Procedure for establishment of Special Economic Zone

3. Proposal for setting up of Special Economic Zone.-

Every proposal under sub-sections (2) to (4) of section 3 shall be made in Form A.

4. Forwarding of proposal to Board-

(1) The State Government shall forward the proposals received under sub-sections (2) and (4) of section 3 to the Board of Approval (Deputy Secretary, Ministry of Commerce and Industry, Department of Commerce, Udyog Bhavan, New Delhi 110011) alongwith its recommendations, within forty-five days of receipt of such proposal:

Provided that where the Board approves a proposal received under sub-section (3) of section 3, the person shall obtain concurrence of the State Government within six months from the date of such approval.

(2) While forwarding a proposal under sub-rule (1), the State Government shall ensure that the requirements under rule 5 have been complied with and shall attach copies of relevant notifications issued by it in this regard.

5. Requirements for establishment of a Special Economic Zone.-

(1) The Board may approve as such or modify and approve a proposal for establishment of a Special Economic Zone, in accordance with the provisions of sub-section (8) of section 3, subject to the requirements of minimum area of land and other terms and conditions indicated in sub-rule (2).

(2) The requirements of minimum area of land for a class or classes of Special Economic Zone in terms of sub-section (8) of section 3 shall be the following, namely:-

(a) A Special Economic Zone for multi product shall have a contiguous area of one thousand hectares or more:

Provided that such Special Economic Zone established exclusively for services may have a contiguous area of one hundred hectares or more:

Provided further that in case a Special Economic Zone is proposed to be set up in Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal, Sikkim, Jammu and Kashmir, Goa or in a Union territory, the area shall be two hundred hectares or more:

Provided also that as least thirty-five per cent of the area shall be earmarked for developing the processing area, which may be relaxed upto twenty-five per cent by the Central Government on recommendations of the Board for the reasons to be recorded in writing; [amended vide notification dated 10.8.2006]

Provided also that the fulfillment of the requirement of the contiguous area shall be considered and decided by the Board on a case to case basis on merits;

(b) A Special Economic Zone for a specific sector or in a port or airport, shall have a contiguous area of one hundred hectares or more:

Provided that in case a Special Economic Zone is proposed to be set up exclusively for electronics hardware and software, including information technology enabled services, the area shall be ten hectares or more with a minimum built up processing area of one lakh square meters:

Provided further that in case a Special Economic Zone is proposed to be set up exclusively for bio-technology, non-conventional energy, including solar energy equipments/cell, or gem and jewellery sectors,  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 equipment/cells but excluding a Special Economic Zone set up for non-conventional energy production and manufacturing;

(ii) fifty thousand squaro meters in case of a Special Economic Zone proposed to be set up exclusively for the gems and jewellery sector. [amended vide notification dated 10.8.2006]

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, Uttaranchal, Sikkim, Jammu and Kashmir, Goa or in a Union territory, the area shall be fifty hectares or more for the Special Economic Zones not covered under the first and second proviso:

Provided also that at least fifty per cent. of the area shall be earmarked for developing processing area;

(c) Special Economic Zone for Free Trade and Warehousing shall have an area of forty hectares or more with a built up area of not less than one lakh square meters:

Provided that in a stand alone Free and Warehousing Zone at least fifty per cent of the area shall be earmarked for developing processing area :

Provided further that a Free Trade and Warehousing Zone may also be set up as part of a Special Economic Zone for multi-product; [amended vide notification dated 10.8.2006]

provided also that in a Special Economic Zone for a specific sector, Free Trade and Warehousing Zone may be permitted with no minimum area requirement but subject to the condition that the maximum area of such Free Trade and Warehousing Zone shall not exceed twenty per cent. of the processing area.[amended vide notification dated 10.8.2006]

(3) The requirements of the minimum area of land for the Special Economic Zones, -

(a) which had been, before the commencement of these rules ,-

(i) recommended by the Board of Approval constituted by the notification of the Government of India, in the Ministry of Commerce and Industry (Department of Commerce) Number 14/1/2001-EPZ dated the 7th August, 2001;and

(ii) approved by the Central Government;

(b) which had acquired or taken possession of the land required for setting up of the Special Economic Zones before the commencement of these rules; and

(c) which are situated in any of the States mentioned under column (2) of the Annexure II to these rules, shall, for each sector under column (3) of the Annexure II, be such as mentioned in the corresponding entries under column (4) against each such sector situated in the State mentioned under column (2) of the said Annexure II.

(4) The Developer or Co-Developer shall have at least twenty-six percent of the equity in the entity proposing to create business, residential or recreational facilities in a Special Economic Zone in case such development is proposed to be carried out through a separate entity or a special purpose vehicle being a company formed and registered under the Companies Act, 1956 (1 of 1956).

