no commercial, industrial or economic activity is in progress, then such Special Economic Zone shall not be eligible for any duty benefits in respect of the pre-existing structures but any additions or up-gradations to such existing ports, manufacturing units, or structures after their addition or inclusion in a Special Economic Zone shall be eligible for the fiscal incentives as applicable for a new infrastructure in a Special Economic Zone and also the authorised operations being carried on in such infrastructure shall be eligible for benefits as provided for under the Special Economic Zone Act and rules.”
5.     In rule 19 of principal rules, in sub-rule (2), in the third proviso, for the words, “provided also that”, the words “provided also that, subject to the provisions of rule 74A,” shall be substituted.
6.     After rule 74 of principal rules, the following rule shall be inserted, namely:-
“74A.Transfer of Assets by Special Economic Zone Units upon their exit.— The Unit may opt out of Special Economic Zone by transferring its assets and liabilities to another person by way of transfer of ownership including sale of Special Economic Zone units subject to the following conditions:-
(i)    the Unit has held a valid Letter of Approval as well as lease of land for not less than a period of five years on the date of transfer;
(ii)   the unit has been operational for a minimum period of two years after the commencement of production as on the date of transfer;
(iii)  such sale or transfer transactions shall be subject to the approval of the Approval Committee;
(iv)  the transferee fulfils all eligibility criteria applicable to a Unit; and
(v)   the applicable duties and liabilities, if any, as calculated under rule 74, as well as export obligations of the transferor Unit, if any, shall stand transferred to the transferee Unit which shall be under obligation to discharge the same on the same terms and conditions as the transferor Unit.”.
7.     In the principal rules, after Annexure IV, the following Annexure shall be inserted, namely:
“Annexure IVA
(Refer sub-rule 2(ba) of rule 5)
Classification of Cities
 
City classification
 
Category ‘A’
1.
Greater Mumbai
2.
Delhi NCR
3.
Kolkata
4.
Chennai
5.
Bengaluru
6.
Hyderabad
7.
Pune
 
Category ‘B’
1.
Ahmedabad
2.
Bhubaneswar
3.
Chandigarh
4.
Coimbatore
5.
Indore
6.
Jaipur
7.
Kochi
8.
Lucknow
9.
Madurai
10.
Mangalore
11.
Nagpur
12.
Thiruvananthapuram
13.
Tiruchirappali
14.
Vadodara
15.
Visakhapatnam
 
Category ‘C’
 
All other cities
[F. No. C.2 /l/2013-SEZ]