Govt allows temporary customs duty relief for SEZ units sold domestically

Govt allows temporary customs duty relief for SEZ units sold domestically

Central Government has notified conditional customs duty concessions on the clearance of goods manufactured in Special Economic Zones (SEZs) into the Domestic Tariff Area, with the objective of improving capacity utilization in manufacturing units affected by global trade disruptions.

Other Relevant Information

¨     This initiative will benefit approximately 1,200 SEZ manufacturing units. It will help enable economies of scale, reduce costs, and enhance flexibility, while simultaneously preserving the export-oriented nature of SEZs.

¨     Duration: This notification shall remain in force from April 1, 2026, to March 31, 2027.

¨     Concessional Rates: Eligible SEZ manufacturing units have been permitted to supply goods to the DTA at concessional duty rates. Such supplies may amount to up to 30% of the highest FOB (Free on Board) export value realized during the preceding three financial years. To prevent the accrual of dual benefits, export incentives—such as duty drawback on inputs—are not permitted on such clearances. DTA refers to the whole of India (including its territorial waters and continental shelf) but excludes the specific designated areas of the SEZs. As per Section 30 of the Special Economic Zones Act, 2005, the clearance of goods from an SEZ into the DTA is deemed to be an ‘import’ into India and is subject to applicable customs duties.

¨     Eligibility: The notification lays down key eligibility criteria, mandating a minimum value addition of 20% within the SEZ. This is calculated based on a prescribed formula that takes into account the ‘assessable value’ and the ‘cost of inputs.’

¨     Comprehensive Sectoral Coverage: This concessional framework covers a wide range of sectors, including minerals, chemicals, plastics, leather, wood and paper, textiles, footwear, ceramics and glass, metals, machinery, transport equipment, instruments, arms, and other manufactured goods. However, sectors such as agriculture (including marine and processed food products, tobacco, etc.), marble and granite, gems and jewelry, vehicles, toys, and petroleum are excluded from this scope.

¨     Compliance Requirements for Concessional Duty: To avail of concessional duty benefits, SEZ units must submit a certificate from the Development Commissioner confirming compliance. Additionally, they are required to furnish an undertaking to pay the full duty in the event of non-fulfillment of the stipulated conditions.

¨     Audit: These units shall also be subject to audit under the SEZ Rules, 2006.

Special Economic Zones in India

¨     A Special Economic Zone (SEZ) is a specifically demarcated duty-free enclave that is deemed to be outside the customs territory of India for the purpose of authorized operations. It operates under a distinct regulatory and fiscal framework designed to promote trade and investment.

¨     SEZ units are established for manufacturing, providing services, and warehousing activities, including ‘Free Trade Warehousing Zones’.

¨     Objectives of SEZs: SEZs serve as engines of ‘export-led growth’ by ​​generating additional economic activity, promoting exports, attracting domestic and foreign investment, creating employment opportunities, and developing world-class infrastructure.

¨     As of February 28, 2026, there are 368 notified SEZs across India.

Key Incentives and Facilities Offered in SEZs

¨     Facility for duty-free import/domestic procurement of goods for the development, operation, and maintenance of SEZ units.

¨     Exemption from Central Sales Tax, Service Tax, and State Sales Tax. These taxes have now been subsumed into GST, and under the IGST Act, 2017, supplies made to SEZs are ‘zero-rated’.

¨     Other cesses, if exempted by the respective State Governments.

¨     A ‘Single Window Clearance’ mechanism for Central and State-level approvals.

¨     Special Economic Zones Act, 2005 and Special Economic Zones Rules, 2006

¨     The SEZ Act, 2005, and the SEZ Rules, 2006, together provide a simplified framework that includes a Single Window Clearance mechanism for Central and State-level approvals.

¨     This Act lays down the guiding principles for SEZs—such as promoting economic activity, infrastructure development, and employment generation—while also mandating ‘environmental compliance’ by developers and units.

¨     Within the framework of the SEZ Act and Rules, the performance and impact of SEZs are evaluated by the Government based on monthly reports submitted by the Development Commissioners. Development Commissioners are appointed by the Government to monitor the functioning, approvals, and compliance of SEZ units.

¨     In June 2025, the SEZ Rules, 2006, were amended to facilitate the establishment of SEZs specifically for the manufacturing of ‘semiconductors’ and ‘electronic components’.