It is almost 11 months since the Goods and Services Tax (GST) came into being. Yet, the necessary consequential changes have not been made in the Special Economic Zones (SEZ) Act, 2005, or the SEZ Rules, 2006.
There is no mention of GST in either. References to the repealed laws for service tax, purchase tax, etc, continue in the SEZ laws. For example, Section 26 (e) of the SEZ Act still says every developer and entrepreneur shall be entitled to exemption from service tax under Chapter V of the Finance Act, 1994 (32 of 1994) on taxable services provided to a developer or unit to carry on the authorised operations in a SEZ. Similarly, Section 26 (f) and (g) of this Act talk of security transaction tax and purchase tax. Similarly so with the SEZ Rules, 2006. Somebody needs to tell the commerce ministry that with the advent of GST laws, many levies such as service tax have ceased to exist.
The SEZ laws also still treat Export Oriented Units (EOUs) as bonded warehouses. For procurement of goods from an EOU, Rule 30 (14) of the SEZ Rules requires the SEZ unit to file a bill of entry and the EOU to file an ex-bond shipping bill. Such procedures ceased to apply from August 13, 2016, when EOUs were de-licensed as bonded warehouses. Since then, EOUs send goods to other EOUs under the same procedures other DTA (Domestic Tariff Area) units follow. Even the Foreign Trade Policy has been amended to give effect to these changes. However, officials dealing with the SEZ laws in the commerce ministry seem unaware of the developments.
The SEZ laws talk only of central excise duty in case of supplies from the DTA to an SEZ. At present, excise duty is limited to select petroleum products, tobacco and tobacco products. All other items attract GST. The SEZ laws should reflect this position but the ministry seems oblivious to that requirement. Section 26 of the SEZ Act lists various exemptions available to SEZ units and developers. Since this does not exempt Integrated GST (IGST) on goods imported into an SEZ, the finance ministry issued notification 64/2017-Cus dated July 5, 2017, exempting IGST on import into an SEZ. The SEZ Rules still mention the Duty Entitlement Passbook and supplies against a Duty Free Replenishment Certificate -- these schemes were abolished long before. And, many other provisions in Rule 53 on deemed export are not in sync with provisions in the current Foreign Trade Policy.
To align the SEZ Rules with the GST laws, and to remove the various related difficultie, a committee under the chairmanship of L B Singhal, development commissioner at the Noida SEZ, was constituted by the commerce ministry to review the Rules and make recommendations. The committee gave its report and stakeholders were requested to go through these and send their comments by end-December, 2017.
Nothing seems to have happened after that. The commerce ministry should now wake up and suitably amend the SEZ laws.