The empowered group of ministers on special economic zones on Friday agreed to the commerce ministry's stand on 'vacant land' in the context of the tax-free industrial enclaves.
This decision will come as a relief to Essar's multi-product port-based SEZ project in Hazira as well as of Adani Group's zone in Mundra, which the revenue department felt was not built on vacant land when it was notified, and hence it had violated the law. Both the zones are in Gujarat.
"The EGoM has taken a stand favouring the SEZs. The zones will not have to be de-notified," a government official said. The EGoM is headed by External Affairs Minister Pranab Mukherjee, and has Finance Minister P Chidambaram and Commerce Minister Kamal Nath as members, amongst others.
Last year, the Department of Revenue had objected to the two zones as it said that the land had some pre-existing structures, before it got notified.
The Adani multi-product zone had a port, which the revenue department said was in violation of the SEZ rules, and hence should be denotified.
Sources added that the EGoM is of the view that the port, which existed before the zone was notified, would not enjoy any tax concessions.
Moreover, any expansion activity of the port would also not be liable for any tax sops available under the SEZ Act of 2005, the senior group of ministers ruled.
Under SEZ rules, a developer has to file an affidavit stating that the land area of the zone is completely vacant and without any kind of industrial activity when the application is filed.
The idea is to prevent operational industrial units from migrating to SEZs, which would defeat the employment-generating purpose of the SEZ policy.
The Department of Commerce felt that the vacant land meant no industrial activity should take place in the area, on which the SEZ is being set up. But the revenue department felt that the land should be absolutely vacant.
The mater was subsequently referred to the EGoM.
During the course of deliberations, the attorney general endorsed the commerce ministry's view on vacant land.