New rules permit returns within 30 days for goods rejected due to fashion changes, market conditions or contractual defaults
The government has expanded the conditions under which Special Economic Zone (SEZ) units can take back goods supplied to domestic buyers in the Domestic Tariff Area (DTA), providing relief to manufacturers whose goods are rejected due to changing fashion trends, market conditions or defaults in sales agreements.
Under the amended Special Economic Zones Rules, 2006, goods cleared from an SEZ unit to the DTA on payment of applicable duties can be returned to the unit if the domestic buyer fails to take delivery for any of these reasons. The goods must be brought back within 30 days from the date of clearance from the SEZ unit.
The revised provisions specify three key conditions for such returns. The identity of the returned goods must be established to the satisfaction of the specified officer; the SEZ unit must provide evidence that the DTA buyer has not availed any benefits, including input tax credit, in respect of the goods; and the unit must maintain a separate inventory of the returned goods.
The amended rules also allow SEZ units to resell the returned goods in the DTA, either to the original buyer or to another buyer, provided the goods remain in their original condition without any alteration. Applicable duty must be paid on the fresh sale, while the duty paid at the time of the original clearance will be refunded in accordance with the notification. The provisions also allow for a refund of duties on goods received back by the SEZ unit.
Separate Provisions for Repairs
The notification also provides a longer return window for goods that require repairs. Goods supplied by an SEZ unit to the DTA on payment of applicable duties may be brought back for repairs within six months from the date of clearance, the permitted period or the warranty period, whichever is later.
In such cases, duty will be payable on the value of the repairs carried out, according to the notification.
One-Time Relief for SEZ Manufacturing Units
The latest amendment comes against the backdrop of a separate government initiative to facilitate sales by eligible SEZ manufacturing units to the DTA at concessional duty rates. Announced in the Union Budget by Finance Minister Nirmala Sitharaman, the one-time measure is intended to address concerns over capacity utilisation arising from global trade disruptions.
A Finance Ministry notification dated March 31 introduced concessional duty rates ranging from 5% to 12.5% for eligible goods cleared from SEZs to the domestic market. The measure took effect for a one-year period beginning April 1, subject to specified conditions.
To qualify, an SEZ unit must have commenced production on or before March 31, 2025, and the goods must be manufactured within the SEZ with a minimum value addition of 20%.
The value of goods cleared under the concession in a financial year is capped at 30% of the unit’s highest annual Free on Board (FOB) export value recorded in any of the three immediately preceding financial years.
The concession does not cover units operating in Free Trade and Warehousing Zones or imported goods cleared into the DTA as such or after use. Certain product categories, including petroleum products such as petrol and diesel and specified food products, are also excluded.
Together, the measures seek to provide greater flexibility to SEZ manufacturers in managing domestic sales, returned consignments and production capacity amid changing market conditions, while retaining safeguards on duty payments and the utilisation of tax benefits.