Special Economic Zones Rules, 2006

Chapter 3

Procedure for establishment of a unit

19. Letter of Approval to a Unit.-

(1) On approval of a proposal under rule 18 and 19, Development Commissioner shall issue a Letter of Approval in Form G, for setting up of the Unit:

(2) The Letter of Approval shall specify the items of manufacture ⁵[along with the corresponding Indian Trade Classification (Harmonised System) of Export and Import Items, 2017] or particulars of service activity, including trading or warehousing, projected annual export and Net Foreign Exchange Earning for the first five years of operations, limitations, if any on Domestic  Tariff  Area  sale of finished  goods, by-products  and  rejects  and  other terms and conditions, if any, stipulated by the Board or Approval Committee:

²[Provided that the Approval Committee may also approve proposals for broad-banding, diversification, enhancement of capacity of production, change in the items of manufacture or service activity, if it meets the requirements of rule 18 :

Provided further that no such approval shall be granted by the Approval Committee in those cases which fall within the competence of the Board of Approval:

⁴[Provided also that, subject to the provisions of rule 74A] ^Old[Provided also that] the Approval Committee may also approve change of the entrepreneur of an approved unit, if the incoming entrepreneur undertakes ta take over the assets and liabilities of the existing Unit]

⁶[Provided also that the Approval Committee may also approve proposals for merger of Letters of Approval of two or more Units of the same company or firm subject to the condition that these Units fall within the same Special Economic Zone and after merger, block period for calculation of Net Foreign Exchange shall be from the date of commencement of production of the Unit which commenced operation first and the Income tax exemption period shall be considered from the date of start of operation of the first Unit]

^Old1[Provided that no such approval shall be granted by the Approval Committee in those cases which fall within the competence of the Board of Approval.]

^Old[Provided that the Approval Committee may also approve proposal for broad- banding,  diversification,  enhancement  of  capacity  of  production, change  in the items of manufacture or service activity, if it meets the requirements of rule 18.

Provided further that the Approval Committee may also approve change of the entrepreneur of an approved unit, if the incoming entrepreneur undertakes to take over the assets and liabilities of the existing Unit.]

(3) An entrepreneur holding Letter of Approval issued under sub-rule (1) shall only be entitled to  set  up  a  Unit  in  processing  area of the Special Economic  Zone or Free Trade and Warehousing Zone, as the case may be:

Provided that a proposal for setting up of a Unit in a Special Economic Zone or Free Trade Warehousing Zone shall be entertained only after the processing area of  the Special  Economic  Zone or Free Trade  Warehousing Zone  has  been demarcated under rule 11.

(4) The Letter of Approval shall be valid for one year within which period the Unit shall commence production or service or trading or Free Trade and Warehousing activity and the Unit shall intimate date of commencement of production or activity to Development Commissioner:

Provided  that  upon  a  request  by  the  entrepreneur,  further  extension  may  be granted  by the  Development  Commissioner  for  valid  reasons  to  be  recorded in writing for a further period not exceeding two years:

Provided further that the Development Commissioner may grant further extension of   one   year   subject   to   the   condition   that   two-thirds   of   activities  including construction,  relating  to  the  setting up of  the Unit is  complete and a  chartered engineer’s certificate to this effect is submitted by the entrepreneur.

³[Provided also that the Board of approval may, upon a request in writing by the entrepreneur, and after being satisfied that it is necessary and expedient so to do grant further extension for a further period not exceeding one year, at a time]

(5) If the Unit has not commenced production or service activity within the validity period  or  the  extended  validity  period  under sub-rule (4),  the  Letter  of Approval shall be deemed to have been lapsed with effect from the date on which its validity expired.

(6)   The   Letter   of  Approval  shall   be  valid   for  five  years   from  the   date  of commencement  of  production  or  service activity  and  it  shall be  construed as  a licence for all purposes related to authorized operations, and, after the completion of  five  years  from  the date of  commencement  of production, the Development Commissioner  may, at the request  of the Unit, extend validity of the  Letter of Approval for a further period of five years, at a time.

