Tax Position of a business established in a SEZ which Does not export its goods but sells only in India

Can a business established in an SEZ sell goods in Domestic Tariff Area (DTA) that is within the country, and still claim all the tax benefits that units exporting out of SEZ are entitled to?

Tax Benefits to business established in SEZ which Does not exports its goods but sells only in India

Well, many claim that SEZs should be given all the tax benefits on par with export transaction for transaction in the DTA to encourage the growth of SEZs and boost production within such SEZs.

What are Special Economic Zones? What Tax Benefits SEZ are entitled to?

Special Economic Zones (SEZ) are engines of economic growth; they are developed as separate geographical areas with their own well develop infrastructure set-up as such they help boost manufacturing, increase exports, and generate employment.

Accordingly, SEZs enjoy many tax advantages. Treating as foreign territories for trading and taxation purposes. As distinct trade area, they enjoy differential treatment for trade and tax laws, when compared to businesses set up in the other areas.  Towards achieving economic growth, the government of India introduced the SEZ Act in the year 2005, and the SEZ policy came into effect in 2006.

Tax Benefits for businesses that operate out of SEZs:

With a view to boost the economic growth, the SEZs have come into existence and government encourages development of such SEZs by offering various tax, and regulatory incentives. Businesses and SEZ developers both enjoy a wide range of regulatory and tax benefits. Some of such benefits include:

Incentives offered to Businesses, including foreign direct investments, to boost growth through SEZs:

1. Single window clearance at the central and state level for all approvals
2. SEZs can borrow up to $500 million in a year through recognized banks without any maturity restrictions.
3. Duty free import and export of goods for the operation and maintenance of SEZ businesses.
4. Exemption from Minimum Alternate Tax (MAT) under section 15JB of the Income Tax Act.
5. Businesses operating out of SEZs can claim 1000% income tax, on income from exports, exemption for the first 5 years under section 10AA, thereafter for the next 5 years this exemption would go down to 50%,  and for the next 5 years these businesses can claim IT exemption for the ploughed back profits.
6. Central Sales Tax exemption
7. Service Tax exemption

Well, there are many such incentives up for grabs for developing such SEZs too! Such businesses enjoy leniency from regulations, as well!

Tax Policy for SEZs when selling within the country in DTA

Most of the benefits listed above are applicable for export transactions, but many businesses within a SEZ may sell its products, goods within the country in the DTA.

Some businesses advocate the tax benefits be applied for transactions within the country too! However, currently the tax policy for within the country sales or DTA transactions by a SEZ business:

Well, sale from SEZ to DTA will attract VAT, according to the state VAT policy. However, if the state offers exemption you need not pay VAT. If Vat is exempted, then you will have to pay the 4 percent special CVD.

If you are under the EPCG Zero Duty scheme, then you are exempt from EPCG, however, if you are under EPCG 3 percent scheme, you are liable for 3.9 percent as EPCG including cess.

Related Read- No exemption of SAD on goods cleared from SEZ/FTWZ to DTA for self consumption and amendments in the Cenvat Credit Rules, 2004 and the Central Excise Rules, 2002