Units in Special Economic Zones (SEZs) will soon be permitted to shift in second-hand equipment worth up to 20% of their total investment. This is a departure from existing provisions in the SEZ Rules which specify that the entire investment in SEZs should be ?fresh?, thereby disallowing the relocation of second-hand equipment from the domestic tariff area (DTA) to SEZs. To prevent migration from the DTA to such tax-free enclaves, the SEZ policy had earlier specified that no unit that shifted old machinery would be given approval.
A proposal to ease the old rules has been forwarded by the commerce & industry ministry to the law ministry. Government officials said this is to address difficulties faced by certain sectors in obtaining much-needed second-hand capital goods. ?There are some capital goods like testing equipment, routers and network equipment which are considered specialised and very difficult to purchase quickly when a unit sets up shop in an SEZ. Such equipment may be allowed to shift from the DTA to an SEZ,? an official said.
However, such shifting of old equipment will be considered on a case-to-case basis and ?only where we are completely convinced about the necessity?, the official said, pointing out that even in such cases, the government would ensure that 80% of the investment is fresh. The amended rules would also clarify that there was no restriction on second-hand vehicles from carrying goods in and out of SEZs.
One of the objectives of the SEZ policy is to attract fresh investment in terms of money and machinery.
Experts see the government?s new proposal as providing a breather to units making huge investments. ?This would be a welcome change as it would provide operational flexibility for SEZ units. Earlier, there were some genuine cases where the restrictions caused a lot of bottlenecks. Besides, there was no clarity regarding the provision regarding this rule on second-hand equipment,? said Abhishek Goenka, partner & executive director,
BMR & Associates.
?This 20% value is minimal, as 80% coming in is fresh investment. It is better to use such critical equipment than throw it away as scrap. Even in the Budget, the finance ministry had amended the Income-Tax Act to this effect. Now, the SEZ Rules will be aligned to that,? said LB Singhal, director general, Export Promotion Council for EOUs & SEZs.