In the backdrop of the controversial issue of Goa government?s decision to scrap notified special economic zones (SEZs) in the state, the attorney-general has warned that it would be difficult for the government to legally justify withdrawal of approvals already given to SEZs.

Also, in a decision that could lend more stability to the special economic zones policy, the country?s top legal officer has said that the provisions of SEZ Act and Rules cannot be applied retrospectively. Acting on the case regarding Mundra port SEZ and Essar SEZ promoted by Essar Hazira port, where an opinion was sought on what constitutes a ?vacant? land, the Attorney General clarified that the provision of SEZ Act and Rules could not be interpreted with retrospective effect. Mundra SEZ was notified in 2004, while the SEZ Act and Rules came into effect in 2006.

The department of revenue (DoR) raised the issue that due to the existing port in the Mundra port, the vacancy condition of the port SEZ does not satisfy the SEZ Act and Rules. The finance ministry, on its part, has said that according to the SEZ Act and Rules, an SEZ can be notified only if the land is vacant. It added that even the Board of Approval could not relax its conditions. However, the Attorney General said, ?Any withdrawal of SEZ approval may not be legally tenable.?

Earlier, on the Goa SEZ issue, the Centre had stated that it was not possible to denotify the three notified SEZs in the state, as there is no such provision under the SEZ Act of 2006. The matter is with the Panaji Bench of the Bombay High court. The issue will now be taken up in the next meeting of the Empowered Group of Ministers (EGoM) on SEZs. Although the legal opinion was given in the case of Mundra SEZ, official sources said it would have wider implication regarding such cases.

According to commerce ministry officials, it would not be legally sound to take back the approval or promise given by the government to a developer as the developer, in turn, brings in crores of rupees of investment on the basis of such a promise in the form of an approval. ?It is not correct to change the rules midway and apply it retrospectively,? an official said.

The official said though the SEZ policy was in place as early as 2000, it did not get much response until 2006 when the SEZ Act and Rules were enforced.

Although the Mundra port SEZ for all legal purposes were liable to duty exemptions on the material required for their activities, this particular SEZ was unable to get the exemption for want of notification from the DoR that had earlier suggested that a separate port should be created for SEZ.

After the SEZ Act came into existence the Mundra Port and SEZ was notified in June 2006 which includes the existing port also. The issue now is regarding applicability of the condition of vacancy as imposed by the SEZ Rules which came into effect from 2006 while the zone was originally notified in 2004. The matter was referred to the attorne- general. The attorney-general was of the opinion that the term ?vacant? means the identified area is available for, or is under actual occupation and possession of the developer and there is no right of any third party.

The finance ministry is of the opinion that the condition of vacancy should strictly satisfy the SEZ Rules. At the meeting of the EgoM in August, it was decided that the matter would be referred to Law ministry by department of commerce.