The Commerce and Industry Minister, Mr Anand Sharma, is likely to meet 
the Finance Minister, Mr Pranab Mukherjee, soon again to dispel the Finance Ministry’s “doubts” on special economic zones (SEZ) and to ensure continued tax incentives for new units in SEZs, the Commerce Ministry officials said.
Mr Sharma had met Mr Mukherjee recently to discuss the implications of the Direct Taxes Code (DTC) on SEZs. The DTC proposes to do away with the income tax exemptions to units that come up in SEZs after the implementation of the Code from April 1, 2011.
According to developers, this would affect the viability of SEZ projects as no new unit would come into SEZs.
Misuse of scheme
Commerce Ministry officials said the Finance Ministry had pointed out allegations of misuse of the SEZ scheme, including transfer of businesses from domestic tariff area (DTA) to SEZs to escape taxes.
SEZs are tax-free enclaves and DTA is the area outside SEZs where taxes and duties apply.
Commerce Ministry officials claimed that it is not easy to shift businesses from DTA to SEZs. The Unit Approval Committee, in-charge of giving clearances to activities of units in SEZs, comprise senior officials, including from the income-tax and customs departments, who ensure that no one attempts to shift businesses from DTA to SEZ to escape tax liabilities, the officials said.
“If there is any such attempt, such companies can be denied income-tax (I-T) exemptions,” a senior Commerce Ministry official said.
“Besides, if a unit in SEZ buys from DTA and exports it directly, it does not get any I-T exemption. For availing I-T exemption, there has to be manufacturing in SEZs,” the official explained.
The Finance Ministry was also apprehensive about SEZs being used by some companies to do circular trading (a fraudulent trading scheme involving illegal activities including money laundering). However, the Commerce Ministry officials said all the development commissioners of SEZs were told last September that they should do all they can to prevent circular trading or else face severe action.
“If any illegal activity takes place in SEZs with the connivance of officials, stringent action should be taken against such officials and the companies involved. But it does not mean that a good scheme such as an SEZ scheme, which has resulted in exports worth Rs 2.2 lakh crore, given employment to five lakh people and attracted investments of about Rs 1.5 lakh crore, should be killed,” the Commerce Ministry official said.
The Finance Ministry also wants SEZ activities to be inspected by all the investigating agencies of Customs, Excise and Central Board of Direct Taxes departments. But the Commerce Ministry wants the Finance Ministry to notify a single investigating agency for SEZs as “multiple investigating agencies will only lead to unnecessary harassment and delays.”
“We are open to be questioned on any activity regarding SEZs. We can provide any information. But what we don’t want is baseless allegations to kill a good scheme like the SEZ scheme,” the Commerce Ministry official said.
want to know the power ministry and commerce ministry power on sez units