The exemption is subject to strict compliance. The annexure attached to the notification lists five key conditions that every SEZ unit must strictly comply with.
Condition 1: Filing of Bill of Entry on the Common Portal and Assessment by Proper Officer
The first condition is largely procedural and absolutely mandatory. It requires the SEZ Unit to file the Bill of Entry for home consumption on the ICEGATE portal, and the Bill of Entry must be assessed by the proper officer.
Condition 2: Minimum 20% Value Addition Through Genuine Manufacturing
Moving on to the second condition. This one is about substance, not just paperwork. The goods for which the exemption is claimed must have been manufactured by the unit in the SEZ, and they must have undergone a minimum value addition (Also referred as VA) of at least 20%. The notification provides a specific formula for calculating this value addition: VA = A – (B + C) divided by (B + C), multiplied by 100.
A = Assessable Value of the goods removed into the DTA by the unit, which is essentially the price at which the goods are being sold or the value determined for customs purposes.
B = Sum total of the cost, insurance, and freight value of all imported inputs used for the manufacture of such goods
C = Value of inputs procured from the DTA itself that were used for the manufacture of such goods.
To put this formula in plain language, the unit must take the final sale value of the goods, subtract the total cost of all imported materials and all locally procured materials that went into making those goods, and then divide the result by the total material cost. The final number, multiplied by 100, gives the percentage of value that the unit itself added through its manufacturing process. This percentage must be at least 20%.
Condition 3: The 30% Cap on DTA Sales
The third condition is about quantity. It imposes a clear limit about the quantity of the goods cleared into DTA. In any given financial year, the total value of goods removed to the DTA while availing this exemption cannot go beyond 30% of the highest annual FOB (free on board) value of exports of manufactured goods that the unit has achieved in any one of the three immediately preceding financial years.
SEZ Units cannot use this route to sell more than 30% of your best annual export performance into the domestic market. The original motive of the SEZ Act remains intact and unchanged: that the primary focus must remain on exports. So, suppose an SEZ unit had its best export year at ₹100 crores. In that case, goods only up-to worth ₹30 crores can be removed into the DTA under this concessional scheme.
Condition 4: No Double Benefits on Inputs
The fourth condition is about preventing something that is commonly called “double dipping.” It says that the unit cannot claim any benefit of duty drawback or any other export benefit available under the Foreign Trade Policy in respect of any of the inputs used to manufacture the goods that you are removing to the DTA.
It signifies that an SEZ unit cannot claim both i.e. the concessional duty benefit under this notification and also other export incentives like duty drawback for the same inputs. This condition exists precisely to prevent units from gaining an unfair advantage by claiming multiple benefits on the same set of inputs.
Condition 5: Production of Certificate and Declaration at the Time of Removal
Finally, the fifth condition. This one kick in at the time the goods are actually removed from SEZ to DTA. At that moment, the SEZ Unit must produce a certificate from the jurisdictional Development Commissioner. That certificate has to confirm three things:
- The date on which your unit commenced production in the SEZ.
- The annual FOB value of exports of manufactured goods made by your unit in each of the preceding three financial years.
- The extent of value addition you have achieved, as prescribed in Condition No. 2.
In addition to the certificate a declaration has to be furnished, stating that failure to comply with the conditions of the notification, full duty leviable on the exempted goods will be paid by the importer or the person who avails the exemption.