Special Economic Zones Act, 2005 – Economic, Business and Commercial Laws Important Questions

Question 1.
Special Economic Zones are engines of growth. Discuss. [June 2014 (5 Marks)]
Answer:
(a) Meaning of SEZ: Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and shall be deemed to be foreign territory I for the purposes of trade operations and duties and tariffs.

(b) Earlier Regime: It is not the first time that India has tried to develop its SEZs. The first wave of export zones started in the year 1965 and ended in the year 2000 with little success. These early initiatives were also not supported by any legislative framework.

(c) Current Prospects: The prospects are better this time. The current policy targets private investment in SEZ development and offers several lucrative incentives and features that were not available in previous initiatives.

(d) Special Legislation: Special legislation, the SEZ Act, was enacted for the first time in 2005. The Act evoked immense interest among investors as it provided confidence, stability and the correct incentives.

(e) Key Tax Incentives: But the government dealt a significant blow to SEZs in 2012 when it rolled back key tax incentives, including the Minimum Alternate Tax. (MAT) and Dividend Distribution Tax (DDT), offered to investors.

(f) SEZs are strategic locations that address structural and institutional bottlenecks arising from infrastructural deficiencies, procedural complexities, bureaucratic hassles and other restrictive policies common in developing countries like India. They offer an enabling investment j climate to attract both off-shoring and outsourcing activities.

(g) Reviving manufacturing is one of the biggest development challenges that India faces today. The entry and integration of its firms into global value chains can help create the industrial dynamism that India needs.

(h) Even though 60% of zones are in the IT sector, almost 85% of SEZ land is used in manufacturing. SEZs have been instrumental in promoting new industries such as biotechnology, renewable energy, aviation, electronic and sports shoes.

(i) Thus, SEZs have the potential to be a major growth engine for India.

Question 2.
State the salient features of the Special Economic Zones Act, 2005. [Dec. 2016 (4 Marks)]
Answer:
Features of the Special Economic Zones Act, 2005 are as under:

It deals with matters relating to the establishment of a Special Economic Zone (SEZ) and for setting up of units, including requirements, obligations and entitlements.
It deals with matters relating to requirements for setting up off-shore banking units and units in the International Financial Service Center in SEZ.
To provide a fiscal regime for developers of Special Economic Zone and units set-up therein
Single window clearance mechanism.
Establishment of an Authority for each SEZ set up by the Central Government to impart greater administrative autonomy.
Designation of Special Courts and single enforcement agency to ensure speedy trial and investigation of notified offences committed in SEZ.

Question 3.
What do you understand by “Offshore Banking Unit” under the Special Economic Zones Act, 2005? [June 2019 (4 Marks)]
Answer:
(a) Definition: As per Section 2(u) of the Special Economic Zones Act, 2Q05, Offshore Banking Unit means a branch of a bank located in SEZ and which has obtained permission under section 23(l)(a) of the Banking Regulation Act, 1949.

(b) Meaning: In simple words, a branch in the Special Economic Zone of a bank is known as Offshore Banking Unit.

(d) Notification for Condition: The Reserve Bank may, by notification, specify the terms and conditions subject to which an Offshore Banking Unit may be set up and operated in the Special Economic Zone.

Question 4.
What factors are taken into consideration by the Central Government while notifying any area as SEZ and discharging its functions under the Special Economic Zones Act, 2005? [June. 2019 (3 Marks)]
Answer:
Guidelines for notifying special Economic Zone [Section 5]: The Central Government, while notifying any area as SEZ or an additional area to be included in the SEZ and discharging its functions under the Act, shall be guided by the following:

Generation of additional economic activity.
Promotion of exports of goods and services.
Promotion of investment from domestic and foreign sources.
Creation of employment opportunities.
Development of infrastructure facilities.
Maintenance of sovereignty and integrity of India.
Maintenance of the security of the State.
Maintenance of friendly relations with foreign States.

Question 5.
Who can establish the Special Economic Zone? Discuss. [Dec. 2018 (4 Marks)]
Answer:
Section 3 of the Special Economic Zones Act, 2005 makes the following provisions in relation to the establishment of SEZ:
1. Eligibility: A SEZ may be established, either jointly or severally by the Central/State Government, or any person for the manufacture of goods or rendering services or for both or as a Free Trade and Warehousing Zone.

2. Application:

Any person, who intends to set up SEZ may make a proposal to the State Government for the purpose of setting up the SEZ after identifying the area.
If the State Government receives the proposal for SEZ, it has to forward the same to the Board along with its recommendations within the prescribed period.

