SEZ Domestic Sales Duty Forgone — What’s Proposed?
The SEZ domestic sales duty forgone debate is back in focus. Recently, the Department of Commerce requested the Ministry of Finance to allow Special Economic Zone (SEZ) units to sell a part of their production in the domestic market on a duty forgone basis.
Under current rules, SEZ units get tax benefits for exports but must pay full customs duties plus IGST if they sell goods in India (called Domestic Tariff Area or DTA sales).
This has long been a pain point for SEZ exporters competing with global suppliers within India.
Why is the Change Needed?
The Commerce Department’s proposal aims to:
- Boost local manufacturing competitiveness
- Reduce idle capacity in SEZs
- Align with India’s shift from export-only to balanced global-local supply chains
- Address industry demand post-COVID slowdown
This aligns with the Government’s Ease of Doing Business agenda.
Current SEZ Domestic Sales Rules
Here’s how it works now:
| Aspect | Current Rule |
|---|---|
| DTA Sales | Allowed but treated as imports |
| Duties Applicable | Full customs duty + IGST |
| Duty Forgone | No provision – all benefits revoked on domestic sale |
| Approval Needed | Yes, prior permission required |
Source: SEZ Act, 2005 & SEZ Rules, 2006. You can read more here.
What is ‘Duty Forgone’?
Simply put, SEZ units get customs duty exemptions on raw materials and machinery for exports. If allowed, duty forgone means they won’t need to repay these benefits when selling limited output in India.
Possible Benefits if Approved
✅ Lower costs for local buyers
✅ Better capacity utilization for SEZ units
✅ Reduced imports of similar goods
✅ Higher domestic value addition
What Are the Concerns?
The Finance Ministry worries about:
- Revenue loss to exchequer
- Misuse of duty benefits
- Impact on domestic non-SEZ manufacturers
Thus, a balanced mechanism — like quantitative caps and strict tracking — may be considered.
Expert View
💡 Practical tip: If allowed, SEZ units must maintain precise records to avoid disputes during audits. Consider robust ERP modules to track export vs domestic clearances. Consult your tax advisor for compliance.
What Next?
The final decision will rest with the Finance Ministry after consultations with CBIC and revenue departments. Industry bodies have backed the proposal, but clarity on caps, sectors, and compliance checks will be crucial.
Efiletax will track updates on notifications or amendments to the SEZ Rules, 2006 and relevant CBIC circulars.
FAQs on SEZ Domestic Sales Duty Forgone
Q1: Can SEZ units sell 100% output domestically?
No. Even if approved, it’s expected to allow only limited sales to prevent misuse.
Q2: Will IGST still apply?
Likely yes, since supply to DTA is deemed import. Exact tax mechanism will be notified.
Q3: When will the new rules apply?
No timeline yet. We’ll update once an official notification is out.
Summary
SEZ domestic sales duty forgone relief may soon allow SEZ units to sell locally without repaying full duties. The Commerce Dept has requested FinMin approval to boost competitiveness and cut idle capacity. Details awaited.