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Published : July 12, 2010 | Author : nishantarora
Category : Company Law | Total Views : 12443 | Rating :

Nishant Arora- 5th Year New Law College Bharati Vidyapeeth University pune

Special Economic Zone Act 2005 as Unconstitutional

What are Special Economic Zones?
Special economic zone or SEZ refers to a totally commercial area specially established for the promotion foreign trade. A Special Economic Zone (SEZ) is a geographical region that has economic laws more liberal than a country's typical economic laws. Usually the goal is flourishment in foreign investment. In other words SEZs are specifically delineated enclaves treated as foreign territory for the purpose of industrial, service and trade operations, with relaxation in customs duties and a more liberal regime in respect of other levies, foreign investments and other transactions. Typically they are regions designated for economic development oriented toward inward FDI and exports fostered by special policy incentives. The SEZs in India are the outcome of the present government’s industrial policy which emphasizes deregulation of Indian industry and to allow the industries to flexibly respond to the market forces. All undertakings other than the small scale industrial undertakings engaged in the manufacture of items reserved for manufacture in the small scale sector are required to obtain an industrial license and undertake an export obligation of 50% of the annual production.

Basic Exemptions to SEZs.
• Items imported for setting up, operation and maintenance of SEZs will be exempted from customs duty.
• Exemption from excise duty for the goods required for abovementioned purposes. • Income tax exemption for a period of 10 years in the first 15 years operation.
• Exemption from central sales tax for the goods used for development and maintenance of SEZs. • 100% income tax exemption for a considerable period of time.
• 100% FDI permitted to the manufacturing sectors except for some specified. • External maturity borrowings through recognized banks with any hard regulation.
• Requirements of no import license.
• Exemption from licensing regulations for the items reserved under SSI sector.
• No routine examinations by Customs for export and import cargo. • Exemption from Central Sales Tax and Service Tax.
• Exemption from customs duties, Central Excise duties.

Main Legal Violations arising out of Special Economic Zones Act 2005.
1. Special Economic Zones Act 2005 Violates Fundamental Rights of the people guaranteed under part III of the Constitution.
“The doctrine of equality before law is necessary corollary of rule of law which pervades the Indian Constitution” The basic concept equality “equality is a basic feature of the constitution of India or any treatment of equal unequally or unequal’s as equals will be violation of the basic structure of India ” is an important concept of equality. Thus any Act or any provision of the law against the principle may be termed as bad in law. The rule “equality before law and equal protection of law “are essential principles to be followed. Also, “procedure prescribed for depriving a person of his livelihood, must meet the challenges of Article 14 and must be just fair and not arbitrary, fanciful or oppressive” . The said Act may be judged in violation of the concept of equality. By the virtue of Section 3 of the Act the procedure of making the proposal to establish the SEZ, has been laid down. Once it has been established then certain benefits are provided to the said SEZ. The area is free from the entire obligation. SEZ are specifically delineated duty free enclaves treated as foreign territory for the purpose of industrial service and transport operations with exemptions from custom duty and monoliberal regimes in respect of the other levies, foreign and other investments. Therefore it may be judged that the special treatment is given to the SEZ and thus dividing the country into two parts, namely India with hassle present Environment (other part of India) and India without any hassle or hassle free environment (SEZ area). Thus “Differentiation is unreasonable, arbitrary and ahs no rational basis and thus in violation with Article 14” It is established principal of law that “Right to life includes Right to livelihood” and also “to live with human dignity which means more than mere animal existence” . Thus it is the duty of the state to protect and respect the livelihood of the citizens. In the present matter government for the establishment off SEZ taking away the cultivable land of the farmers which are a source of their livelihood. Land, especially agricultural land is a very sensitive issue in India. There are millions of people whose livelihood depends on agricultural land. But the introduction of SEZ in India has resulted in the dispossession of agricultural land and has affected the livelihood of farmer at large. In the SEZ Act there is no provision under which farmers e provide with their livelihood which has been taken away from them in the name of the Development. Hence violates Article 21 of the Constitution. Here the authority of State Government is arbitrary and no check has made on it under the Act “When there is arbitrariness and unreasonableness there is denial of Rule of law” . Thus the Act provides unrestricted powers to the Government and procedure of identification of an area for establishment of SEZ is unjust and unfair.

