L.B. Singhal
Director General

Sub : Meeting with Shri Kamal Nath, Hon'ble Commerce & Industry Minister on EXIM Policy and Budget related issues and submission of presentation to Shri P. Chidambaram, Hon'ble Finance Minister.

Shri Sharad Jaipuria, Chairman of EPCES and myself had a meeting with Shri Kamal Nath, Hon'ble Commerce & Industry Minister on June 24, 2004. In this meeting Shri Dipak Chatterjee, Secretary, Ministry of Commerce, Shri G. K. Pillai, Additional Secretary and DGFT, Ministry of Commerce, Smt. Seema Bahuguna, Additional DGFT and other senior officers of the Ministry of Commerce were present. In this meeting a detailed discussion was held on all issues relating to EOUs and SEZ Units. It was emphasized that EOUs and SEZ Units are basically operating within the same parameters and they should be extended the same benefits. It was also emphasized that sunset clause under Section10B of the Income Tax Act upto 2009 should be removed and benefit of CST and Service Tax exemption should be extended to EOUs. In respect of SEZ, early enactment of SEZ Act, was emphasized for bringing out the stability in the regime.

Major issues covered in the discussions were as follows:-

A) ISSUES RELATING TO EOUs

1. Merger of EOU Scheme with SEZ Scheme and renaming "EOUs" as "Virtual SEZ Units"

2. Permission for import of duty free raw material for setting up of EOU

3. Exemption from CST for supplies from DTA to EOUs

4. Exemption from Service Tax for supplies to EOUs

5. DEPB benefits for supplies of goods from DTA to EOUs

6. Sale in Domestic market on the basis of duty foregone on imported inputs

7. Duty free import of natural rubber through all gateway ports

B) ISSUES RELATING TO SEZs

8. Enactment of SEZ Act and Rules

9. Availability of DEPB for supplies from DTA to SEZ Units for supplies affected from 1-4-03

10. Supplies by SEZ to DTA against free foreign exchange to be counted for discharge of export performance.

11. DTA sale from SEZ on the basis of duty foregone on imported inputs plus excise duty on the finished product.

12. Payment in Indian Rupees for supplies made by DTA to SEZ Units.

13. Subsidy for supplies of rubber latex to SEZ units

14. Indian SEZ Units should be allowed to tap the domestic market without any restrictions.

15. Suggestions relating to Gems & Jewellery Units in SEZs

a) Restriction in removal of unusable diamonds from SEZ to DTA

b) Removal of broken diamonds to DTA.

c) Allowing diamond imprest licence holders in DTA to source cut and polished diamonds from DTA in lieu of direct imports

d) Restriction in removal of cut and polished diamonds to DTA for purposes of sub-contracting of production or production process

C) ISSUES RELATING TO CBDT

16. Doing away with the Sunset clause of 2010 under Section 10B of the Income Tax Act for EOUs.

17. Income Tax exemption for DTA units converted into EOUs.

18. Income Tax exemption under Section 10A to existing SEZ units for a period of 10 years from the date of conversion of EPZs into SEZs

19. Income Tax exemption to trading units in SEZs under Section 10A of Income Tax Act.

20. Definition of Manufacturing

D) ISSUES RELATING TO CBEC

21. Exemption from Bank Guarantee

22. Dispensing with Cost Recovery Charges

23. Recognition of Golden EOUs

24. Repeated registration with different ports and delay in registration with Customs Authorities

25. Time Frame for various activities by the field formation.

E) ISSUES RELATING TO BANKING

26. Availability of PCFC on priority

27. Extension of OBU facility to EOUs on terms equivalent to SEZs

28. Stamp duty under Indian Stamp Act 1899

29. Automatic Gold Card Scheme for EOUs/SEZ Units

30. Restructuring of Term Loan for EOUs/SEZ Units

F) OTHER ISSUES

31. Availability of Power to EOUs

33. State Government levies

Hon'ble Commerce Minister assured that attempts would be made to resolve all pending issues relating to EOUs and SEZ units and he will take up the issues with Central Board of Direct Taxes (CBDT), Central Board of Excise & Customs (CBEC) and Department of Banking.

I am enclosing copy of press coverage of Economic Times, Financial Express, Indian Express and Hindu Business Line. This is also been covered by other newspapers namely The Statesman, Hindustan (Hindi), Navbharat Times (Hindi).

I would like to inform you that after taking over as Commerce & Industry Minister, this was the third meeting which the Council had with the Commerce & Industry Minister. Shri Sharad Jaipuria and myself had met Shri Kamal Nath, Honourable Commerce & Industry Minister on 28-5-04 then an Open House was held with Hon'ble Commerce & Industry Minister on 5-6-04 in Delhi and this was the third interaction on 24-6-04.

We have also sent a detailed presentation to Shri P. Chidambaram, Honourable Finance Minister on the Budget related issues specifically all the issues relating to Section 10A and Section 10B of the Income Tax Act. This is for your information please.

