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G. Srinivasan

New Delhi, Oct. 26 Faced with a potential slowdown of the economy, the beleaguered UPA government has taken a host of initiatives in resolving some of the outstanding issues plaguing the special economic zones (SEZs) that were caught in the cross-fire between the Finance Ministry and the Commerce Ministry on the grant of legislated benefits to these export enclaves.

At its meeting held on late Friday under the Chairmanship of the Union External Affairs Minister, Mr Pranab Mukherjee, the empowered Group of Ministers (eGoM) on SEZ has “upheld” the notification issued by the Department of Commerce to qualify Essar Steel SEZ in Hazira and Adani’s port SEZ in Mundra (both in Gujarat) for tax breaks “with minor conditions,” the Commerce Secretary, Mr Gopal K. Pillai, told Business Line here.

He said the conditions include that in the case of the Mundra port, which is already operating before being notified as an SEZ, any new construction in that area for development would not get a tax break.

However, the eGoM has agreed to relax the maximum ceiling of 5,000 hectares for any SEZ on a case-by-case basis, he said, adding that Mundra SEZ has two multi-product and one power SEZ in contiguous areas which surpass the ceiling of 5,000 hectares by another 2000 hectares.

This 7,000-hectare SEZ would be the first to get automatically notified with a higher ceiling in terms of area.

With the Finance Ministry quibbling over what constitutes a vacant land on an SEZ which had pre-existing structures, that threatened the SEZ status of these two ‘signature’ SEZs in the State of Gujarat, the eGoM has resolved it to the relief of the Department of Commerce. This would help ensure dedicated infrastructure development and high export and higher employment in the country, industry sources said.

As SEZ developers and units in SEZ resent forking out export duty on steel and were pleading for exemption from this levy, the eGoM has said that the Ministry of Steel itself is reviewing the matter and that the export duty would likely be removed in a week’s time, Mr Pillai said.

He said that the e-GoM would recommend to the RBI that SEZs would be treated as infrastructure activity by banks and not ‘real estate’ activities so that credit cost would be nominal to the developers and the units in SEZs.

Yet another important decision taken by the e-GoM pertains to the issue that supply of goods to SEZ developers from the domestic tariff area (DTA) should also be given the Cenvat credit.

It has been decided that the Cenvat Credit Rules would be amended to give the cenvat credit to SEZ developers, Mr Pillai said.

Commenting on this decision, Mr L.B. Singhal, Director General of Export Promotion Council for SEZ and EOUs, said, “This would lead to backward integration of SEZs with the domestic economy as SEZ developers would be encouraged to procure goods from the domestic manufacturers rather than importing.

This would in turn help generateadditional domestic economic activity besides boosting employment and exports.”

Official sources said that the e-GoM also agreed on “some guidelines” on the quantum of social and commercial infrastructure in the non-processing area in the SEZs with a view to make these zones attractive to the developers and the units.

On the issue of Section 10 AA of the I-T Act relating to export profit, the SEZs plead for the substitution of the “total turnover of the assessee” by “total turnover of the undertaking” so that comparison is tenable.

The eGoM considered the issue but could not take a final call. The matter is deferred to its next meeting on October 30, the sources said.

More Stories on : Infrastructure | Taxation | Policy

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