What Happened
- Industry associations representing Special Economic Zone (SEZ) units and developers submitted a proposal to allow concessional-duty imports on approximately 200 product categories, including photovoltaic cells, naphtha, fungicides, non-industrial diamonds, parts of electric power machinery, certain vaccines, and aluminium billets.
- The request is linked to the global trade disruptions caused by the West Asia conflict, which has raised input costs for export-oriented SEZ manufacturers and reduced their international competitiveness.
- The government subsequently notified conditional customs duty relief (effective April 1, 2026, to March 31, 2027) allowing SEZ manufacturing units to clear goods into the Domestic Tariff Area (DTA) at concessional duty rates — covering chemicals, engineering goods, machinery, textiles, electronics, and other sectors.
- Eligible SEZ units can supply to the DTA at concessional rates up to 30% of the highest FOB export value achieved in any of the three preceding financial years.
- The measure is designed to improve capacity utilisation among SEZ manufacturers hit by export disruptions, allowing them to redirect output to the domestic market without full customs duty liability.
Static Topic Bridges
Special Economic Zones Act, 2005 — Framework and Trade Treatment
The Special Economic Zones Act, 2005 is the primary legislation governing the establishment, development, and management of SEZs in India. SEZs are treated as foreign territory for the purposes of customs and trade policy — goods imported by SEZ units for authorised operations are exempt from customs duties. Conversely, when SEZ-manufactured goods are cleared into the Domestic Tariff Area (DTA — the rest of India outside SEZs), the transaction is treated as an import into India under Section 30 of the Act, attracting applicable customs duties. This asymmetry means SEZ units ordinarily face full import duty when selling domestically, which reduces their competitiveness relative to DTA manufacturers.
- SEZ Act, 2005 was enacted to promote exports, attract foreign investment, and create employment through world-class infrastructure and a simplified regulatory regime.
- As of 2025–26, SEZs contributed approximately Rs 11.7 lakh crore in exports.
- The Ministry of Commerce and Industry administers the SEZ Act; the Development Commissioner of each SEZ is the nodal officer for approvals within the zone.
- The SEZ Act provides for single-window clearances and exemptions from several central and state taxes for units within zones.
Connection to this news: Industry's request for concessional duty on 200 products is essentially asking for a partial relaxation of the DTA-sales duty structure under the SEZ Act — allowing SEZ units to pivot from export markets (disrupted by conflict) to domestic sales at lower tax cost.
Customs Tariff Structure — Most Favoured Nation and Concessional Rates
India's import duties are levied under the Customs Tariff Act, 1975. The standard rate is the Most Favoured Nation (MFN) rate applicable to all WTO members under India's WTO schedule. The government can notify lower "concessional" rates through customs notifications under the Customs Act, 1962, either sector-wide or for specific purposes. Concessional rate notifications are a policy tool used to reduce input costs for domestic manufacturing, manage inflationary pressures, and respond to supply chain disruptions.
- Key products on the industry's proposed list: photovoltaic cells (critical for solar manufacturing), naphtha (petrochemical feedstock), aluminium billets (engineering and electrical applications), and vaccines (cold chain export-oriented units).
- The Central Board of Indirect Taxes and Customs (CBIC) administers customs notifications under the Finance Ministry.
- In the 2024–25 Union Budget, the government reduced customs duty on several items including solar glass and mobile phone components to boost PLI-linked manufacturing.
Connection to this news: The concessional import duty notification issued for SEZ-to-DTA sales mirrors the logic of past MFN rate reductions — using the duty instrument to buffer industry from exogenous cost shocks, in this case the West Asia conflict's effect on supply chain costs.
SEZ Policy Evolution — From Export Enclaves to Integrated Manufacturing Hubs
India's SEZ framework has undergone several policy shifts since the SEZ Act, 2005. Early SEZs were modelled on China's export processing zones — large contiguous areas with duty-free imports and tax holidays for export-oriented units. However, the minimum alternate tax (MAT) imposition in 2011 and the subsequent phasing out of direct tax benefits under IGCR rules reduced SEZ attractiveness. The government's Development of Enterprise and Service Hubs (DESH) Bill (tabled 2022, still pending as of 2026) proposed replacing the SEZ framework with more flexible enterprise hubs allowing domestic sales without duty penalties.
- As of early 2026, approximately 400+ SEZs are notified across India; IT/ITeS SEZs dominate by unit count, while manufacturing SEZs drive goods export value.
- The 2022 DESH Bill proposed treating hub units' domestic sales on a par with DTA manufacturers — a structural shift the current concessional duty notification approximates on a temporary basis.
- Foreign Trade Policy 2023 retained SEZ export promotion measures but emphasised shifting from incentives to entitlement-based remission schemes.
Connection to this news: The industry's request for expanded concessional imports reflects a recurring tension in SEZ policy — that the duty asymmetry on DTA sales discourages domestic pivoting during export slumps, a structural issue the DESH framework sought to address permanently.
Key Facts & Data
- Approximate number of products for which concessional import duty was sought: 200
- Product categories include: photovoltaic cells, naphtha, fungicides, non-industrial diamonds, parts of electric power machinery, vaccines, aluminium billets
- Government notification effective: April 1, 2026 to March 31, 2027
- DTA sales ceiling: up to 30% of highest FOB export value in preceding 3 years
- SEZ exports FY 2025–26: approximately Rs 11.7 lakh crore
- SEZ Act enacted: 2005 (based on Export Processing Zones model)
- Administering ministry: Ministry of Commerce and Industry
- Customs notification authority: CBIC under the Customs Act, 1962