The government today clarified the policy concerning the transfer of used capital goods into special economic zones (SEZ) from outside of the enclaves, stating that a company can shift the equipment to set up units into the SEZs. However, the value of such second-hand goods should not exceed (20 per cent) to avail of the tax benefits.
This comes after a spate of incidents happened concerning some of the large-scale information technology (IT) companies such as Wipro, Mphasis and Geometric. In some of these cases, the development commissioner (DC), in charge of the SEZs, permitted the transfer of the goods from the STPI (Software Technology Parks of India) unit to SEZ and issued a letter of approval, which was later cancelled.
“There are no provisions in the SEZ Act/Rules preventing such a transfer of goods. The only deterrent for transfer of such goods is not getting the exemption under the Income Tax Act when the value of the used goods exceed 20 per cent of the total capital goods installed by the unit in a year,” the department of commerce said in a notification today.
According to tax consultants and experts, the clarification would provide a much-needed relief to SEZ developers, as well as the units located in them. “Due to lack of clarity in the policy, a lot of IT companies were facing problems in shifting their units from STPIs to SEZs. The law was interpreted differently by the companies and the DCs concerned. With this clarity, hopefully, the DCs would now be able to issue the approval letters without any problem,” said Kalpesh Maroo, partner, BMR Advisors.
The ministry of commerce and industry had issued such a clarification pertaining to this particular law earlier. It had said prior approval of the DC of that zone would be required before such a transfer takes place.
“The government had earlier said 80 per cent of the equipment should be new and the new unit (SEZ) should not be formed by reconstruction or splitting of the existing undertaking (STPI). This was done to encourage investment. This provision is old and already exists in law in some form or the other and will have no impact on the IT companies. It has now only been made explicitly clear,” said Anil Chanana, chief financial officer, HCL Technologies. In the backdrop of a global economic downturn, several IT companies had been pushing for relaxation in the laws pertaining to procurement of used capital goods from domestic tariff area (DTA) to SEZ units in order to ease the cost burden. “The Department of Commerce has only clarified on the way this directive is to be implemented as there were interpretation issues. In case of large projects, special equipment needs to be moved from the STPIs to SEZs and this operational issue has been now clarified,” said Nasscom President Som Mittal.