(5) Before recommending any proposal for setting up of a Special Economic Zone, the State Government shall endeavor that the following are made available in the State to the proposed Special Economic Zone Units and Developer, namely: -

(a) exemption from the State and local taxes, levies and duties, including stamp duty, and taxes levied by local bodies on goods required for authorized operations by a Unit or Developer, and the goods sold by a Unit in the Domestic Tariff Area except the goods procured from domestic tariff area and sold as it is;

(b) exemption from electricity duty or taxes on sale, of self generated or purchased electric power for use in the processing area of a Special Economic Zone;

(c) allow generation, transmission and distribution of power within a Special Economic Zone subject to the provisions of the Electricity Act, 2003 (No. 36 of 2003);

(d) providing water, electricity and such other services, as may be required by the developer be provided or caused to be provided;

(e) Delegation of power to the Development Commissioner under the Industrial Disputes Act, 1947 (No. 14 of 1947) and other related Acts in relation to the Unit;

(f) Delegation of power to the Development Commissioner under the Industrial Disputes Act, 1947 (No. 14 of 1947) in relation to the workmen employed by the developer.

(g) Declaration of the Special Economic Zone as a Public Utility Service under the Industrial Disputes Act, 1947 (No.14 of 1947);

(h) Providing single point clearance system to the Developer and unit under the State Acts and rules;

(6) The State Government shall, while recommending a proposal for setting up of Special Economic Zone to the Board indicate whether the proposed area falls under reserved or ecologically fragile area as may be specified by the concerned authority.

5A. Infrastructure requirements relating to information technology.-

In case of a Special Economic Zone relating to information technology, the following facilities shall be ensured, namely : -

(a) twenty-four hours uninterrupted power supply at stable frequency in the Zone;

(b) reliable connectivity for uninterrupted and secure data transmission;

(c) provision for central air-conditioning system; and

(d) a ready to use, furnished plug and pay facility for end users. [rule 5A inserted vide notification dated 10.8.2006]

6. Letter of Approval to the Developer.-

(1) The Central Government shall, within thirty days of the communication received by it under sub-section (10) of section 3 grant a letter of approval in Form B to the person or the State Government concerned or in Form C, if the approval is for providing infrastructural facilities in the Special Economic Zone, incorporating additional conditions, if any, specified by the Board while approving the proposal.

(2) The letter of approval of a Developer granted under sub-rule (1) shall be valid for a period of three years within which time, effective steps shall be taken by the Developer to implement the approved proposal:

Provided that the Board may, if it is satisfied, extend the validity period for a further period not exceeding two years upon a request made in writing by the Developer or Co-developer.

7. Details to be furnished for issue of notification for declaration of an area as Special Economic Zone.-

(1) The Developer shall furnish to the Central Government, particulars required under sub-section (1) of section 4 with regard to the area referred to in sub-section (2) or sub-section (4) of section 3, (hereinafter referred to as identified area), with proof of legal right and possession and a certificate from the State Government or the authorized agency that the said area is free from all encumbrances:

Provided that where the Developer has leasehold right over the identified area, the lease shall be for a period not less than twenty years.

(2) The identified area shall be contiguous and vacant and it shall have no public thoroughfare subject to third proviso to clause (a) of sub-rule (2) of rule 5.

8. Notification of Special Economic Zone.-

After the submission of details as required under rule 7 and other details, if any, required by the Central Government and on acceptance of the conditions specified in the Letter of Approval, the Central Government shall notify the identified area as a Special Economic Zone under sub-section (1) of section 4, if the area proposed for notification is not less than the minimum area prescribed under rule 5.

9. Grant of Approval for Authorized Operations.-

The Developer shall submit to the Board the details of operations proposed to be undertaken in the Special Economic Zone for obtaining authorization under sub-section (2) of section 4 at the time of seeking approval for setting up of Special Economic Zone or thereafter:

Provided that exemptions, drawbacks and concessions shall be available for the authorized operations as per the procedure specified in rule 12 after the Special Economic Zone had been notified under rule 8:

Provided further that the Developer of an existing Special Economic Zone shall submit to the Board the details of operations proposed to be undertaken in the Special Economic Zone for the purpose of availing exemptions, drawbacks and concessions.

10. Permission for procurement of items

The Approval Committee may permit goods and services to carry on the operations authorized under rule 9:

Provided that for the Special Economic Zones set up by the Central Government, the goods and services required for the authorized operations may be approved by the Board:

Provided further that exemptions, drawbacks and concessions on the goods and services allowed to a Developer or Co-developer, as the case may be, shall also be available to the contractors appointed by such Developer or Co-developer and all the documents in such cases shall bear the name of the Developer or Co-developer alongwith the contractor and these shall be filed jointly in the name of the Developer or Co-developer and the contractor:

Provided also that the Developer or Co-developer, as the case may be, shall be responsible and liable for proper utilization of such goods in all cases.

11. Processing and non-processing area. -

(1) The Development Commissioner of the concerned Special Economic Zone shall be the authority for demarcating the areas falling within the Special Economic Zone under the provisions of section 6.

(2) The processing area and Free Trade and Warehousing Zone shall be fully secured by boundary wall or wire mesh fencing having a height of at least two meters and forty centimeters above plinth level with top sixty centimeters being barbed wire fencing with mild steel angle with specified entry and exit points.

(3) The Development Commissioner shall ensure compliance of the requirements of sub-rule (2).

