19 April 2013 EY Tax Alert Amendments in the Foreign Trade Policy 2009-14 Executive summary Tax Alerts cover significant tax news, developments and changes in legislation that affect Indian businesses. They act as technical summaries to keep you on top of the latest tax issues. For more information, please contact your Ernst & Young advisor. This Tax Alert gives an update on the key changes announced through Annual Supplement (2013-14) to the Foreign Trade Policy 2009-14 (FTP). The key changes proposed amongst others are minimum land area requirement for setting up SEZ to be reduced by half, transfer of ownership of SEZ units to be permitted, introduction of Zero Duty Export Promotion Capital Goods, utilization of Duty credit scrips allowed for payment of service tax, rationalization of procedural and documentation requirements etc.
Background This Tax Alert summarises the changes proposed by Ministry of Commerce in the Foreign Trade Policy 2009-14. Key announcements Amendments in Special Economic Zone (SEZ) Policy proposed Kolkata. For all other SEZ s depending upon its sector and its location, the minimum built up area has been relaxed to 50% (Category B cities) or 25% (rest) of the built up area requirement. Concept of Sectoral broad-banding has been made more flexible even to encompass setting up of additional units which are very similar / related to areas covered under the same sector in such sector specific SEZ. In order to encourage investment in the SEZ sector, various measures have been proposed. The salient features of changes proposed are: The Minimum Land Area Requirement for setting up various types of SEZ to be reduced by half: Long awaiting exit policy in SEZ has now been allowed. The SEZ Policy will now be amended to permit transfer of ownership of SEZ units, including sale. Introduction of Zero Duty Export Promotion Capital Goods (EPCG) for sectors Sector Minimum area requirement (in Hectares) Existing Amended Multi Product 1000 500 Sector 100 50 specific IT/ITES Sector 10 NIL Dual EPCG rates (Zero percent/ Three percent) based on sectors and products eliminated and replaced by a single Zero duty EPCG scheme covering all sectors. Export obligation to be six times the duty saved amount and would need to be fulfilled in six years. Additionally, a new concept of Graded Scale for Minimum Land Criteria has been introduced so as to permit SEZ, an additional sector for each contiguous 50 hectare parcel of land in cases where sector specific SEZ s have been notified for an area exceeding 50 hectares. This is intended to facilitate efficient use of the infrastructure facilities created in such an SEZ. The existing policy allows for parcels of land with pre-existing structures not in commercial use to be considered as vacant land for the purpose of notifying an SEZ, it has now been clarified that additions to such pre-existing structures and activities being undertaken after notification would be eligible for duty benefits similar to any other activity in the SEZ. The minimum built up area criteria s requirement as per SEZ policy of one lakhs square meters will now be applicable only for SEZ s being set up in Mumbai, Delhi (NCR), Chennai, Hyderabad, Bangalore, Pune and Import of cars, sports utility vehicle etc, for hotels, travel agents, tour transport operators, golf resort owners/ operators not to be allowed under Zero duty EPCG Scheme. Second hand capital goods shall not be permitted to be imported under the EPCG Scheme. Quantum of Export obligation in case of domestic sourcing of capital goods, under EPCG scheme reduced by 10% to promote domestic manufacturing. Discharge of Export obligation by export of alternate products as well as accounting of exports of group companies not to be allowed from 18 April 2013. Export obligation requirements reduced to 25% for manufacturing facilities located in the State of Jammu & Kashmir.
Scope of utilization of Duty credit scrips widened Duty credit scrips issued under Focus Product scheme, Focus Market scheme and Vishesh Krishi Gramin Udyog Yojana (VKGUY) allowed to be used for payment of Service tax on procurement of services. Service tax paid through scrips eligible for drawback or Cenvat benefit. All duty scrips issued under Chapter 3 of FTP allowed to be used for payment of application fee for obtaining authorizations or for payment of composition fee and value shortfalls in Export obligations. Benefits restricted to original holder of scrips. operators, etc, under SFIS scheme need to be registered for tourist purpose only. Other key changes Status Holders Incentive Scheme (SHIS) not extended beyond 2012 13. Limited transferability of SHIS within the group company of the status holder allowed, provided the group company is a manufacturer. (Earlier the transferability was limited to a group company which is a manufacturer and status holder) Utilisation re-credited 4% Special Additional Duty (in lieu of VAT/ sales taxes) allowed upto 30 September 2013. Post this; said duty would need to be paid in cash only. Facility scheme to settle cases of default in Export obligations introduced Facility to close cases of default in Export obligation under Advance Authorization scheme and EPCG authorization, on payment of applicable duty along with interest, introduced. Duty and interest amount to be paid within six months from the date of notification of scheme. Total payments under the scheme should not exceed twice the duty saved amount. Changes in Served From India Scheme (SFIS) Entitlement under SFIS scheme to be now computed at 10% of the net free foreign exchange earned, ie, total free foreign exchange earned less foreign exchange spent. Earlier, entitlement was calculated based on free foreign exchange earnings only. Transfer of SFIS scrips to group companies allowed, provided the group company is a manufacturer. SFIS scrips permitted to be used for procuring capital goods relating to any manufacturing activities/ business carried on by the holder. Motor cars, sports utility vehicles etc, procured by hotels, travel agents, tour Import of cars now permitted through ICD Faridabad and Ennore port (Tamil Nadu). Specific measures relating to simplification of procedural and documentation requirements introduced. Requirement of submission of hard copy of shipping bills under advance authorization/ duty free advance authorization scheme for obtaining discharge certificate dispensed with. Incremental Exports Incentivisation scheme extended for the FY 2013-14. 53 countries in Latin America and Africa included for benefits under the above scheme. Benefits under Interest Subvention scheme extended to 134 sub-sectors in engineering sector. Benefits under Focus Market Scheme extended to exports to Norway. Exports to Venezuela now eligible for benefits under Special Focus Market scheme. 126 new products from engineering, electronics, chemicals, pharmaceuticals and textile sector added to Focus Product Scheme.
47 new products from engineering, auto component and textile sector added to Market Linked Focus Product scheme. Comments The proposals are based on the Highlights of Annual Supplement 2013-14 to the Foreign Trade Policy 2009-14. The introduction of Zero Duty EPCG benefit for all sectors is a welcome step for the export community.
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