The finance ministry has opposed the board of approvals? (BoA) decision to extend the customs duty exemption meant for SEZ developers to prospective developers, who import goods and equipment for establishing contiguity of land.
The potential beneficiaries of BoA?s February 11 decision include the Rs 5,000-crore Navi Mumbai SEZ promoted by Mukesh Ambani-aide Anand Jain, the City and Industrial Development Corporation of Maharashtra Ltd, and the Rs 2,400-crore Iffco Kisan SEZ Ltd coming up in AP.
BoA is the national-level governing body of special economic zones.
Contiguity of land is a prerequisite for notifying a piece of land as an SEZ. Establishing contiguity means building under-passes to connect two pieces of land bisected by a national highway or building a bridge over a water body, for which duty-free imports were not allowed so far.
The revenue department hasopposed the board?s decision to extend duty-free imports even before SEZs are notified, saying it was not consulted while taking a decision that would lead to major revenue loss.
?Besides, if the developer later decides to exit from the project saying it is unviable, there is no way of recovering the duty benefits availed of by him as all his legal obligations would commence only after the SEZ is formally notified,? said a ministry official.
The Central Board of Excise and Customs has formally taken up the issue with the commerce department and the board.
BoA is chaired by the commerce secretary and it comprises representatives of other ministries, besides the CBEC and the Central Board of Direct Taxes. The finance ministry official said the board decided to give the duty relaxation despite the revenue department objecting to it at the February 11 meeting.The commerce ministry?s view is that the infrastructure that connects pieces of land subsequently becomes a part of the SEZ and therefore, duty-free import should be extended to establishing contiguity. The revenue department does not accept this argument, saying that such decisions have to be taken in consensus with the revenue department as the SEZ Act mandates. The law says BoA members have to go by consensus, not by majority and if no consensus is arrived, the matter should go to the ministerial panel.
In the meantime, BoA has asked the chief commissioner of customs, the highest customs official on the field, to study the Navi Mumbai SEZ?s request for easing the contiguity requirement and give a report in two weeks. The government will take a call on the specific exemptions sought from building underpasses and bridges after that.
Units in a notified SEZ are exempt from all taxes?including customs, excise, service and income taxes?since they bring foreign exchange. SEZs have to be net foreign exchange earners for availing of the tax sops but there are sundry exemptions that allow them to enjoy tax benefits even otherwise.