SEZs: New norms for power generation announced

By: | Published: February 20, 2016 1:35 AM

Plant, as part of infrastructure facility, to be set up only in non-processing area of special economic zone

The commerce ministry has notified guidelines for power generation, transmission and distribution in special economic zones (SEZs), almost modelled after the 2009 norms, and reiterated that a power plant, as part of the infrastructure facility, be set up only in the non-processing area of an SEZ. It said no fiscal benefits would be extended towards the power plant’s operation and maintenance.

The latest guidelines, however, made its focus on power generation for IT/ITeS units clearer than earlier. The power plants set up in IT/ITeS zones that require uninterrupted power supply at a stable frequency will get fiscal incentives for establishing and maintenance of generating units.

“In such cases, generation of power will be carried out as a unit within the processing area, and such a power plant including non-conventional energy power plant, will be entitled to all the fiscal benefits covered under Section 26 of the SEZ Act, including the benefits for initial setting up, maintenance and the duty free import of raw materials and consumables for the generation of the power.” Such duty-free imports of capital goods, raw material and consumables would be counted towards the net foreign exchange (NFE) obligation of the unit.

The latest guidelines were issued after SEZ developers operating power plants requested the government to restore some of the operation and maintenance benefits. The guidelines were initially declared in February 2009 and revised in 2012. The latest notification said the present guidelines would replace the earlier ones.

The commerce ministry has been actively pursuing the case of SEZs, reeling as they are under a minimum alternate tax (MAT) and a dividend distribution tax regime imposed in the 2011-12 Budget. Recently, according to sources, the commerce ministry had convinced the finance ministry to reinstate MAT exemption, which may be announced in the coming Budget. Currently, MAT is levied at 18.5% on the book profit of companies, with the effective rate touching 20%, factoring in surcharges.

According to the latest guidelines, setting up of captive power plants — including non-conventional energy ones — could be permitted in processing areas as units, subject to NFE obligations. “Such a power plant will be entitled to all the fiscal benefits… including the ones for initial setting up, maintenance and duty-free import of raw material and consumables for generation of power,” it added.

SEZs, which are connected to state/national grid, will be allowed to create a back-up power facility. “For such a power back-up facility, if it is in the non-processing area, only duty benefits on capital expenditure for setting up will be available,” it clarified.

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