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TMI BlogConcerns/queries/clarifications regarding the newly inserted SEZ Rule 11 B notified vide DoC Notification dated 6.12.2023X X X X Extracts X X X X X X X X Extracts X X X X ..... etary to the Govt. of India Tel. 011-23039829 Email: [email protected] Annexure Clarification in respect of Rule 11B of SEZ Rules, 2006 Issue 1: While paying back the tax benefits attributable to the built-up space to be demarcated as NPA under 11B(5) (i) or paying back tax benefits availed for creation of social or commercial infrastructure and other facilities under 11B(5)(ii) to be used by both SEZ processing and non-processing area, clarity is required on whether the duties are to be paid on the (i) depreciated value, (ii) prevailing value as certified by Chartered Engineer or (iii) to repaying the tax benefits that were originally availed. Further, whether tax paid as per the certificate issued by Chartered Engineer would be sufficient for SO to issue NOC. Response: In terms of Rule 11B of the SEZ Rules, 2006, demarcation of a Non-Processing Area (NPA) can be permitted only after repayment of the tax benefits that were originally availed viz. option (iii) above. Tax paid for tax benefits attributable or availed as per 11 and 11 shall be sufficient to issue NOC. Issue 2. At what rate the tax is to be paid on the value certified by the Chartered Engineer for the built-up area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NPA floor of the said building? Response: The tax benefits on the construction of the building including basement should be taken into account for repayment of tax benefits attributable to the demarcated NPA floor in terms of Rule 11B (5) (i). Issues 7. Whether repayment of tax benefits on Plant Machinery (capital goods) in the stock will be at the depreciated value in terms of Rule 49 of the SEZ Rules? Response: Rule 49 would be applicable for clearance of plant and machinery pertaining to 11B(5)(i) and not 11B(5)(ii) However, it is clarified that if benefit under 11B(5)(ii) has been taken then all benefits are to be repaid. Issue 8: A floor may have some SEZ units. These units may also like to serve only DTA and hence the whole floor may be demarcated as Non-Processing Area. How can this be enabled? Response: This situation is not envisaged as of now. However, SEZ units may opt out of SEZ under Rule 74 of SEZ Rules, 2006 and complete built up floor is available for demarcation as NPA in terms of Rule 11B(3), BOA, thereafter, may permit demarcation in terms of Rule 11B which may be used for setting up of IT/ITES units. Issue 9 : Presently under Rule 11(1), Development Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Acts and Rules and orders made thereunder as are applicable to any other entity operating in Domestic Tariff Area (DTA). Issue 11 . It is time consuming in computing the taxes and duties availed of by both the unit as well as the establishment providing services in the newly converted non-processing areas in proportion of the built up area over the past several years due to the time involved in retrieving the books of accounts in consultation with a Chartered Engineer which could typically go up to 3-6 months. Hence, it is requested to permit the Developers to convert to Non-Processing Area based on a undertaking that the Developer will refund all the concessions availed after the final computations have been assessed correctly and accepted by the concerned AO/ SO. This will allow the process to be initiated quickly instead of waiting till the final computations are completed. During this period the developer could start marketing the space and simultaneously raise the required funds in the form of advances from potential IT companies willing to occupy the space. Response : Rule 11B (5) reads as follows: Board of Approval shall permit demarcation of a non-processing area for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to repay the taxes on social and commercial infrastructure (without interest) while industrial infrastructure would continue to be duty free. Response. In terms of Rule 11B (5) (ii), common infrastructure would include all infrastructure and other facilities for common usage between SEZ units and non-SEZ IT/ITES units in the SEZ. Issue 16 . As per Sub Rule 1, the Developer can request for demarcation of built-up space as Non- Processing area. Need clarity on whether Developer / Co-Developer can demarcate a portion of the 'Land' as Non-Processing Area that can be used for developing office space infrastructure to be used / leased for IT/ITES units for domestic business. Response . Rule 11B only provides for demarcation of built up space in IT/ITES SEZ. It is not applicable for vacant land. Issue 17 . Will the BOA/UAC monitor the units coming into non-processing area? Response . BOA/UAC will not monitor the unit set up in the demarcated NPA as per Rule 11B of the SEZ Rules, 2006. Issue 18 . There is a need for clarification regarding the meaning of social or commercial infrastructure and other facilities under Rule 11B(5)(ii) and common infrastructure and facilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not happen that the unit provides IT/IT enabled services in the demarcated non-processing area of SEZ and there is a serious challenge of recognizing such services, which may create uncertainty or ambiguity in the operations of IT/IT enabled service provider. Response. The issue has been duly examined and it is noted that Rule 11B is in consonance with the provisions of the Act. Issue 21. As per Rule 11 B(9) of SEZ, Rules, 2006, it has been made clear that there shall be no tax benefits available on operation and maintenance of common infrastructure and facilities of such IT/IT enabled services SEZ. In this connection, we would like to know if the SEZ unit is able to clearly allocate the portion of costs/ expenses separately for both processing and non-processing floors, based on sqft calculation, then in that case whether tax concession i.e., GST/ Customs duty benefits would be made available for 'Processing area' of SEZ unit. Response. No benefits on Operation Maintenance of common infrastructure and facilities shall be available if the same is used by units in NPA. Issue 22. Can the demarcated area be opened for non-IT and ITES companies? Response . No, since as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mon employees based on specific requirements of the SEZ after considering the risk profile of each SEZ on a case-to-case basis. No. There is no additional requirement or specific requirements for scrutiny/verification for goods being procured by units in non-processing area. Issue 29. Can the non-processing area also comprise of living area or housing for employees/guests of-course without tax benefits. Can you guide the provisions in this regard. Response. No. Issue 30. What additional set of compliance requirements may be introduced for these demarcated non-processing areas in light of the new rule 11 B? Response . Compliance requirements for IT/ITES NPA units will be at par with DTA units for administration of Central / State / local government laws. Issue 31. Permission for demarcation of a non-processing area will be granted by the BOA only after repayment of tax benefits by the Developer. Are any income tax benefits availed by the developers also required to be reversed? Response . The tax benefits to be repaid includes customs duties, central excise duty, CGST, IGST and SGST and such other central levies and tax benefits already availed by the developer. This is in line with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt up area proposed to be demarcated as NPA, as per Chartered Engineers certificate (in Rupees Crore) 13. Whether duty benefits and tax exemptions availed has been refunded and NOC from specified officer has been obtained (please enclose NOC from specified officer) 14. Reasons for demarcation of NPA: 15. Total remaining built up area ..(in sq mt) 16. Whether remaining built up area fulfils the minimum built up area requirement as per Rule 5 of SEZ Rules, 2006. 17. Purpose and usage of such demarcation of NPA : 18. I/We hereby declare that the above statements are true and correct to the best of my/our knowledge and belief. I/We will abide by any other condition, which may be stipulated by the Government of India. l/We fully understand that any Letter of Approval granted to me/us on the basis of the statement furnished is liable to cancellation or any other action that may be taken having regard to the circumstances of the case if it is found that any of the statements or facts therein are incorrect or false. Place: Date: Signature of the Applicant Name in Block Letters Designation Official Seal/Stamp Tel. No E-mail Full Residential Address Recommendation of Development Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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