Parliament panel comes down on SEZ concept

Our Bureau New Delhi | Updated on March 09, 2011

A file picture of construction activity at the 150-acre IT SEZ in Coimbatore. -- K. Ananthan   -  THE HINDU

A House panel has pilloried the Special Economic Zone (SEZ) scheme, contending that its continuation in its present form needs “serious reconsideration “ in the wake of “the persistent complaints that the SEZ has degenerated into a scheme to garner land at advantageous prices and obviate taxes without expected multiplier benefits”.

The Public Accounts Committee (PAC) on SEZ, tabled recently in Parliament, said that its detailed examination of the scheme has revealed “a number of deficiencies which include system as well as compliance weaknesses relating to policy and procedures governing the management and functioning of SEZ units”.

In the course of the probe, the Committee detected that out of an overall export of Rs 7,149.23 crore made by 22 SEZ units across the country, the actual export content was only Rs 1,999.27 crore or 28 per cent and the rest Rs 5,149.96 crore or 72 per cent related to Domestic Tariff Area (DTA) earnings.

Even as the Committee was apprised that the percentage of deemed exports and the DTA sales were minimal, it nonetheless found that “the actual physical export which augments the foreign exchange earnings was quite dismal”.

Hence, it urged the Commerce Ministry to restrict reckoning of deemed exports by an appropriate scale for the purpose of calculating Net Foreign Exchange Earnings (NFEs) with a view to reduce the misuse of the scheme”.

Data reliability

Stating that the mechanism for monitoring the functioning of SEZ units is based on the data provided by the SEZ units through self-certification in the form of quarterly performance reports/annual performance reports, the Committee said if the erring units provide incorrect or incomplete data in their self-certified performance reports there is no alternative or reliable method and procedure for precise monitoring of the net foreign exchange earnings.

The collection of such vital statistics pertaining to NFEs cannot be based merely on self-certification of the SEZ units.

Further, in the course of the probe, the Committee found that duty of the order of Rs 107 crore was recoverable as there had been a shortfall in achieving positive NFE.

The shortfall had occurred because broad-banding of dissimilar goods had been allowed, while the provisions of SEZ Act 2005 and the rules made under it have done away with the limitation of allowing broad banding only to similar goods.

The Committee also found that 41 SEZ units had functioned in contravention of the conditions that were stipulated in the Letter of Permission (LoP) leading to considerable loss of revenue.

The violations, inter alia, cover carrying out trading activity though the LoP was for manufacturing, manufacturing in premises not mentioned in the LoP, operating without valid LoP and clearing all goods in the DTA against the stringent remit that the goods should be exported to the General Currency Area (GCA) countries.

Even as the SEZ Act and its rules note that when goods were transferred from one SEZ unit to another or to a 100 per cent export-oriented unit (EOU) the supplying unit had to submit the re-warehousing certificate to the proper officer, the Committee found that there were cases where such certificates were not furnished and the Ministry failed to take prompt action against them.

Stung by such “glaring lapses” the Committee recommended that the monitoring mechanism must be reinforced and the defaulting units administered deterrent punishment.

Monitoring mechanism

PAC also voiced dismay over the “considerable delay” in constituting the Unit Approval Committees (UACs) which were tasked with monitoring the performance of the units located in the SEZ.

Hence, it called for beefing up the monitoring mechanism for concurrent and effective appraisal of the functioning of the SEZ units by all the community partners such as the Development Commissioner and the jurisdictional Customs Authority through active involvement in the respective UACs.

Finally PAC has drawn attention to “a discriminatory policy” under which while the SEZ units could sell their goods, including by-products and services in DTA on payment of applicable duty including at ‘nil' rate with no onus to payback the duty foregone on inputs used in the clearance of products (at nil rate of duty) into the DTA, no such protection to units in DTA has been provided under the SEZ Act.

Hence it said the SEZ scheme needs “a thorough reappraisal with a view to provide a level playing for the indigenous industry as well”.


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Published on March 09, 2011
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