The government has disappointed Special Economic Zone (SEZ) units that had hoped for a better concessional duty rate for SEZs selling to the Domestic Tariff Area (DTA). The units are unhappy with the recent government notification, which introduced multiple stringent conditions and complicated procedures to access this duty benefit.
According to the Association of Export-Oriented Units (EoU) and SEZs in Pune, the net effect of these changes is a minimal 1%. In some cases, the duty rate has actually increased. The association criticised the notification as thoughtless, stating that units were expecting an 8% relief, but instead received only a 1% benefit, which is insufficient to support any of the units. This situation will adversely impact all units in SEZs manufacturing electronics, textiles, drugs, and engineering goods, they claimed.
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The government announced changes to SEZ regulations concerning rates for supplies from SEZs to the DTA in the 2026 Budget, aiming to address concerns about capacity utilisation in manufacturing units within SEZs affected by various global trade disruptions. The Finance Minister had proposed a special one-time measure to facilitate sales by eligible manufacturing units in SEZs to the DTA at concessional duty rates.
The Finance Ministry’s Department of Revenue issued a notification granting a concessional customs duty framework for specified goods produced by eligible SEZ units and sold into the DTA. This notification, issued on April 1, 2026, will remain valid until March 31, 2027.
Under the new regulations, SEZs are permitted to sell in the DTA based on the proportion of goods exported. The DTA sale of finished goods will be subject to a concessional duty rate, with the quantity limited to a prescribed proportion of their exports. This approach was designed to ensure a level playing field for units operating in the DTA.
Currently, goods transferred from the SEZ to the DTA are treated as imports into India and are subject to standard customs duties based on the value of the finished goods. This treatment has rendered SEZ goods non-competitive in the Indian market, leading to underutilization of manufacturing capacity. Supplies to the domestic market attract full basic customs duty, which raises prices and affects competitiveness. Therefore, the industry has advocated for governmental permission to clear goods to the domestic market on a duty-free basis.
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Stringent Eligibility
The government notification specifies that the benefit applies only to certain goods manufactured by SEZ units and sold into the DTA. To qualify for the exemption, the SEZ unit must have commenced production on or before March 31, 2025. This exemption does not extend to units in a Free Trade and Warehousing Zone. Additionally, goods must be manufactured by the SEZ unit and meet a minimum value addition requirement of 20%.
The government has also imposed restrictions on DTA clearances under this benefit. The total value of goods cleared into the DTA under this notification in any financial year cannot exceed 30% of the highest annual Free on Board (FOB) value of exports of manufactured goods from any of the previous three financial years.
Furthermore, there are limitations on claiming this concession if the units are already availing themselves of other export benefits under the foreign trade policy. Additional documentation, including certification from the jurisdictional Development Commissioner, is required, and units claiming the exemption will be subject to an audit under Rule 79 of the SEZ Rules, 2006.
TOPICSeconomic growthThis article was first uploaded on April one, twenty twenty-six, at forty-four minutes past seven in the evening.