(4) The authorized persons shall only be allowed to enter the processing area of a Special Economic Zone.

(5) The land or built up space in the processing area or Free Trade and Warehousing Zone shall be given on lease only to the entrepreneurs holding a valid Letter of Approval issued under rule 19 and the lease period shall be coterminus with the validity of the Letter of Approval:

Provided that the Developer may, with the prior approval of the Approval Committee, grant on lease land or built up space, for creating facilities such as canteen, public telephone booths, first aid centres, creche and such other facilities as may be required for the exclusive use of the Unit.

(6) The developer holding land on lease basis shall assign lease hold right to the entrepreneur holding valid Letter of Approval.

(7) Any transfer by way of sub-lease or any other mode by the Developer shall be valid only if the same is made to a person holding a valid letter of approval issued by the Development Commissioner.

(8) The Developer may allot land in the processing area on lease basis to a person desiring to create infrastructure facilities for use by the prospective Units.

(9) The Developer shall not sell the land in a Special Economic Zone.

(10) No vacant land in the non-processing area shall be leased for business and social purposes such as educational institutions, hospitals, hotels, recreation and entertainment facilities, residential and business complexes, to any person except a co-developer approved by the Board :

Provided that the developer or co-developer may lease the completed infrastructure along with the vacant land appurtenant thereto for such purposes :

Provided further that infrastructure for business or social purposes in the Special Economic Zone, as may be approved by the Board, shall be eligible for exemptions, concessions and drawback. [amended vide notification dated 10.8.2006]

(11) The Special Economic Zone shall be deemed to be a port, airport, inland container depot, land customs station under section 7 of the Customs Act in accordance with the provisions of section 53 from the date notified in this behalf:

Provided that Specified Officer may designate any area or area(s) in the Special Economic Zone as an area for loading and unloading of import or export cargo:

Provided further that in case the said port, airport, inland container depot, land customs station area is to be used for loading and unloading of import or export cargo meant for Domestic Tariff Area importers and exporters also, storage for such cargo shall be in a separate enclosure and deliveries for such cargo shall be allowed by the Authorized Officer of the Special Economic Zone based on Bill of Entry, assessed by the Assistant or Deputy Commissioner of Customs having jurisdiction over the said Customs Station.

12. Import and procurement of goods by the Developer.-

(1) The Developer may import or procure goods from the Domestic Tariff Area, without payment of duty, taxes and cess for the authorized operations, subject to the provisions contained in sub-rule (2) to (8).

(2) The Developer shall make an application, after obtaining approval for the authorized operation under rule 9, to the Development Commissioner along with the list of goods and services, including machinery, equipments and construction materials required for the authorized operations, duly certified by a Chartered Engineer for approval by the Approval Committee.

(3) The Developer shall declare the place of storage of goods within the Special Economic Zone to the Specified Officer:

Provided that in case the storage is outside the processing area but within the Special Economic Zone, such storage shall comply with such safeguards as may be necessary for the purpose and approved by the Specified Officer.

(4) The goods imported or procured from the Domestic Tariff Area by the Developer for authorized operations shall be kept in a clearly demarcated area for inspection by the authorized officer before such goods are brought into use.

(5) The Developer shall execute a Bond-cum-Legal Undertaking in Form D, jointly with the Development Commissioner and Specified Officer, with regard to proper accountal and utilization of goods for the authorized operations within a period of one year or such period, as may be extended by the Specified Officer.

(6) The Developer shall maintain a proper account of the import or procurement, consumption and utilization of goods and submit quarterly and half-yearly returns to the Development Commissioner in Form E for placing the same before the Approval Committee for consideration.

(7) The Developer shall submit a half-yearly certificate for the period ending 31st March and 30th September of every financial year regarding utilization of goods from an independent Chartered Engineer, other than the one who has given a certificate for the purpose of sub-rule (2), to Development Commissioner and Specified Officer and every certificate under this sub- rule shall be filed within thirty days of the period specified, as the case may be.

(8) The Developer shall not remove goods from the Special Economic Zone to the Domestic Tariff Area except with the permission of the Specified Officer and on payment of duty applicable on such goods.

13. A Developer may export or transfer capital goods and spares including construction equipment that have become obsolete or surplus to another Developer, or Unit after obtaining the approval of the Specified Officer.

14. Procedure applicable on import or procurement of goods and services, their admission, and clearance of goods. - The procedures applicable to Units on import or procurement of goods and services, their admission, clearance of goods, shall apply, mutatis-mutandis, to the Developer, except that in case of a Developer, goods imported or procured from Domestic Tariff Area shall be allowed to be moved or utilized for the purposes of authorized operations in the non-processing area of Special Economic Zone as well.

15. Monitoring.- The utilization of the goods imported or procured from the Domestic Tariff Area by the Developer shall be monitored by the Approval Committee.

16. Transfer of Letter of Approval of Developer.- The relevant provisions of section 3, and these rules, as far as may be, apply for transfer of Letter of Approval of a Developer under clause (a) of sub-section (9) of section 10.