We want to dilute the equity of our Special Economic Zone (SEZ) company by transfer of promoter’s equity, transfer of developer joint venture or amalgamation/merger of the developer company. We understand that this is not being permitted, as it would amount to sale of land, which is not permissible under the SEZ Act/Rules. Is there any way to get around the restriction?
The Board of Approvals (BoA) had turned down requests for dilution of equity in its meeting dated 25th March 2011, as the Revenue Department objected that it would amount to sale of land. However, the Law Ministry, to whom the matter was referred, clarified that the identity of a company does not change with a change in management or pattern of shareholding. Further, a share is not a sum of money. It represents an interest measured by a sum of money. Therefore, change in equity structure through transfer/sale/amalgamation, etc., and consequent change in the management cannot be said to amount to transfer or sale of land. The land would continue to vest in the company and it may be considered as sale or transfer of the business of the company but not a sale of land, the Law Ministry said.
The BoA accepted the above position and in its meeting dated 13.09.2011 (item no. 48.10 of the minutes) decided that the requests of transfer of equity be approved, subject to the following conditions:
(a) Seamless continuity of the SEZ activities with unaltered responsibilities and obligations for the altered developer entity;
(b) Fulfilment of all eligibility criteria applicable to developers, including security clearances etc., by the altered developer entity and its constituents;
(c) Applicability of and compliance with all Revenue / Company Affairs /SEBI rules which regulate issues like capital gains, equity change, transfer, taxability, etc.
Our manufacturing unit is located in the excise-free area of Uttarakhand and so we are not eligible to take Cenvat Credit. We use many input services and export some of our goods. Can we get exemption or refund of the tax paid on input services?
There is no exemption of service tax paid on input services specific to units in excise-free areas. The usual exemptions available for all exporting units -- i.e., 18/2009-ST dated 7.7.2009 for two services (where you don’t have to pay the tax at all) and 17/2009-ST dated 7.7.2009 for 16 services (available by way of refund) -- are available to your unit in Uttarakhand also. For other 101 input services, the units outside the excise-free zones that pay excise duty can take Cenvat Credit of tax paid but the units in excise-free zones cannot take Credit. The cost has to be borne by such units, even for export goods.
Can we send goods imported under advance authorisation to another of our own manufacturing units for job-work?
Yes, in accordance with Para 4.5 of Handbook of Procedures, Vol. 1 and Para 5.4 of CBEC Circular no. 30/2005-Cus dated 12.07.2005.