Reconciling of rules on SEZs

Traders supplying imported goods to Special Economic Zones (SEZs) need clarity on whether they need to receive payments in foreign currency from the SEZ unit/developer.

SEZs are deemed to be territories outside Customs territory, by Section 53 of the SEZ Act, 2005. Section 2(m)(ii) of the Act defines supply of goods from the Domestic Tariff Area (DTA) to a SEZ unit/developer as 'exports'. So, when goods imported into a DTA are supplied to an SEZ unit/developer, the supply, presumably, should be treated as 're-export of imported goods'.

However, in the case of BJ Services Co Middle East Ltd [2010 (253) ELT 335 (Tri-Mumbai)], the Customs contended that such supplies cannot be considered an export. Since no foreign exchange had been received and the import was made in line with the Customs Act, 1962, the definition of export under the SEZ Act would not be applicable, it argued. The Tribunal, however, decided Section 51 of the SEZ Act would override anything inconsistent in another Act and so, supply of any goods from the DTA would amount to an export.

Rule 48(3) of the SEZ Rules, 2006, says where goods procured from a DTA by an SEZ Unit are supplied back to the DTA as it is or without substantial processing, these shall be treated as re-import be subject to the procedure and conditions as apply in the case of a normal re-import of goods from outside India. Conversely, goods imported from abroad to the DTA and supplied as such to an SEZ must also be treated as re-export of imported goods. Also, where the goods were imported into the DTA on duty payment, re-export of these to an SEZ, as such or without substantial processing, should entail duty drawback under Section 74 of the Customs Act, 1962 - provided the procedures under the Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995, are followed. Rule 30(12) of the SEZ Rules, 2006, allow supply of imported goods from bonded warehouses in the DTA to an SEZ by filing an ex-bond shipping bill.

However, doubts persist regarding whether payments for such re-export must come in foreign currency. Rule 30(8) of the SEZ Rules calls for payment in foreign currency by the SEZ unit for supplies against claim of drawback. Also, Para 2.35 and 2.36 of the Foreign Trade Policy mandates payment in foreign currency when imported goods are re-exported, either from a bonded warehouse or otherwise.

A close reading of the SEZ Rules conveys that references to the drawback in Rule 30 mostly relate to that under Section 75 of the Customs Act, 1962. There is no reference at all to drawback under Section 74 of the said Act anywhere in the said Rules. Second, the references to re-export in Para 2.35 and 2.36 appear to be more in the context of re-export out of India and not re-export to an SEZ.

Conceptually, whether goods are imported into the DTA and then re-exported to an SEZ or directly imported into an SEZ from abroad, there ought to be only one outward remittance, although in both cases the remittance should enter the net foreign exchange calculation of the SEZ unit. Clear provisions/clarifications from the commerce and finance ministries will help.

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