Law relating to Special Economic Zones

Section 10 of the Special Economic Zones Act, 2005 provides that the suspension may be ordered by the Board of Approval, if in its opinion following circumstances exist:

•The developer is unable to discharge the functions for perform the duties imposed on him.

•The developer has persistently defaulted in complying with the directions of the Board.

•The financial position of the developer is such that he is unable fully and efficiently discharge the duties and obligations imposed on him by the letter of approval.

The section empowers the Board to suspend the letter of approval granted to the Developer for a whole or part of his area established as Special Economic Zone for a period not exceeding one year and appoint an Administrator to discharge the functions of the developer in accordance with the terms and conditions of the letter of approval and manage the Special Economic Zone accordingly.

However, no letter of approval can be suspended unless the Board has given to the Developer not less than three months’ notice, in writing, stating the grounds on which it proposes to suspend the letter of approval, and has considered any cause shown by the Developer within the period of that notice, against the proposed suspension.

It has been further provided that the Board may, instead of suspending the letter of approval permit it to remain in force subject to such further terms and conditions as it thinks fit to impose.

Section 10(4) makes any further terms or conditions so imposed binding upon the Developer. These terms and conditions have the force and effect as if they were contained in the letter of approval.

In case the Board suspends a letter of approval, it has been put under obligation to serve a notice of suspension upon the Developer and fix a date for suspension to take effect. Upon suspension of the letter of approval, the Special Economic Zone of the Developer vests in the Administrator for a period not exceeding one year or up to the date on which the letter of approval for such Special Economic Zone is transferred, whichever is earlier. This Section also contains provisions for transfer of the Special Economic Zone of a Developer whose licence has been suspended and take other actions consequent upon the suspension of the letter of approval. The Board of Approval has been empowered to issue such directions or formulate such scheme as it may consider necessary for operation of such Special Economic Zone.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 3(c) (Syllabus 2022).

Section 10 of the Special Economic Zones Act. 2005 empowers the Board of Approval to suspend the letter of approval granted to the Developer (XYZ Ltd.in this case) for a whole or part of his area established as Special Economic Zone for a period not exceeding one year and appoint an Administrator to discharge the functions of the developer in accordance with the terms and conditions of the letter of approval and manage the Special Economic Zone accordingly. The suspension may be ordered by the Board, if in its opinion following circumstances exist:

•The developer is unable to discharge the function for performing the duties imposed on him.

•The developer has persistently defaulted in complying with the directions of the Board.

•The developer has violated the terms and conditions of the letter of approval.

•The financial position of the developer is such that he is unable to fully and efficiently discharge the duties and obligations imposed on him by the letter of approval and

•the circumstances exist which render it necessary for it in public interest so to do, the Board may, on application, or with the consent of the Developer, or otherwise, for reasons to be recorded in writing, suspend the letter of approval, granted to the Developer for a whole or part of his area established as Special Economic Zone, for a period not exceeding one year and appoint an Administrator to discharge the functions of the Developer in accordance with the terms and conditions of the letter of approval and manage the Special Economic Zone accordingly.

Consequent upon appointment of an Administrator, the management of the Special Economic Zone of the Developer shall vest in the Administrator.

However, no letter of approval can be suspended unless the Board has given to the Developer not less than three months’ notice, in writing, stating the grounds on which it proposes to suspend the letter of approval, and has considered any cause shown by the Developer within the period of that notice, against the proposed suspension. It has been further provided that the Board may, instead of suspending the letter of approval, permit it to remain in force subject to such further terms and conditions as it thinks fit to impose.

Section 10(4) makes any further terms or conditions so imposed binding upon the Developer. These terms and conditions have the force and effect as if they were contained in the letter of approval.

Where the Board has given notice for suspension of letter of approval the Developer may, after prior approval of the Board, transfer his letter of approval to any person who is found eligible by the Board for grant of such approval.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 3(b) (Syllabus 2022).

Section 30 of the Special Economic Zones Act, 2005 provides that any goods removed from a Special Economic Zone to the Domestic Tariff Area be chargeable to duties of customs including anti-dumping, countervailing and safeguard duties under the Customs Tariff Act, 1975, where applicable, as leviable on such goods when imported. This section further provides that the rate of duty and tariff valuation, if any, applicable to goods removed from a Special Economic Zone shall be at the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty. This section empowers the Central Government to make rules specifying conditions in this regard.