3. Application to Board: A person who intends to set up SEZ, may make a proposal to the Board for the purpose of setting up the SEZ. In the case where a proposal is directly received from a person, the Board may
grant approval and after receipt of such approval, the person concerned shall obtain the concurrence of the State Government within the prescribed period.

4. The decision by Board: The Board may approve the proposal subject to such terms and conditions as it may deem fit. The Board can also modify or reject the proposal.

5. Set up by State Government: A State Government can also set up SEZ. It should identify the area for SEZ and forward the proposal to the Board for the purpose of setting up the SEZ.

6. Central Government: However, the Central Government may Suo Motu set up and notify the Special Economic Zone:
(a) After consulting the State Government concerned;
(b) Without referring the proposal for setting up the SEZ to the Board;
(c) After identifying the area.

7. Prescribed Form: Every proposal shall be made in the prescribed form and in the prescribed manner.

Question 6.
What are the power and functions of the Board of Approval under the Special Economic Zones (SEZs) Act, 2005?
Answer:
As per section 9 of the Special Economic Zones Act, 2005, powers and functions of the Board are as follows:

To grant approval or reject the proposal or to modify proposals for the establishment of the SEZ.
To grant approval of authorized operations that can be carried out in the SEZs by the Developer.
To grant approval to the Developers or Units for foreign collaborations and foreign direct investments, in the SEZ for its development, operation and maintenance.
To grant approval or reject the proposal for providing infrastructure facilities in SEZ or to modify such proposals.
To grant a license to an industrial undertaking subject to provisions of the Industries (Development & Regulation) Act, 1951.
To suspend the letter of approval granted to Developer and appointment of an Administrator u/s 10(1).
To dispose of appeals u/ss. 15(4) & 16(4) of the Act.
To perform such other functions as may be assigned to it by the Central Government.

Question 7.
When the Board of Approval is empowered to suspend the letter of approval granted to the developer under the Special Economic Zones (SEZs) Act, 2005? [Dec. 2017(3 Marks)]
Answer:
Suspension of letter of approval [Section 10]: The Board shall have the power to suspend the letter of approval granted to the Developer for a whole or part of his area established as SEZ for a period not exceeding 1 year and appoint an Administrator to discharge the functions of the devel-oper in accordance with the terms and conditions of the letter of approval and manage the SEZ accordingly.

The suspension may be ordered by the Board, if in its opinion following circumstances exist:

The developer is unable to discharge the functions or perform the duties imposed on him.
The developer has persistently defaulted in complying with any direction given by the Board under the Act.
The developer has violated the terms and conditions of the letter of approval.
The developer’s financial position is such that he is unable to fully and efficiently discharge the duties and obligations imposed on him by the letter of approval.

Question 8.
State the method of appointment and functions of the Development Commissioner. {Dec. 2016 (4 Marks)]
Answer:
Development Commissioner [Section 11]:

Central Government may appoint any of its officers not below the rank of Deputy Secretary to the Government of India as the Development Commissioner of one or more SEZs.
Central Government may appoint such officers and other employees as it considers necessary to assist the Development Commissioner in the performance of his functions in the SEZs established by a Developer on such terms and conditions as it deems fit.
Every Development Commissioner, officers and other employees shall be entitled to such salary and allowances and subject to such terms and conditions of service in respect of leave, pension, provident fund and other matters as may, from time to time, be specified by the Central Government.

Every Development Commissioner shall take all steps in order to discharge his functions under the Act to ensure speedy development of the SEZ and promotion of exports. [Section 12(1)]

Functions of Development Commissioner [Section 12(2)]: Functions of Development Commissioner are as follows –
(a) Guide: To guide the entrepreneurs for setting up Units in the SEZ.
(b) Promotion: To ensure and take suitable steps for effective promotion of exports from the SEZ.
(e) Co-ordination: To ensure proper coordination with Central or State Government Departments or agencies.
(d) Monitor: To monitor the performance of the Developer and the Units in SEZ.
(e) Discharge other functions: To discharge such other functions as may be assigned to him by the Central Government under the Act or any other law for the time being in force.
(f) Delegated by Board: To discharge such other functions as may be delegated to him by the Board.

Question 9.
Discuss the functions of Special Economic Zone Authority under Special Economic Zones Act, 2005. [June 2017 (3 Marks)]
Answer:
Development Commissioner [Section 11]:

Central Government may appoint any of its officers not below the rank of Deputy Secretary to the Government of India as the Development Commissioner of one or more SEZs.
Central Government may appoint such officers and other employees as it considers necessary to assist the Development Commissioner in the performance of his functions in the SEZs established by a Developer on such terms and conditions as it deems fit.
Every Development Commissioner, officers and other employees shall be entitled to such salary and allowances and subject to such terms and conditions of service in respect of leave, pension, provident fund and other matters as may, from time to time, be specified by the Central Government.