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THE ECONOMIC TIMES - JUNE 26, 2004

Kamal to take up pending export issues

NEW DELHI: Union commerce and industry minister Mr Kamal Nath has said he would soon take up with the finance minister "all pending export-related issues", which could not be resolved in the last couple of years.

During a meeting with representatives of the export promotion council for export-oriented units (EOUs) and special economic zones (SEZ) units here yesterday, Mr Nath said these issues would be resolved with the intervention of Central Board of Direct Taxes, Central Board of Excise and Customs and the department of banking.

Earlier, Nath told exporters in the thrust sectors such as gems and jewellery to come up with time-bound marketing plans in order to achieve quantum jump in exports from sectors in which India has a distinct comparative advantage. According to an official release, the minister said he would extend all support to such promotional plans to tap overseas markets more effectively and urged the exporters to have a futuristic vision with a long-term perspective so as to leverage their strengths as world leaders in this important segment.

The gems and jewellery sector is among India's leading foreign exchange earners and exports from this sector in 2003-04 were valued at $12 billion, with USA and Canada alone accounting for a 40% share. As to the future, the gems and jewellery export promotion council has indicated to the minister a target of $16 billion by 2007.

He asked exporters of gems and jewellery to strive for achieving $20 billion by 2007 and welcomed the plans to transform India from the largest diamond manufacturing centre (ie, cut and polished diamonds) to the world's largest trading centre for gems and jewellery.

This sector envisages additional 5,00,000 employment by 2007 (present workforce is one million) and creation of SEZs across the nation exclusively for Indian gems and jewellery, of which the Manikanchan Park (SEZ) at Kolkata is already operational. The minister also had a meeting with the council for leather exporters yesterday.

THE FINANCIAL EXPRESS - JUNE
<http://www.financialexpress.com/fearchive/fe_20040626_index.html> 26, 2004

Nath To Take Up Pending Export Issues With FM

OUR POLICY BUREAU

NEW DELHI, JUNE 25: Commerce and industry minister Kamal Nath has asked export-oriented units (EOUs) and special economic zones (SEZs) to list out pending issues which need to be taken up with the finance ministry in the run-up to the Budget.

In a pre-Budget and pre-Exim (export-import) policy meeting with the export promotion council for EOUs and SEZ units (EPCES) on Friday, the minister said that he would discuss with the finance minister all pending export-related issues which could not be taken up in the last couple of years. These include issues before the Central Board of Direct Taxes (CBDT), the Central Board of Excise & Customs (CBEC) and banking.

EPCES chairman Sharad Jaipuria requested Mr Kamal Nath to do away with the sunset clause of 2010 under Section 10B of the Income Tax Act for EOUs. As per the existing provisions, income tax exemption is only available till financial year 2009. "This is acting as a deterrent for investment in this sector. The sunset law should be immediately removed if investments are to be attracted in the sector," he said.

EPCES also stressed that domestic tariff area (DTA) sale from EOUs should be allowed based on the principal of duty foregone on imported inputs. "This principal is perfectly WTO compatible and this practice is being adopted world wide," Mr Jaipuria said.

Total exports from EOUs and SEZs from India during the last fiscal amounted to Rs 41,368 crore ($9.19 billion) with EOUs recording a growth of 20 percent and SEZs a growth of 40 per cent over the previous fiscal.

THE HINDU BUSINESS LINE - 27-6-04

EOU body presents pre-budget wishlist

A DELEGATION led by the Chairman of the Export Promotion Council for Export-Oriented Units and Special Economic Zone (EPCES) met the Union Commerce & Industry Minister, Mr Kamal Nath, to present pre-Budget and pre-Exim Policy memorandum, demanding policy support for the balanced growth of the sector.

In their memorandum, the Chairman, EPCES, Mr Sharad Jaipuria, pleaded to do away with Sunset Clause of 2010 under Section 10B of the Income Tax Act for EOUs, since as per the extant provisions, income-tax exemption is available only until financial year 2009.

He also noted that domestic tariff area (DTA) sale from EOUs should be allowed based on the norm of duty foregone on imported inputs. Duty foregone could be arrived at on the basis of standard input-output norms on self-declaration basis, he said adding that EOU and SEZ units should be freely allowed to purchase power from Central Government agencies like NTPC at competitive rates without additional cost of wheeling charges and cross subsidy.

The Director-General, EPCES, Mr L.B. Singhal, demanded fast-track clearance for EOUs so that established units could focus on their exports without any hindrance. Timeframe needs to be prescribed for every activity, which is being performed, by customs and central excise field formations The Indian Express - New Delhi - 26-6-2004

SEZ ask for tax break beyond 2010 NEW DELHI : Special Economic Zones (SEZ) and Export Oriented Units have asked for an income tax break beyond the 2010 deadline, assuring exports worth Rs. 50,000 crore this year and US$ 50 bn by 2010 provided a host of sops are granted. In a meeting with Commerce and Industry Minister Kamal Nath, the Export Promotion Council for EOUs & SEZ chairman Sharad Jaipuria said the IT holiday beyond financial year 2008-09 was essential for the small scale industry's growth.