2. The land acquired by SEZ is not justified on the grounds of reasonableness.
In welfare state the primary duty of the state is to secure welfare of the people. In a democracy people were not allowed to live in their own homes and their own lands. The growing issue of SEZ also leads to the growth of resistance from the rural people. Govt. and the developers are claiming that the resistance is unreasonable. Since the meaning of ‘reasonableness’ has not been defined anywhere therefore a live example may workout. In some area in the outskirts of Mumbai the farmers have been handed over land acquisition notices by the authority and the developers. The local officials’ claim that the land earmarked is unproductive but by a drive through the villages one can really eyewitness as to how “unproductive” is the lands. Further there is a difference of opinion amongst the officials also. According to an official from Maharashtra the policy clearly talks about non acquisition of irrigated and double-cropping land. But this is also true that some organization named Posco-India has acquired multiple cropping lands in Orissa. The officials from the Karnataka Industrial Areas Development Board have said that under the given guidelines 10% of the required can be double-cropped. The Baikampady SEZ has been disputed as a result of the statement made by the Union Minister for Commerce and Industry saying that 10% of the lands can be double cropped. In Andhra Pradesh, 70 Special Economic Zones have been cleared. Sir, 25,000 acres of land is going to be acquired, and, most of them are already floated there in the State. A day will come when instead of earmarking Special Economic Zones, we will have to earmark certain land for special agricultural fields. The concept of SEZ has to be thoroughly reviewed. Taking advantage of their association with the ruling dispensation, they are getting these cleared both at the national and the State level. These lands are already in use for farming , the and thus satisfying the public purpose at large, “Thus acquiring land which is already satisfying the public purpose is a fault on the part of the government ”

3. SEZs are not in accordance with sustainable development.
Convention on Biodiversity gives provisions for sustainable use of the resources that “development must be in harmony with nature”. Thus the “Right to development must be fulfilled so as to equitably meet the development and environment needs of present and future generations” , thereby maintaining its potential to meet the need and aspirations of present and future generations. Also “the environment must be preserved in such a way that there must be a suitable balance between the economic development and the concept of sustainable development.” As it is being emphasized worldwide that development be it social, economic or political must bear substantial value. While putting in the context of Indian SEZs three aspects of sustainable development must be taken into consideration. These three aspects are economy, environment and society. A summation of the three aspects tell us that SEZs must be so formulated that they can ensure production of goods and services in a continuous basis, avoidance of sectoral imbalances, restraint from over exploitation of natural resources, maintenance of biodiversity, atmospheric stability, achievement of distributional equity, adequate provision of social services and the like. If these aspects are taken care of with comprehensive and proper deliberation then SEZs can generate sustainable value. But presently SEZ are prevailing against the basic values of Sustainable Development. Environment Protection Act is inapplicable to SEZ “Right to Life includes Right to live in a pollution free environment.” However the SEZ units are exempted from environmental impact analysis under the provision of the environment (protection) Act. Further, the development commissioner will be empowered to issue consent and no objection letters in consultation with the officers of the state pollution control board. The units, which are classified as non-polluting industries, do not require a consent letter. “Causing disturbance to ecological balance which would be hazardous to life”. The development commissioner can give clearance without consulting the pollution control board. The units are permitted to submit a compliance report for maintaining prescribed pollution standards. Although the development commissioner has powers for a random check, the units within the SEZ are free to follow their own methods to maintain environmental standards. It has also been expected that the conflict between development and environment needs to be resolved properly and the environmental regulations must be proactive in nature and not to be barrier on the path of country’s economic development. In other words it is very much clear that the environment cannot be sacrificed on the excuse or the blanket of economic development of the country.

4. Relaxation/ inapplicability of a number of labour laws (including these under the Industrial Dispute Act, Contract Labour Act, Factories Act Minimum Wages Act, Trade Union Act ).