Every Development Commissioner shall take all steps in order to discharge his functions under the Act to ensure speedy development of the SEZ and promotion of exports. [Section 12(1)]

Question 10.
State the prime functions of the Development Commissioner as incorporated in the Special Economic Zones Act, 2005. [Dec. 2019 (5 Marks)]
Answer:
Development Commissioner [Section 11]:

Central Government may appoint any of its officers not below the rank of Deputy Secretary to the Government of India as the Development Commissioner of one or more SEZs.
Central Government may appoint such officers and other employees as it considers necessary to assist the Development Commissioner in the performance of his functions in the SEZs established by a Developer on such terms and conditions as it deems fit.
Every Development Commissioner, officers and other employees shall be entitled to such salary and allowances and subject to such terms and conditions of service in respect of leave, pension, provident fund and other matters as may, from time to time, be specified by the Central Government.

Every Development Commissioner shall take all steps in order to discharge his functions under the Act to ensure speedy development of the SEZ and promotion of exports. [Section 12(1)]

Question 11.
Explain the functions and powers of the Approval Committee under the Special Economic Zone Act, 2005. [Dec. 2019 (5 Marks)]
Answer:
Section 14 of the Special Economic Zones Act, 2005 empowers every Approval Committee to discharge the functions and exercise the powers in respect of the following matters:
(a) approve, the import or procurement of goods from the Domestic Tariff Area, for carrying on the authorised operations by a Developer in the Special Economic Zone;

(b) approve providing of services by a service provider from outside India or from the Domestic Tariff Area for carrying on the authorised operations by the Developer, in the Special Economic Zone;

(d) approve, modify or reject proposals for setting up Units for manufacturing or rendering of services or warehousing or trading in SEZ in accordance with the provisions of section 15(8) of the Act;

(e) allow on receipt of approval foreign collaborations and foreign direct investments, including investments by a person outside India for setting up a Unit;

(f) monitor and supervise compliance of conditions subject to which the letter of approval or permission, if any, is granted to the Developer or entrepreneur; and

(g) perform any other functions as may be entrusted to it by the Central Government or the State Government concerned, as the case may be.

Question 12.
International Financial Services Centre (IFSC) companies are attractive for foreign investment. Comment. [June 2018 (5 Marks)]
Answer:
(a) Meaning of IFSC:

International Financial Service Centre (IFSC) is a hub of financial services within a country, which has laws and regulations different from the rest of the country.
Usually, these centres have low tax rates and flexible regulations for securities and currency trading, banking and insurance, which makes them attractive for foreign investment.
An International Financial Services Centre (IFSC) caters to customers outside the jurisdiction of the domestic economy.
It can be said that these centres deal mainly with the flow of money, financial products and services across borders.
London, New York and Singapore can be counted as global financial centres.
It can be Specified as IFSC Public company or a Specified IFSC Private Company.

(b) Services offered by IFSC(s):

Fundraising services for individuals, corporations and governments.
Asset management and global portfolio diversification are undertaken by pension funds, insurance companies and mutual funds.
Wealth management.
Global tax management and cross-border tax liability optimization, which provides a business opportunity for financial intermediaries, accountants and law firms.
Global and regional corporate treasury management operations that involve fundraising, liquidity investment and management and asset-liability matching.
Risk management operations such as insurance and reinsurance.
Merger and acquisition activities among transnational corporations.

In exercise of powers u/s 462(1) of Companies Act, 2013, the MCA has exempted several exemptions to such International Financial Services Centre companies.

(c) Example: Gujarat International Finance Tec-City (GIFT City) has set up an international financial service centre in accordance with SEZ Act 2005.

Question 13.
Prepare a brief note for the directors of your company regarding exemption or benefits available to the Developer and entrepreneur under ‘ the Special Economic Zones Act, 2005.
Answer:
Exemptions, drawbacks and concessions to Developer and entrepreneur [Section 26(1)]: Every Developer and the entrepreneur shall be entitled to the following exemptions, drawbacks and concessions:
(a) Exemption from import duties: Exemption is available to Developer and the entrepreneur in respect of duties of customs under the Cus-toms Act, 1962 or the Customs Tariff Act, 1975 or any other law for the time being in force on goods imported into or service provided in an SEZ or to a Unit in SEZ and to carry on the authorized operations.

(b) Exemption from export duties: Exemption is available to Developer and the entrepreneur in respect of duties of customs under the Cus-toms Act, 1962 or the Customs Tariff Act, 1975 or any other law for the time being in force on goods exported from or services provided from SEZ or from by a Unit in SEZ to any place outside India.

