Developers and units of Special Economic Zones (SEZ) beware. Those found violating rules regarding export and import, delaying payments of fiscal penalties will soon find it difficult to escape the long arm of law, citing lack of clarity in regulation. SEZ units not achieving the positive net foreign exchange (NFE) requirement ? mandating that exports from SEZs and its units should be more than their imports ? will also be not spared.
A comprehensive Bill in the form of The Foreign Trade (Development and Regulation) Amendment Bill, 2008 will shortly be introduced in Parliament. According to the government, the objective of the Bill is to ?bring in a tighter export control and improve the system of levying and realizing fiscal penalties? concerning SEZ related transactions. The Bill aims to cover goods delivered into or from SEZs and this will include transfer of goods between units in SEZs, as these are also treated as exports.
The FTDR Act, which is the ?mother Act? regarding penalties on violations of export and import rules, itself does not define exports and imports in the context of transactions between and within SEZs. ?This is a major lacuna and if challenged before a court of law, the violators can get away,? an official said. The SEZ Act and Rules had become operational only in 2006 and no amendments to FTDR Act have been carried out since then incorporating specific penal provisions on violation of SEZ norms.
The penalties are generally for violation of licence norms as well as those related to goods, including duties, penalties and the interest thereof. At present, the development commissioner (DC) of SEZ has the right to take action under the FTDR Act for violation of export and import norms. The Appellate Authority of the FTDR Act hears appeals in such cases, and the authority is usually an additional secretary in the commerce ministry that is in charge of SEZ policy.
The DC can also take the cases of violation of trading norms to the SEZ unit approval committee. The committee, on finding the SEZ unit or developer guilty, can even cancel their letter of approval. The board of approval for SEZs in the commerce ministry hears appeals in such cases. Currently, penal provisions are prescribed in the SEZ Rules. But there is no corresponding provision in SEZ Act. ?If you talk strictly legally, if an Act does not provide penal provisions, the corresponding Rules also cannot provide the same. Therefore, the same penal provisions in the SEZ Rules will have to be incorporated in the FTDR Act as that legislation, along with Indian Customs Act, are the ones that take care of violations of import and export norms,? another official said. ?Amending the FTDR Act to incorporate such provisions gives it better legal clarity,? the official added.
There have been stray instances of companies importing goods from abroad duty free and selling it to the domestic tariff area or DTA (the area within the country, but outside SEZs and where normal taxes and duties are applicable) at a huge profit without paying taxes and not informing the authorities about such transactions, a senior SEZ official said on the condition of anonymity. Other instances of violation include evasion of service tax and running the business with a negative NFE after the prescribed period of 5 years since the date of commencement of production, the official added.
The Directorate of Revenue Intelligence had in 2006-07, detected nine cases where SEZ and EoU schemes were misused and Rs 34-crore duty was evaded. In 2005-06, the DRI had detected 14 such cases where duty evasion was worth Rs 79.21 crore and in 2004-05, it was 30 cases where the duty evasion was Rs 99.92 crore.