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Cochin Port FTWZ

 In India, a Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and is deemed to be a foreign territory for the purposes of trade operations and duties and tariffs. Free Trade and Warehousing Zones (FTWZ) are a special kind of SEZs to create trade related infrastructure to bridge the gap in the existing facilities available for trading and storage activities for foreign trade with freedom to carry out trade transactions in free currency. The SEZ/FTWZ is regulated by the provisions of the SEZ Act, 2005 and SEZ Rules, 2006.

FTWZs can be developed as international trading hubs, serving as key links in global logistics and supply chains servicing both India and the world. FTWZs help to mitigate customer’s logistics & supply chain challenges unique to India. 

Under the scheme of the SEZ Act, the SEZ/FTWZ is developed and set up by a developer along with co-developers. 

100% Foreign Direct Investment is permitted under the automatic route, which means, without any specific prior approval either by the Government or the Reserve Bank of India, for setting up of Special Economic Zone/FTWZ. So foreign companies can also develop and set up SEZ/FTWZs by becoming a developer or co-developer.

Cochin Port Trust has been given in-principle approval by the Ministry of Commerce & Industry for developing and setting up an FTWZ on 102 acres of land on Willingdon Island, and has been declared as developer of Cochin Port FTWZ.  

Cochin Port is trying to select a co-developer through a transparent process through the present auction-cum-tender.  The entity offering the highest of the sum of upfront premium, and the amounts offered as guaranteed revenue to Cochin Port over the 30 years discounted at 6% will be selected as the co-developer of the Cochin Port FTWZ.  The co-developer will be given the 102 acres of land on lease of 30 years, and should pay the applicable lease rent on the land to Cochin Port.  

The co-developer is expected to develop the FTWZ on DBFOT basis.  It is estimated that the cost of this development will be around Rs.500 crores. 

Although FTWZs are permitted to have both processing and non-processing areas, the Cochin Port FTWZ has only processing area; as such, there are no areas earmarked here for residential or recreational purposes, and only FTWZ units will be permitted to be located in the Cochin Port FTWZ. 

The co-developer is expected to run the FTWZ in accordance with the SEZ Act, 2005 and SEZ Rules, 2006.  He will have the right to allot on lease, on commercial basis, land or built up space within the FTWZ to SEZ units who need to take approval for their activity in the FTWZ from the Development Commissioner, Cochin Special Economic Zone.  It is also open to the co-developer to run an FTWZ unit himself and offer services to importers/ exporters.

The co-developer enjoys exemption from income tax under Section 80 IA of the Income Tax Act, 1961 for a block of ten years of his choosing in the first 15 years of starting of the FTWZ.  He is also permitted to import duty-free material for developing the FTWZ.  He also has the freedom of procuring material duty-free from the Domestic Traffic Area (DTA) for the same purpose.    

The co-developer of the FTWZ shall have to construct a minimum built up area of 100,000 square metres within a period of ten years from the date of notification of the Special Economic Zone, and at least fifty percent within a period of five years from the date of such notification Rule 5(7).

While land in the FTWZ cannot be sold, the land/built up area in the processing area shall be given on lease for a period not less than five years to the valid LOA holders.

The FTWZ shall have specified entry and exit points and shall be fully secured by a ten feet high wall.

The land/built up space in the processing area may be leased for creating general facilities like canteen, public telephone booths, etc. with the approval of the Approval Committee  (Rule 11(5).

Units operating in the FTWZ enjoy the following benefits:

  • They can import goods duty-free and warehouse it in the FTWZ; they can re-export these goods without paying duty.  They can also procure goods free of excise duties from the Indian market.  This facility is available for the goods the unit trades in, as well as for goods required for the development, operation and maintenance of the SEZ unit.
  • Units enjoy 100% Income Tax exemption on export income under Section 10AA of the Income Tax Act, 1961 for the first 5 years of operation, 50% for the next 5 years and 50% of the ploughed back export profit for next 5 years.
  • SEZ units can also have external commercial borrowing upto US $ 500 million in a year without any maturity restriction, through recognized banking channels.
  • FTWZ units are exempted from Central Sales Tax.
  • They also enjoy exemption from Service Tax for all activities in the FTWZ (including labour, rentals, etc.).
  • Products from India entering the FTWZ are treated as deemed export providing immediate benefits to suppliers
  • Indian companies exporting into FTWZ are able to count the exports against their export quotas
  • FTWZ units also have single window clearance for Central and State level approvals.
  • There is also exemption from VAT for procurement from India.  
  • The shared warehousing and equipment in the FTWZ reduces expenses.
  • The availability of onsite Customs means reduced time for Customs clearances.
  • The improved logistics and connectivity lead to reduced delivery times.

