As per Rule 11B(2) of the amendment rules, a non-processing area may be used for setting up and operation of businesses engaged in IT or ITeS.
However, certain safeguards need to be in place in such non-processing areas. For instance, the movement of persons and goods in and out of the premises has to be screened with the help of appropriate access control mechanisms.
Moreover, if the demarcation reduces the processing area to less than 50% of the total area or less than the minimum built-up processing area prescribed based on the categories of cities (i.e., 50,000 square metres in category ‘A’ cities, 25,000 square metres in category ‘B’ cities and 15,000 square metres in category ‘C’ cities), the demarcation cannot be carried out.
The rights, facilities and privileges available to SEZ units are not applicable to businesses engaged in IT or ITeS services in non-processing areas of a SEZ. The operation and maintenance of infrastructure and facilities used for SEZ entities are eligible for tax benefits, but such benefits will not apply in cases of dual use. Further, the businesses engaged in IT or ITeS SEZs in non-processing areas are to be bound by the same legislations, rules, etc. that apply to entities operating in domestic tariff areas.
Overall, the amendment rules will lead to an increase in government revenue with higher GST collection and also owing to the repayment of tax incentives that developers had availed earlier for processing area that gets converted into non-processing area now.
Source: Barandbench