Section 53 provides that a Special Economic Zone, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorised operations.

In the present case, M/S Green Textiles Pvt. Ltd. imported raw materials duty-free under the benefit available to SEZ units. However, by transferring part of those materials to its sister concern in the DTA, the company effectively removed goods from SEZ to DTA. Under Section 30, such removal attracts customs duty. The fact that both companies belong to the same corporate group is irrelevant because SEZ and DTA are treated as separate territories under Section 53. Accordingly, the company’s action is not legally valid. The transferred goods are liable to customs duties, and the company may face further consequences under the SEZ Act, 2005.

Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and shall be deemed to be territory outside the customs territory of Indiafor the purposes of authorised trade operations and duties and tariffs, subject to regulatory control.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 3(b) (Syllabus 2022).

Special Economic Zone Authority Section 31 of the Special Economic Zones Act, 2005 dealing with the Constitution of Authority empowers the Central Government to constitute by notification in the Official Gazette, an Authority for every SEZ to exercise powers conferred on and discharge the functions assigned to it.

In the case of an existing SEZ established by the Central Government the Central Government has been empowered to establish such authority within six months from the date of commencement of the Act, it is further provided that the person or authority (including Development Commissioner)

which is exercising control over on existing SEZ, shall Continue to do so till the authority is constituted.

Section 31(2) provides that every authority shall be a body corporate by name as assigned, having perpetual succession and a common seal, with power to acquire, hold and dispose of property, both movable and immovable and to contract and shall sue and be sued. Section 31(9) stipulates that no act or proceedings of an authority shall be invalidated merely by reason of:

(a)any vacancy in or any defect;

(b)any defect in the appointment of a person as its member; or

(c)any irregularity in the procedure of the authority not affecting the merits of the case.

Functions of Authority Section 34 of the Special Economic Zones Act, 2005 casts upon the Authority a duty to undertake such measures as it thinks fit for the development, operation and management of the respective Special Economic Zone. Section 34(2) provides for following measures:

(a)the development of infrastructure in the Special Economic Zone;

(b)promoting exports from the Special Economic Zone;

(c)reviewing the functioning and performance of the Special Economic Zone;

(d)levy, user or service charges or fees or rent for the use of properties belonging to the Authority;

(e)Performing such other functions as may be prescribed.

(5 Marks)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 4(c) (Syllabus 2022).

Section 40 of the Special Economic Zones Act, 2005 empowers the Central Government to supersede an Authority for a maximum period of six months if at any time, it is of the opinion that an Authority is unable to perform, or has persistently made default in the performance of the duty imposed on it by or under this Act or has exceeded or abused its powers, or has wilfully or without sufficient cause, failed to comply with any direction issued by it under section 38. However, before issuing a notification superseding an authority, the Central Government is required to give reasonable time to that Authority to make representation against the proposed suppression and consider the representations, if any, of the Authority.

Section 40(2) dealing with the consequences of publication of the notification superseding the Authority, provides that-a. the Chairperson and other Member of the Authority shall, notwithstanding that their term of office has not expired as from the date of supersession, vacate their offices as such; b. all the powers, functions and duties which may, by or under the provisions of the Act, be exercised or discharged by or on behalf of the Authority shall, during the period of supersession, be exercised and performed by such person or persons as the Central Government may direct; c. all property vested in the Authority shall, during the period of supersession, vest in the Central Government.

Section 40(3) also provides that on the expiration of the period of supersession specified in the notification, the Central Government may extend the period of supersession for such further period not exceeding six months or reconstitute the Authority in the prescribed manner.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 4(b) (Syllabus 2022).

Section 5 of the Special Economic Zone Act, 2005 stipulates broader guidelines to be considered by the Central Government, while notifying any area as a Special Economic Zone or an area to be included in the SEZ and in discharging its functions under the Act. These include:

(a)generation of additional economic activity;

(b)promotion of exports of goods and services;

(c)promotion of investment from domestic and foreign sources;

(d)creation of employment opportunities;

(e)development of infrastructure facilities; and

(f)maintenance of sovereignty and integrity of India, the security of the State and friendly relations with foreign States.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 4A(ii) (Syllabus 2022).