Units can be set up in the FTWZ by foreign companies with 100% FDI under the automatic route. 

Units in FTWZ are allowed to hold the goods on account of the foreign supplier for dispatches as per the owner’s instructions and can trade with or without labelling, packing or re-packing without any processing. Such activities may include refrigeration for storage as well as assembly of Completely Knocked Down or Semi Knocked Down kits. The units can re-sell or re-invoice or re-export the goods imported by them.

All transactions in an FTWZ are only in convertible foreign currency.

Units in FTWZ can act as custodians of foreign entities and hold stock for them. This opens up a new world of opportunities in logistics in consonance with developments in international trade wherein manufacturers or traders in India or abroad can be serviced from FTWZ with goods being billed directly by the seller to the buyer and consideration also flowing directly from buyer to seller.

The mechanics of such functioning is that all Special Economic Zones/FTWZ are deemed to be port, airport or ICD and as such are eligible for a LoCode, which enables goods to be moved directly from gateway port/airport to such Zone without any documentation on the part of the importer and under a sub-manifest. Thereafter, if the goods are to be cleared to a DTA entity on orders of foreign client, the Bill of Entry for Home Consumption will be filed by such DTA entity as per Rule 48 of SEZ Rules, 2006 and duty paid thereon. Hence, goods do not need to have a bill of entry till dispatch to DTA entity if the goods are imported under Bill of Lading that identifies the FTWZ as the place of destination.

  • The primary difference with existing warehouses wherein goods can be stored without payment of duty till time of clearance is that the Bill of Entry will have to be filed on entry into India for which Bill of Lading will have to be issued in favour of Indian importer and which automatically means release of payment. Nor would the supplier like to relinquish control of the goods without receiving payment.
  • FTWZs would suit the financials of the buyer in India who may prefer to place orders as per fund availability.
  • Further, goods stored in Customs bonded warehouses are liable to interest on duty so deferred while it is not a liability in the FTWZ based on “foreign territory” concept.
  • Therefore, foreign suppliers would be able to hold their stocks as close to their markets as warehousing costs will permit and in the globalized system of trade and manufacturing, is a facility that blends well with its philosophy of “supply of quality demanded by market at least cost”.

The logistics solution innovations in an FTWZ are endless. Typically,

  • For the big retail chains, FTWZ removes regulatory limitations of consolidating products from suppliers from different countries in South Asia.  The processes for end-distribution of the items to world-wide stores, say in Europe and USA, can be done in the FTWZ in India, at lower costs.  Since these processes are done closer to the supply sources, there would be more effective control on inventory and also quicker payments to the suppliers.
  • An automobile manufacturer or an IT hardware manufacturer would be able to hold spares duty-free in the FTWZ and to supply it as per requirement, seamlessly, with low lead times, on duty-paid basis to the Indian market; spares could even be tested before actual supply and payment of duty also; surplus or defective spares can be re-exported without loss.
  • A foreign rubber supplier could procure from Indonesia, Thailand or Malaysia and store it in an FTWZ during production season and supply to tyre manufacturers in India as per their production cycle requirements.
  • Foreign exchange hedging and cost equalisation by resorting to forward trading makes such operations cost-effective. An international coffee trader could warehouse Indian coffee output in the FTWZ and dispatch it later on as per maturing of contracts abroad.  There are similar possibilities for a bulk liquid cargo trading hub. 
  • Again, a foreign buyer could source seafood as and when available from India and store it under refrigeration in the FTWZ, for removal to overseas buyer’s location as per their requirements.
  • FTWZ can be used to assemble even motor vehicle kits or IT hardware or mobile phones by sourcing different parts duty-free from different countries.  
  • Cochin Port FTWZ could also be used as a stocking point for supplies to Maldives, which is almost entirely dependent on foreign sources for its supplies. 
  • Cochin Port FTWZ also has great potential for ship chandelling and provisioning. 

Cochin Port has a geo-strategic locational advantage by virtue of it lying on the direct sea route from Europe to the Far East. 

Cochin Port is home to the International Container Transhipment Terminal at Vallarpadam, which has been designed to be a transhipment hub for India. The ICTT is projected to handle about 3 million TEUs eventually.  As such, the Cochin Port FTWZ has the potential to make Cochin a distribution hub for the South Asian Region.  

Willingdon Island also offers excellent connectivity by means of road and rail. Cochin International Airport is located just 35kms from Cochin Port.

A big advantage of the Cochin Port FTWZ is the ready availability of land: the entire 102 acres of land demarcated for the FTWZ is owned by the Cochin Port Trust and is free of any lessees or encroachments.

