SEZs with 20% used capital goods can't get tax sops

The government on Tuesday said a company can transfer used capital goods to set up units in special economic zones (SEZs), but the value of such equipment should not exceed 20 per cent of the total capital goods for availing tax benefits.

The clarification comes after a development commissioner (DC) in charge of SEZs, permitted the transfer of the goods from the STPI (Software Technology Parks of India) unit to SEZs and issued a letter of approval, which was later cancelled.

"The provisions of SEZ Act 2005 and Rules framed there under do not prohibit transfer of used capital goods or businesses from existing DTA or STPI unit to SEZ.

"The only deterrent for transfer of such goods or businesses is not getting the exemption under the I-T Act when the value of the used goods exceed the 20 per cent of the total capital goods and in respect of businesses no exemption can be availed while the DCs will be intimated about the transfer of goods/businesses, the final decision regarding the income tax (I-T) exemption wil lie with the I-Tax Department," the commerce ministry said.

It said that 80 per cent of the equipment should be new and also clarified the transfer of used goods is only with respect to SEZ units.

The spirit of SEZ Act and rules is the investment for infrastructure development in the SEZ has to be new, it said.

"The ratio of 80:20 of new versus used capital goods shall be reckoned on the date the unit starts to produce goods or services," it added.

It also said there is no limitation on the transfer of manpower to the SEZ units.

On an another issue, where construction major Larsen & Toubro (L&T) wants to set up a testing laboratory for tyres in its IT SEZ, the ministry said: "It was decided that setting up of a unit for testing of tyres in an IT SEZ may not be allowed, as the process may involve setting up separate facility totally unrelated to IT and would require measures to check pollution also."

"Therefore, they may be asked to undertake the [physical testing activity outside the SEZ while the test data can be processed in the SEZ unit," it added.