Denotified SEZs to refund sops

Denotified SEZs to refund sops
The Economic Times, June 25, 2009, Page 9

Amiti Sen NEW DELHI

DEVELOPERS of denotified special economic zones (SEZs) will have to refund tax sops given by the government, according to new rules on the anvil, a government official said. The government has found it necessary to draw up rules for denotification of SEZs after some developers recently sought permission to close projects due to the economic slowdown and contraction in demand.

The new rules are likely to disallow denotification if a considerable amount of construction has happened in the zone or if units have come up there. Denotification would be voluntary.

A SEZ developer gets a number of tax sops, including exemption from customs duties and excise on goods used in the project and from payment of income tax. “All the sops enjoyed by the developer have to be necessarily paid back with interest before the denotification is allowed. This will be a prominent part of the rules,” the official said.

The rules will be kept flexible to deal with fresh issues raised by new cases, the official said, on the condition of anonymity. “Once the rules are framed by the government, they would act as a guide for the board of approval (BoA) for SEZs to deal with denotification applications. As and when the board feels the need, appropriate changes or additions could be made to the rules,” he added.

The BoA for SEZs, which is chaired by the commerce secretary and includes members from finance, revenue, home and agriculture departments, decides on all applications related to SEZs, including approval, notification as well as denotification.

There would also be no denotification if the developer does not want it. “There would be no coercion. If developers are law-abiding and have not broken any rules, then the government cannot denotify their zones,” the official added.
Earlier this month, real estate major DLF got inprincipal approval to denotify four of its IT/ITES SEZs. The government will formally denotify the zones once DLF pays back all the tax saved, pegged at Rs 6-7 crore, through exemption from customs, excise, service tax and income tax. The amount is being verified by the commerce department.

Raheja Universal has also applied for denotifying its IT/ITES SEZ in Navi Mumbai, and reducing by half the size of its second SEZ in the region.

“Once we have the denotification rules in place, it will be easier for the BoA to decide on cases of denotification as they will have set rules to follow. We would also be adhering to the law ministry’s view that if something can be legally notified, there should also be provisions for its denotification,” the official added.

As of March 31 2009, the government has formally approved 568 SEZs in the country, of which 311 have been notified and ready to start operations, with 90 already operative.