For further details of India’s SEZ/FTWZ scheme, please refer to http://www.sezindia.org/sez/faqs.html

 

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Cochin Port FTWZ

 In India, a Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and is deemed to be a foreign territory for the purposes of trade operations and duties and tariffs. Free Trade and Warehousing Zones (FTWZ) are a special kind of SEZs to create trade related infrastructure to bridge the gap in the existing facilities available for trading and storage activities for foreign trade with freedom to carry out trade transactions in free currency. The SEZ/FTWZ is regulated by the provisions of the SEZ Act, 2005 and SEZ Rules, 2006.

FTWZs can be developed as international trading hubs, serving as key links in global logistics and supply chains servicing both India and the world. FTWZs help to mitigate customer’s logistics & supply chain challenges unique to India. 

Under the scheme of the SEZ Act, the SEZ/FTWZ is developed and set up by a developer along with co-developers. 

100% Foreign Direct Investment is permitted under the automatic route, which means, without any specific prior approval either by the Government or the Reserve Bank of India, for setting up of Special Economic Zone/FTWZ. So foreign companies can also develop and set up SEZ/FTWZs by becoming a developer or co-developer.

Cochin Port Trust has been given in-principle approval by the Ministry of Commerce & Industry for developing and setting up an FTWZ on 102 acres of land on Willingdon Island, and has been declared as developer of Cochin Port FTWZ.  

Cochin Port is trying to select a co-developer through a transparent process through the present auction-cum-tender.  The entity offering the highest of the sum of upfront premium, and the amounts offered as guaranteed revenue to Cochin Port over the 30 years discounted at 6% will be selected as the co-developer of the Cochin Port FTWZ.  The co-developer will be given the 102 acres of land on lease of 30 years, and should pay the applicable lease rent on the land to Cochin Port.  

The co-developer is expected to develop the FTWZ on DBFOT basis.  It is estimated that the cost of this development will be around Rs.500 crores. 

Although FTWZs are permitted to have both processing and non-processing areas, the Cochin Port FTWZ has only processing area; as such, there are no areas earmarked here for residential or recreational purposes, and only FTWZ units will be permitted to be located in the Cochin Port FTWZ. 

The co-developer is expected to run the FTWZ in accordance with the SEZ Act, 2005 and SEZ Rules, 2006.  He will have the right to allot on lease, on commercial basis, land or built up space within the FTWZ to SEZ units who need to take approval for their activity in the FTWZ from the Development Commissioner, Cochin Special Economic Zone.  It is also open to the co-developer to run an FTWZ unit himself and offer services to importers/ exporters.

The co-developer enjoys exemption from income tax under Section 80 IA of the Income Tax Act, 1961 for a block of ten years of his choosing in the first 15 years of starting of the FTWZ.  He is also permitted to import duty-free material for developing the FTWZ.  He also has the freedom of procuring material duty-free from the Domestic Traffic Area (DTA) for the same purpose.    

The co-developer of the FTWZ shall have to construct a minimum built up area of 100,000 square metres within a period of ten years from the date of notification of the Special Economic Zone, and at least fifty percent within a period of five years from the date of such notification Rule 5(7).

While land in the FTWZ cannot be sold, the land/built up area in the processing area shall be given on lease for a period not less than five years to the valid LOA holders.

The FTWZ shall have specified entry and exit points and shall be fully secured by a ten feet high wall.

The land/built up space in the processing area may be leased for creating general facilities like canteen, public telephone booths, etc. with the approval of the Approval Committee  (Rule 11(5).

Units operating in the FTWZ enjoy the following benefits:

  • They can import goods duty-free and warehouse it in the FTWZ; they can re-export these goods without paying duty.  They can also procure goods free of excise duties from the Indian market.  This facility is available for the goods the unit trades in, as well as for goods required for the development, operation and maintenance of the SEZ unit.
  • Units enjoy 100% Income Tax exemption on export income under Section 10AA of the Income Tax Act, 1961 for the first 5 years of operation, 50% for the next 5 years and 50% of the ploughed back export profit for next 5 years.
  • SEZ units can also have external commercial borrowing upto US $ 500 million in a year without any maturity restriction, through recognized banking channels.
  • FTWZ units are exempted from Central Sales Tax.
  • They also enjoy exemption from Service Tax for all activities in the FTWZ (including labour, rentals, etc.).
  • Products from India entering the FTWZ are treated as deemed export providing immediate benefits to suppliers
  • Indian companies exporting into FTWZ are able to count the exports against their export quotas
  • FTWZ units also have single window clearance for Central and State level approvals.
  • There is also exemption from VAT for procurement from India.  
  • The shared warehousing and equipment in the FTWZ reduces expenses.
  • The availability of onsite Customs means reduced time for Customs clearances.
  • The improved logistics and connectivity lead to reduced delivery times.