(c) Exemption for Excise Duty: Exemption is available from duties of excise under the Central Excise Act, 1944 or the Central Excise Tariff Act, 1985 or any other law for the time being in force, on goods brought from DTA to SEZ/Unit in SEZ to carry on the authorized operations.

(d) Drawbacks: Drawback and other benefits are available on goods brought or services provided from the DTA into SEZ/Unit in SEZ. Similar benefits are also available for services provided in SEZ/Unit in SEZ by the service providers located outside India to carry on the authorized operations by the Developer or entrepreneur.

(e) Exemption from Service Tax: Exemption is available from service tax under Chapter-V of the Finance Act, 1994 on taxable services provided to a Developer or Unit to carry on the authorized operations in SEZ.

(f) Exemption from Securities Transaction Tax (STT): Exemption is available from the STT leviable u/s 98 of the Finance Act, 2004 in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre.

(g) Exemption from Central Sales Tax (CST): Exemption is available from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 if such goods are meant to carry on the authorized operations by the Developer or entrepreneur.

Conditions for availing exemptions [Section 26(2)]: The Central Government may prescribe the manner in which and the terms and conditions subject to which the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur.

Question 14.
Section 34 of the Special Economic Zones Act, 2005 casts upon the Authority a duty to undertake such measures for the development, operation and management of the Special Economic Zone. Explain. [Dec. 2018 (4 Marks)]
Answer:
As per Section 34 of the Special Economic Zones Act, 2005, subject to the provisions of the Act, it shall be the duty of each Authority to undertake such measures as it thinks fit for the development, operation and management of the SEZ for which it is constituted.

In addition to the above, the Authority shall discharge the following functions:

To develop infrastructure in the SEZ.
To promote exports from the SEZ.
To review the functions and performance of the SEZ.
To levy user or service charges or fees or rent for the use of properties belonging to the Authority.
To perform other prescribed functions.

Question 15.
Explain under what circumstances the Central Government is empowered to supersede any authority constituted under Special Economic Zones Act, 2005? What will be the consequences of such power is exercised by Central Government? [June 2019 (5 Marks)]
Answer:
Power to supersede Authority [Section 40( 1)]: The Central Government shall have the power to supersede the SEZ Authority by issuing notification for a period not exceeding 6 months if the Central Government is of the opinion that, the Authority:

is unable to perform duties imposed on it by or under the Act;
has persistently made default in the performance of the duties;
has exceeded or abused its powers;
has wilfully or without sufficient cause has failed to comply with any direction issued by the Central Government u/s 38.

The opportunity of being heard: Before issuing such notification, the Central Government shall give reasonable time to that Authority to make representation against the proposed supersession and shall consider the representations of the Authority.

Effect of notification [Section 40(2)]: Upon the publication of a notification superseding the Authority –

The Chairperson and other Members of the Authority shall vacate their offices.
All the powers, functions and duties of the Authority shall be exercised and performed by such person(s) as the Central Government may direct.
All property vested in the Authority shall vest in the Central Government.

Extension of the period of supersession and reconstitution of Authority [Section 40(3)]: On the expiration of the period of supersession, the Central Government may –

Extend the period of supersession for such further period not exceeding 6 months; or
Reconstitute the Authority.

Question 16.
How the “Special Economic Zone Authority” is constituted under Special Economic Zones Act, 2005? Which are the defects or irregularities for which any act or proceedings of authority cannot be invalidated? [June 2019 (4 Marks)]
Answer:
Constitution of Authority [Section 31(1)]: The Central Government shall constitute by notification in the Official Gazette for every Special

Economic Zone, an Authority to be called the (name of the Special Economic Zone) Authority to exercise the powers and functions assigned to it under the Act.

Authority to be a body corporate [Section 31(2)]: Every Authority shall be a body corporate having perpetual succession and a common seal, with a power to acquire, hold and dispose of property, both movable and immovable, and to contract and shall by the said name sue and be sued.

Head Office [Section 31(3)]: The head office of every Authority shall be at such place as the Central Government may specify in the notification.

Branch Office [Section 31(4)]: Any Authority may, with the previous approval of the Central Government, establish branch offices at other places in India. Act of an Authority not invalidated due to defect etc.

[Section 31(9)]: Act or proceeding of an Authority shall not be invalidated merely by reason of:

Any vacancy in, or any defect in the constitution of, the Authority; or
Any defect in the appointment of a person acting as a Member of the Authority; or
Any irregularity in the procedure of Authority (not affecting the merits of the case).

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