A reading of the SEZ Act leaves us under the apprehension that it hardly gives any space for the welfare of the labours. The rights of the labour class have been attacked in this Act under Section 49(1) which categorically says “Provided that nothing contained in this section shall apply to any modifications of any Central Act or any rules or regulations made there under or any notification or order issued or direction given or scheme made there under so far as such modification, rule, regulation, notification, order or direction or scheme relates to the matters relating to trade unions, industrial and labour disputes, welfare of labour including conditions of work, provident funds, employers’ liability, workmen’s compensation, invalidity and old age pension and maternity benefits applicable in any Special Economic Zones.” Similarly, the right of the State Government for granting exemption from the labour rights has also been deleted. As per the National Rural Labour Commission, an average agricultural worker gets 159 days of work in a year; and as per NSSO (2005), the average daily wage of agricultural labour in rural areas is around Rs. 51. Considering this, the estimated 82,000 agricultural labourers’ households will lose Rs. 67-crore in wages. And put together, the total loss of income to the farming and the farm worker families is to the tune of Rs. 212-crore (2,120,000,000) a year. For the marginalized, the loss of income -- even if it hovers around the poverty line has disastrous implications. After all, the small piece of land is his only economic security. 5. Special Economic Zones Act 2005 violates the letter and spirit of Constitution of India. Another question relates to the constitutional validity of these actions. The Act was amended in the State Assembly with the approval of the President of India. However, as the Act has been incorporated into the Ninth Schedule of the Constitution this action may be unconstitutional. It may be argued that by being incorporated into the Ninth Schedule this law is exempted from judicial review. However, if an amendment to the Act reverses the original objectives of the Act and violates the rights of the intended beneficiaries this may breach the Ninth Schedule and require the approval of the full national Parliament. This is a question that to date remains unresolved.

Important Questions with No Answers
• Will there be displacement and loss of livelihoods?
SEZs should not come up at cost of farmers and that the food security of the country should not get jeopardised at any cost. Estimates show that close to 114,000 farming households (each household on an average comprising five members) and an additional 82,000 farm worker families that are dependent on these farms for their livelihoods will be displaced. In other words, at least 10 lakh (1,000,000) people who primarily depend on agriculture for their survival will face eviction. Experts calculate that the total loss of income to farming and farm worker families is at least Rs 212 crore a year. This does not include other income lost (for instance, of artisans) due to the demise of local rural economies.

• Will SEZs create jobs?
The growth of employment in the entire organised sector since the inception of the reforms in 1991 has been negligible. Total employment in the organised sector is still less than 3 crore. Even in IT and ITES, boom areas of the economy, employment is less than 0.15 crore (60% of SEZs are for IT). The Indian labour force is estimated to be 45-55 crore. Thanks to growing automation, modern manufacturing grows joblessly around the world (in India, automobile production has grown rapidly, while employing less labour than before). With more automation, organised services also require limited supplies of labour. SEZs will attract modern industry and services in order to succeed. To that extent they are unlikely to generate too many jobs. Moreover, the few jobs that will be generated will be for highly skilled labour, usually not available in the countryside -- from where working people are being displaced to make room for SEZs. Kamal Nath’s claim that SEZs will create 30 lakh jobs within a few years is a fantasy: those many jobs have not been created in total since the inception of the reforms in 1991! The government does not provide information on jobs lost, only on jobs created.

In the context of the widespread discontent that the SEZ policy has generated among the people of this country, the scheme itself should be abandoned. Forcible acquisition of land should be done away with. The land acquisition law itself should be revoked, in view of its potential misuse. Decisions that involve displacement of people should not be taken without prior consultation with the local communities. The Constitution requires the gram sabhas to be fully involved whenever decisions that might lead to dislocation of people are taken. Models of development with minimal dislocation need to be adopted in preference to those that indiscriminately displace people. Land and water are going to be the two intensely contested resources in our country in the coming decades. Keeping in view the steadily declining per capita availability of land, the emerging land use patterns in the country need to be examined and a sustainable land use strategy should be evolved. Such a strategy would need to be subjected to wider public consultation. Economic development, growth and industrialization are the outcomes of good governance, not policies based on sops, subsidies and political patronage. In a democratic society like ours, the primary requirement of good governance is to provide opportunities for genuine public consultation. Finally, it is pointed out that the more successful the SEZs the more would be the loss of revenue to the government due to the tax concessions. If the overall gains from SEZs are so unclear and the government is going ahead with the scheme, then it can only be because it wants to give concessions to certain sections (who are pushing for it). In brief, if SEZs are the logical culmination of the current Indian strategy of `growth-at-any-cost’ with the cost falling on Bharat then one needs to not only scrap SEZ policy but the development strategy itself.

Authors contact info - articles The  author can be reached at: nishantarora@legalserviceindia.com

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Posted by Lokesh Sharma on April 01, 2014
We want custom notification no. 26 (a) of sez rule 2005 dated 23.05.2005

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