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Essar Steel calls time on SEZ

New Delhi, Nov. 29: Recession has forced Essar Steel and two IT firms to apply for denotification of their special economic zones.

The Board of Approval for Special Economic Zones (BoA) is likely to consider their requests in December.

Faced with a falling global demand for the commodity, Essar Steel wants to surrender the SEZ status of a 247-hectare area in Hazira, Gujarat, that has four units. The SEZ was notified in September 2006.

The board of approval, headed by commerce secretary Rahul Khullar, is expected to take a call on December 15.

In its application to the BoA, Essar said it would surrender the SEZ status of all the four units in the zone. “The export market is still a matter for concern. We have to look for alternatives,” Essar sources said.

The company has invested about Rs 10,000 crore in the units. These units will no longer avail themselves of the tax benefits for SEZs and will function as normal industrial units.

The two other firms to apply for denotification are Royal Palms India — for its SEZ in Goregaon, Mumbai — and SNP Infrastructure (Kanchipuram, Tamil Nadu).

The developers want the government to denotify the zones as “potential investors have backed out” because of the slowdown.

The issue of denotification had invited some controversy last year. Initially, the commerce ministry had maintained that there were no provisions for denotification in the SEZ Act of 2005. Subsequently, the law ministry said the BoA had the power to scrap zones.

The finance ministry said developers would have to refund the taxes.

“Once the company repays the tax benefits and we get a confirmation from the customs department and the development commissioner, the board will give the final go-ahead to denotify the zones,” commerce ministry officials said.

The SEZ Act of 2005 became effective from February 10, 2006, under which SEZ units and their developers enjoyed certain tax and income tax reliefs.

Under the act, developers are entitled to 100 per cent tax exemption on profits for 10 years on the trot in the first 15 years of operation. Units in the zones are entitled to a 100 per cent tax exemption on export profits in the first five years of operations.

They are eligible for 50 per cent exemption in the next five years, while from the eleventh to the fifteenth year, they get a 50 per cent waiver on reinvested profits.

Investments of more than Rs 1 lakh crore have been made in the 98 SEZs.

The BoA has so far notified 335 SEZs, while another 147 have got in-principle approvals.

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