Units can be set up in the FTWZ by foreign companies with 100% FDI under the automatic route. 

Units in FTWZ are allowed to hold the goods on account of the foreign supplier for dispatches as per the owner’s instructions and can trade with or without labelling, packing or re-packing without any processing. Such activities may include refrigeration for storage as well as assembly of Completely Knocked Down or Semi Knocked Down kits. The units can re-sell or re-invoice or re-export the goods imported by them.

All transactions in an FTWZ are only in convertible foreign currency.

Units in FTWZ can act as custodians of foreign entities and hold stock for them. This opens up a new world of opportunities in logistics in consonance with developments in international trade wherein manufacturers or traders in India or abroad can be serviced from FTWZ with goods being billed directly by the seller to the buyer and consideration also flowing directly from buyer to seller.

The mechanics of such functioning is that all Special Economic Zones/FTWZ are deemed to be port, airport or ICD and as such are eligible for a LoCode, which enables goods to be moved directly from gateway port/airport to such Zone without any documentation on the part of the importer and under a sub-manifest. Thereafter, if the goods are to be cleared to a DTA entity on orders of foreign client, the Bill of Entry for Home Consumption will be filed by such DTA entity as per Rule 48 of SEZ Rules, 2006 and duty paid thereon. Hence, goods do not need to have a bill of entry till dispatch to DTA entity if the goods are imported under Bill of Lading that identifies the FTWZ as the place of destination.

  • The primary difference with existing warehouses wherein goods can be stored without payment of duty till time of clearance is that the Bill of Entry will have to be filed on entry into India for which Bill of Lading will have to be issued in favour of Indian importer and which automatically means release of payment. Nor would the supplier like to relinquish control of the goods without receiving payment.
  • FTWZs would suit the financials of the buyer in India who may prefer to place orders as per fund availability.
  • Further, goods stored in Customs bonded warehouses are liable to interest on duty so deferred while it is not a liability in the FTWZ based on “foreign territory” concept.
  • Therefore, foreign suppliers would be able to hold their stocks as close to their markets as warehousing costs will permit and in the globalized system of trade and manufacturing, is a facility that blends well with its philosophy of “supply of quality demanded by market at least cost”.

The logistics solution innovations in an FTWZ are endless. Typically,

  • For the big retail chains, FTWZ removes regulatory limitations of consolidating products from suppliers from different countries in South Asia.  The processes for end-distribution of the items to world-wide stores, say in Europe and USA, can be done in the FTWZ in India, at lower costs.  Since these processes are done closer to the supply sources, there would be more effective control on inventory and also quicker payments to the suppliers.
  • An automobile manufacturer or an IT hardware manufacturer would be able to hold spares duty-free in the FTWZ and to supply it as per requirement, seamlessly, with low lead times, on duty-paid basis to the Indian market; spares could even be tested before actual supply and payment of duty also; surplus or defective spares can be re-exported without loss.
  • A foreign rubber supplier could procure from Indonesia, Thailand or Malaysia and store it in an FTWZ during production season and supply to tyre manufacturers in India as per their production cycle requirements.
  • Foreign exchange hedging and cost equalisation by resorting to forward trading makes such operations cost-effective. An international coffee trader could warehouse Indian coffee output in the FTWZ and dispatch it later on as per maturing of contracts abroad.  There are similar possibilities for a bulk liquid cargo trading hub. 
  • Again, a foreign buyer could source seafood as and when available from India and store it under refrigeration in the FTWZ, for removal to overseas buyer’s location as per their requirements.
  • FTWZ can be used to assemble even motor vehicle kits or IT hardware or mobile phones by sourcing different parts duty-free from different countries.  
  • Cochin Port FTWZ could also be used as a stocking point for supplies to Maldives, which is almost entirely dependent on foreign sources for its supplies. 
  • Cochin Port FTWZ also has great potential for ship chandelling and provisioning. 

Cochin Port has a geo-strategic locational advantage by virtue of it lying on the direct sea route from Europe to the Far East. 

Cochin Port is home to the International Container Transhipment Terminal at Vallarpadam, which has been designed to be a transhipment hub for India. The ICTT is projected to handle about 3 million TEUs eventually.  As such, the Cochin Port FTWZ has the potential to make Cochin a distribution hub for the South Asian Region.  

Willingdon Island also offers excellent connectivity by means of road and rail. Cochin International Airport is located just 35kms from Cochin Port.

A big advantage of the Cochin Port FTWZ is the ready availability of land: the entire 102 acres of land demarcated for the FTWZ is owned by the Cochin Port Trust and is free of any lessees or encroachments.

For further details of India’s SEZ/FTWZ scheme, please refer to http://www.sezindia.org/sez/faqs.html

 

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CONSTRUCTION   OF MULT

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