Restricted fiscal benefits for sea ports in SEZs

Govt releases guidelines for operating sea ports in SEZs.

The commerce ministry has come out with guidelines for operating sea ports inside Special Economic Zones (SEZs).

Under these guidelines, sea ports located within the tax-free industrial enclaves would enjoy fiscal benefits only for their construction and not for maintenance and consumables needed for day-to-day operations.

Besides, the new guidelines specify clear demarcation of the sea port within an SEZ, and also division of work between the revenue department and SEZ officials.

Several SEZs proposed in the coastal areas have plans to build sea ports. The SEZ Act of 2005 provides for port-based SEZs but the Department of Revenue under the finance ministry has expressed concern that duty-free goods from such ports could find their way to the Domestic Tariff Area outside the zones.

Developers like Kakinada SEZ Pvt Ltd in Andhra Pradesh as well as Kandla Port Trust in Gujarat have got in-principle approvals to build port-based SEZs.

The new guidelines clear all ambiguities in this regard. They were finalised by the commerce ministry after extensive discussions with its finance counterpart.

However, the guidelines specify that the ports inside SEZs will have to be built outside the processing area that is designated for the core industrial activity. This means that the ports will be able to get the duty-free benefits to source materials for construction, and not for operation.

The SEZ Rules of 2006 extend fiscal benefits, like duty-free access to inputs and raw material needed for construction and operation, only to units located inside the processing area. For any establishment located in the non-processing area of the zones, the fiscal benefits are allowed only for construction.

The new guidelines mandate demarcation of the port from the rest of the SEZ, which will be jointly done by officials of the commerce and revenue departments.

Moreover, there has to be a separate entry and exit routes for goods meant for SEZs and users outside the DTA. Also, cargo meant for the zones and the factories located outside will have to be isolated and stored separately.

Customs officials will be handling the cargo meant for the DTA, while SEZ officials would be responsible for the goods meant for the zone.

This system has been bought in place to ensure proper monitoring of goods entering the SEZ port. The required changes in SEZ Rules will be carried out soon, the guidelines say.