In a recent gazette notification to amend the Special Economic Zones (SEZ) Rules, 2006, the Ministry of Commerce & Industry has allowed dual use (both by the SEZ and the domestic tariff area entities) of “social or commercial infrastructure and other facilities”, within non-processing areas. The core commercial activity of SEZ units is undertaken in the processing area, and the rest of the land in the SEZ is the non-processing area.
It is pertinent to note that non-processing areas will be divided into two zones: (1) where social or commercial infrastructure and other facilities are permitted to be used by both the SEZ and the domestic tariff area entities, and (2) one that will be exclusively used by SEZ units (this area will be bonded and physically segregated from the rest). While the first category will not enjoy tax incentives, the second will be eligible for tax concessions.
Notification lays out restrictions for duty-paid dual-use non-processing areas - The individual caps are: (1) housing (capped at 25%), (2) commercial (capped at 10%), (3) open area and circulation (not less than 45%) and (4) social and institutional infrastructure including schools, colleges, socio-cultural centers, training institutes, banks and post offices in the remaining area.
The notification is positive for SEZ developers with land monetization plans (will potentially lead to an uptick in land leased and pricing), given that it will lead to better economics for operators of social or commercial infrastructure facilities in the dual use non-processing area. The positive impact, though, for an SEZ developer, has been somewhat curtailed given that the dual-use non-processing area will get no tax concessions. The developer must refund prior central or state tax concessions availed for creation of the infrastructure
