Public Accounts Committee (PAC) called for Deterrent Penal Provisions against Units in SEZs

Parliament's Public Accounts Committee on 23 August 2012 decided to bring the three latest CAG reports on coal allocations, GMR-run Delhi airport and Reliance Power, onto its agenda for the year 2012.

The Public Accounts Committee (PAC) in its meeting on 23 August 2012 called for deterrent penal provisions against units in Special Economic Zones which default duty payments to the exchequer. PAC in a report adopted in the meeting recommended an oversight mechanism which would ensure no misuse of the SEZ policy.

The PAC panel based its findings on a sample of 22 SEZ units. The panel found that out of an overall export of Rs  7149.23 crore made by 22 SEZ units, the actual export content was only Rs 1999.27 crore (28%) and the remaining Rs 5149.96 crores (72%) related to Domestic Tariff Area earnings.

Panel Findings & Recommendations

The report stated that low figures of actual physical export of goods were typical of most SEZ units. The aim of SEZ Act was to boost exports and earning of foreign exchange by giving these units certain duty waivers and incentives. PAC however observed that there is no mandatory requirement of undertaking exports in the SEZ legislation. Since the units located in SEZs enjoy tax benefits and are expected to fuel economic growth, PAC recommended revisiting the scheme.

The committee recommended that all SEZs undertake physical export of at least 51% of their product, and even import tax waivers raw material for goods falling under the Domestic Tariff Area (DTA) is to be considered on the credit account of the SEZ firms.

It was noted that SEZ units could sell their goods, including by products, and services in DTA on payment of applicable duty including at nil rate with no requirement to payback the duty foregone on inputs used in the clearance of products. This policy will put SEZ units at a distinctly advantageous position compared to similar units in the DTA.