An Overview of Special Economic Zone(SEZ)

Last Updated On: Nov. 10, 2021, 11:12 p.m.



The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received Presidential assent on the 23rd of June, 2005.

After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments.

It was based on the SEZ model in China, which is quite successful in terms of export competitiveness, employment generation, GDP growth, and attracting foreign investment.

The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A Single Window SEZ approval mechanism has been provided through a 19 member inter-ministerial SEZ Board of Approval (BoA).

As an export promotion scheme entitled ‘Special Economic Zone’ (SEZ) was introduced in the Export and Import (EXIM) Policy which came into effect from 1.4.2000.

This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations.

SEZs in India functioned from 1.4.2000 to 09.02.2006 under the provisions of the EXIM / Foreign Trade Policy and fiscal incentives were made effective through the provisions of relevant statutes.


The Main Objectives of the SEZ Act are:

  • Generation of Additional Economic Activity
  • Promotion of Exports of Goods and Services
  • Promotion of Investment From Domestic and Foreign Sources
  • Creation of Employment Opportunities
  • Development of Infrastructure Facilities


Features of the SEZ scheme are:

 A designated duty-free enclave to be treated as a territory outside the customs territory of India for the purpose of authorised operations in the SEZ.

  • Manufacturing or service activities allowed.
  • The SEZ unit shall achieve Positive Net Foreign Exchange to be calculated cumulatively for a period of five years from the commencement of production.
  • Domestic sales subject to full customs duty and import policy in force.
  • SEZ units will have freedom for subcontracting.
  • There will be no routine examination by customs authorities of export/import cargo.
  • No requirement of license to import


Supply from DTA to SEZs : Treated as Export for DTA

According to Section 2 (m)(ii) of the SEZs Act, 2005 supplying goods, or providing services, from the Domestic Tariff Area (DTA) to a Unit or Developer shall be treated as export.


Supply from DTA to SEZs : Not Treated as Import for SEZ

As per Section 2 (o) of the SEZ Act Supply from DTA to SEZs is Not Treated as Import from SEZ point of view.


Supply from SEZs to DTA : Not Treated as Export for SEZ

Section 2 (m)(ii) of the SEZs Act, 2005, is Not considers Supply from SEZs to DTA as Export for SEZ.


Supply from DTA to SEZs or SEZ to DTA : Treated as Inter-State Supply

Section 7 (5)(b) of the IGST Act, 2017 says – Supply of goods or services or both made to or by a Special Economic Zone developer or a Special Economic Zone unit shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.



Under GST Law only for the purpose of levying GST, SEZ Units are not to be considered as a part of India which means:

1. IGST Exemption:

Any supply to SEZ Unit has been made exempt vide Notification No. 64/2017 – Customs dated 5th July, 2017.

2. Import:

Any supply from SEZ Unit to DTA(Domestic Tariff Area) shall be treated as Imports and would be taxable under Reverse Charge Basis at the end of the recipient. Rest other thing it will be considered as part of India.

Therefore, suppliers of goods or services or both to any recipient in the SEZ can avail the following:

Make supply under bond or LUT without payment of IGST and claim credit of ITC; or

Make supply on payment of IGST and claim refund of taxes paid.




Copyright © 2013-2021 - All Right Reserved