Central Government Notifies Special Economic Zones (Fifth Amendment) Rules, 2023

Introduction:

The Central Government has issued the Special Economic Zones (Fifth Amendment) Rules, 2023, (“Rules”) to further amend the existing Special Economic Zones Rules, 2006 in exercise of the powers vested by Section 55 of the Special Economic Zones Act, 2005 (28 of 2005) The said Rules, shall come into force upon their publication in the Official Gazette. It signifies a pivotal step towards fostering a conducive environment for economic growth and development within these designated zones. Through the meticulous amendment process, the Central Government seeks to address contemporary challenges, promote efficiency, and align special economic zones (“SEZ”) regulations with evolving economic dynamics.

Key Amendments

 In a significant development, the Department of Commerce, Ministry of Commerce and Industry through its notification dated December 6^th, 2023, has inserted Rule 11B which pertains to non-processing areas for Information Technology or Information Technology Enabled Services Special Economic Zones vide the Special Economic Zones (Fifth Amendment) Rules, 2023.

Some of the significant amendments brought forth are as follows:

1. Upon request of a developer of information technology (“IT”) or information technology enabled services (“ITES”) SEZ, the board of approval may permit the demarcation of a portion of the built-up area of an IT and ITES SEZ as a non-processing area;
2. In compliance with the terms and conditions specified by the board of approval, the non-processing area may be used for setting up and operation of business engaged in IT and ITES;
3. The non-processing area shall consist of complete floor and part of a floor shall not be demarcated as a non-processing area;
4. To ensure adequate screening of movement of persons as well as goods, in and out of the premises, appropriate access control mechanism shall be set-up for SEZ unit and businesses engaged in IT or ITES in non-processing areas;
5. The demarcation for non-processing areas shall be permitted only after the developer repays (without any interest) any tax benefits attributable and availed in respect of the non-processing areas, which is determined basis a certificate issued by a Chartered Engineer. Demarcation shall not be allowed if it results in decreasing the processing area to less than fifty percent of total area or the limits stipulated in the Rules;
6. The businesses engaged in IT and ITES in a non-processing area shall not avail of any rights or facilities available to SEZ units. Further, they shall also not be subject to tax benefits with respect to operation and maintenance of common infrastructure and facilities. Moreover, they shall comply with the provisions of all Central Acts, rules and orders applicable to them, akin to that of any other entity operating in a domestic tariff area.