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Essar's Hazira SEZ may lose tax benefits
May, 15th 2007
Essar groups special economic zone (SEZ) for steel in Hazira (Gujarat) has come under the government lens. The revenue department has slapped a Customs duty evasion case against it and is also carrying out investigations on whether the zone started operations before it was notified in September 2006. The policy does not allow conversion of existing units into SEZs. It is now uncertain whether Essar will be allowed to claim tax sops on its Hazira SEZ.

Speaking to ET, government officials in the commerce and finance ministries say a case may be built against Essar as the company may have started operations in the Hazira zone months before the area was notified as an SEZ. Hazira was notified only in September 2006. The directorate general of Customs & excise intelligence (DGCEI) has started investigations to ascertain when exactly production and sales from the steel plant located within the SEZ started. A decision would be taken after the investigation is complete, an official said.

When contacted, a spokesperson for the Essar group said, It is not the groups policy to comment on day-to-day working of the company. However, we are in discussion with the revenue department officials on the exact implications and applicability of certain SEZ-related rules, and are being guided both by them and the concerned ministries.

Essar had approached the government for approval of its Hazira SEZ in December 2005. The government had then advised the company to wait for some time till the rules were notified as the SEZ rules were in the process of being finalised, a commerce ministry official said. It is claimed the company, however, went ahead with the construction work while the final approval was awaited.

In June 2006, when the board of approvals gave a nod to the Essar SEZ, construction of the zone was almost complete. The board, however, added the condition that it could start production and sale only after fencing the zones boundary. The Essar zone was subsequently notified in September 2006. The revenue department claims that after starting production, the company did not pay Customs duty on a part of the sale made to the domestic tariff area.

The issue, thus, is whether operations in the zone started before it was notified. Since the set-up was in place months before the notification of the SEZ, revenue officials suspect sales might have taken place prior to the notification.
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