Saturday, July 07, 2007

SEZ old machinery rules set to ease ,

SEZ old machinery rules set to ease

Posted online: Saturday, July 07, 2007 at 0138 hours IST

NEW DELHI, JUL 6: Units in Special Economic Zones (SEZs) will soon be
permitted to shift in second-hand equipment worth up to 20% of their
total investment. This is a departure from existing provisions in the
SEZ Rules which specify that the entire investment in SEZs should be
'fresh', thereby disallowing the relocation of second-hand equipment
from the domestic tariff area (DTA) to SEZs.
To prevent migration from the DTA to such tax-free enclaves, the SEZ
policy had earlier specified that no unit that shifted old machinery
would be given approval.

A proposal to ease the old rules has been forwarded by the commerce &
industry ministry to the law ministry. Government officials said this is
to address difficulties faced by certain sectors in obtaining
much-needed second-hand capital goods. "There are some capital goods
like testing equipment, routers and network equipment which are
considered specialised and very difficult to purchase quickly when a
unit sets up shop in an SEZ. Such equipment may be allowed to shift from
the DTA to an SEZ," an official said.

However, such shifting of old equipment will be considered on a
case-to-case basis and "only where we are completely convinced about the
necessity", the official said, pointing out that even in such cases, the
government would ensure that 80% of the investment is fresh. The amended
rules would also clarify that there was no restriction on second-hand
vehicles from carrying goods in and out of SEZs.

One of the objectives of the SEZ policy is to attract fresh investment
in terms of money and machinery.

• SEZ policy had disallowed shifting of old machinery to prevent migration
• However, some sectors faced difficulties in obtaining critical
equipment when setting up shop in SEZs
• Cases would still be considered on a case-to-case basis, within the
overall 20% cap on old machinery

Experts see the government's new proposal as providing a breather to
units making huge investments. "This would be a welcome change as it
would provide operational flexibility for SEZ units. Earlier, there were
some genuine cases where the restrictions caused a lot of bottlenecks.
Besides, there was no clarity regarding the provision regarding this
rule on second-hand equipment," said Abhishek Goenka, partner &
executive director, BMR & Associates.

"This 20% value is minimal, as 80% coming in is fresh investment. It is
better to use such critical equipment than throw it away as scrap. Even
in the Budget, the finance ministry had amended the Income-Tax Act to
this effect. Now, the SEZ Rules will be aligned to that," said LB
Singhal, director general, Export Promotion Council for EOUs & SEZs.


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