⁷[(6A)(1) The Units which intend to renew the validity of Letter of Approval shall submit, before two months from the date of expiry of the Letter of Approval, the completed application in form F1 along with requisite document, to the Development Commissioner, duly signed by the proprietor or managing partner or if it is a company, by the Managing Director or the Director(s) or any person who has or have been duly authorised for this purpose by a resolution of the ⁸[Board] Old [Board of Approval] of Directors of the Company:

⁹[Provided that in case an application is submitted after the said period of two months, reasonableness of the delay shall be examined on the merits and circumstances of the case and the request for renewal of Letter of Approval shall be decided by the Development Commissioner]

^Old [Provided that in case an application is not submitted before the said period of two months, such application shall be placed before the Approval Committee and the said Committee, if it is satisfied that there was sufficient cause for not filling the same before the said period, may direct for entertainment of such application.]

(2) in case of non-compliance of the procedures specified in clause (1), the Letter of Approval shall not be considered for renewal.

(3) the Development Commissioner may renew the Letter of Approval for a period of five years or for a shorter period, in form F 2, based on the evaluation of the Unit as per sub-rule (6B):
 

¹⁰[(6B) The process of renewal of Letter of Approval shall take into account the efforts made and the results achieved or status of the following criteria, namely:-
(i) Export performance of the Unit in the last block.
(ii) Employment generated.
(iii) Instance of violation of applicable statutes related to the functioning of the Unit.
(iv) Cases of default, if any, of statutory payments.
(v) Undertaking of any activity not sanctioned or approved by the Development Commissioner.
(vi) The decision of the Development Commissioner or Approval Committee in this regard shall be final and binding on the Unit except in cases where the Unit prefers an appeal before the Board of Approval, in accordance with rule 55. ]

^Old[(6B) The renewal of Letter of Approval shall be based on the evaluation of the following criteria, namely:-
(i) Export performance of the Unit in the last block vis-a-vis the initial export projection submitted by the Unit.
(ii) Projected employment with reference to actual employment generated.
(iii) Instance of violation of applicable statutes related to the functioning of the Unit.
(iv) Cases of default, if any, of statutory payments.
(v) Undertaking of any activity not sanctioned or approved by the Development Commissioner.
(vi) The decision of the Development Commissioner or Approval Committee in this regard shall be final and binding on the Unit except in cases where the Unit prefers an appeal before the Board of Approval, in accordance with rule 55.".]

(7)  If  an  enterprise  is  operating both as  a Domestic  Tariff Area unit as  well as  a Special Economic Zone Unit, it shall have two distinct identities with separate books of accounts, but it shall not be necessary for the Special Economic Zone unit to be a separate legal entity:

¹[Provided that foreign companies can also set up manufacturing Units as their branch operations in the Special Economic Zones in accordance with the provisions of Foreign Exchange Management (Establishment in India of branch or office or other place of business) Regulations, 2000 as amended from time to time.]

^Old[Provided that foreign companies can also set up manufacturing units as their branch operations in the Special Economic Zones in accordance with the provisions of   Foreign   Exchange   Management   (Foreign   exchange   derivatives   contracts) Regulations, 2000.]

1. Substituted vide Notification Dated 3/2/2009

2. Substituted vide Notification Dated 20/05/2009

3 Inserted Vide Notification Dated 10/11/2010

4 Substituted vide Notification Dated 12/8/2013
5 Inserted vide Notification Dated 19/9/2018
6. Inserted vide Notification Dated 19/9/2018
7. Inserted vide Notification Dated 19/9/2018
8.Subsituted vide Notification Dated 07/03/2019
9. Subsituted vide Notification Dated 07/03/2019
10. Subsituted vide Notification Dated 07/03/2019