Union govt allows companies to expand SEZ operations into other zone

Companies operating in one special economic zone (SEZ) can now expand their operations into another SEZ with the union government giving green signal to it. The move is expected to draw more investors to these exports enclaves.

However, the SEZ policy is not clear on the expansion aspect. So some of the companies had to await approval of the Board of Approval (BoA), which is again like a new application.

Even though companies are allowed to expand into another SEZ, they have to do it as a new unit. But they can avail tax benefit for the unexpired period.

For instance, Sony India Software Centre which is currently operating in Vrindavan Tech Village SEZ in Bangalore want to expand its operations in the nearby RMZ Ecoworld Infrastructure SEZ. The company had asked for approval and the BoA recently gave its nod. The Board has asked Sony to start as a fresh unit in the second SEZ. In this regard, the company would have to apply for a fresh license, but the income tax benefits will only be applicable to the unexpired period (7 years for this company).

Officials of commerce department revealed that companies needn’t seek BoA nod to extend operations to another SEZ. As per SEZ policy, shifting of any business from domestic tariff areas (non SEZS) to SEZs is not allowed and this bothered many companies over SEZ to SEZ expansion as well.

Sources said that Sony was also concerned about the transfer, but the BoA gave green signal to it. The board made it clear that the companies have to ensure smooth operations which can assure good investments.

Commerce department officials clarified that if something similar happens in the BoA meeting in future, then they would clarify that there is no need to take the Board’s permission to expand to another SEZ as a new unit, as it will be in accordance to the policy.

Now, with this expansion to another SEZ, Sony has to transfer its employees from the existing unit to new unit.

For Sony to expand to another SEZ will also require transferring employees from the existing unit. In the BoA meeting, it was said that the apprehensions regarding the treatment of the issue of transfer of employees or contracts for the purposes of exemption under Section 10AA of I-T Act need to be suitably addressed by the revenue department in the given legal framework.

The chairman of the Export Promotion Council of EOUs and SEZs, PC Nambiar, said that Sony would not have tried for an expansion, but instead it could have started a Zs, said that there was no need for Sony to go for expansion but it could have very well set up a separate unit in the new SEZ and enjoyed tax benefits for the entire 15 years.

Oil and Natural Gas Corp (ONGC) has also taken permission to carry out drilling activities in the Sterling SEZ and Infrastructure Limited at Vadodara, Gujarat.

In the last month, some of the SEZ norms were made simpler, but still, the norms failed to impress developer. Following this move, around five SEZs decided to quit which include- that of Parsvnath developers and Reliance in Gurgaon.

Haryana and some other state governments are trying to attract developers by offering schemes that provide higher incentives compared to the SEZ policy.