The Hindu Business Line : Kerala Govt urged to change Service Tax clause for SEZ units

`The clause on consumption of services within special economic zones is narrowly interpreted to mean only those services that take place in the zone.'

Mr K.K. Pillai, President, SEZIA, Kochi

Kochi , Feb. 16

THE Kochi Special Economic Zone Industries Association (SEZIA) has urged the Government to change Clause 90, Sub Section 1 of Section 65 of the Service Tax Act as `Services Provided to Units' instead of `Services Consumed by Units'.

Mr K.K. Pillai, President, SEZIA, told Business Line that the clause on consumption of services within such special economic zones is very narrowly interpreted to mean only those services that take place inside the zone and not services provided to a unit in the zone.

Therefore, services such as port charges, consultation fees, insurance on transport, telephone are often excluded. The wording should be changed so that all services provided to a unit in the SEZ are exempt.

"The services are provided and not consumed," he said.

Similarly, the fringe benefit tax, being in the nature of an indirect tax should not be levied from the SEZ units, he said. "Even though this is under the Income Tax Act, it is not a tax on profits but a tax on expenses. Expenses such as travel, communications, entertainment etc, are essential in export business and only through such expenditures can we build up and sustain our business," Mr Pillai said. The concept of the SEZ Act is meant to reduce the effect of indirect taxation, he added.

Mr Pillai demanded that units discharging effluents into the common effluent treatment plant (CETP) operated by the Development Commissioner should not be required to get consent from the Pollution Control Board (PCB) to discharge effluents into it. Only the CETP should get consent from the PCB for the discharge of effluents, he said.

All units discharge effluents into the CETP, which has been approved by the PCB. The CETP has specified limits for the effluent to be discharged into the CETP and units must treat their effluents to achieve these levels. Over and above, the units must pay between Rs 18 to Rs 33 per kl to the DC for treating the effluents in the CETP.

The DC ensures that CETP achieves levels prescribed by the PCB. Hence, "PCB should monitor the functioning of the CETP and once they give clearance to CETP for operations, individual units should not be required to obtain consent separately from the PCB," Mr Pillai said.

According to the existing rules , units in the SEZ have to export more than they import, he said. This ensures that units can sell in the Domestic Tariff Area (DTA) only if they export and the quantum of such export will be limited to the value addition attained. This restricts units from accessing the Indian market without fulfilling their export requirements.

"Our products are among the best in the world and instead of importing such products from other parts of the world, we supply the products, saving foreign exchange." For instance, he argued, "The Rashtrapathi Bhavan used to import from Rosenthal of Germany. We now supply the requirements."

"Even the Ministry of External Affairs (MEA) sources its requirements for all its embassies from us. Five and seven star hotels that used to import crockery now buy from us, saving foreign exchange," Mr Pillai said.

SEZ units could cut the cost per unit by accessing the Indian market. "But, it can do so only to the extent of its surplus foreign currency and cannot just sell in the Indian market without exporting," he said. Units in the SAARC region have access to the Indian market and use the increased sales here to cut cost of production. They can then compete in the foreign market because of the lower cost per unit. "In other words, a Sri Lankan (Noritake) or Bangladesh (Dowel) can quote at 65 cents per piece as against the 90 cents that we can quote," he said. Hundred per cent EOUs are permitted to sell 50 per cent of their production at 50 per cent of the duty within the DTA. Even in China, he said, units in SEZs are permitted to sell 50 per cent of their products in the Chinese market.

The SEZIA, he said, has apprised the Parliamentary Committee of these problems. The association has urged the Government to allow SEZ units to sell 50 per cent of their total production in the DTA.

High fuel costs have jacked up the cost of production, making products uncompetitive in the overseas markets, Mr Pillai said. He suggested that local refineries be asked to sell gas/petroleum at international prices at the refinery head.

Petrochemical products are not made available to Indian importers at the international price. So the Indian consumers have to import by spending foreign currency. This procedural lacuna has to be set right to avoid outflow of foreign currency for materials that are available in India, he added.

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