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Free Trade Warehousing Zone is a Special Economic Zone wherein mainly trading and warehousing and other activities related thereto are carried on. It is a deemed foreign territory within the geography of India for the purpose of tariff and trade.
The Special Economic Zones Act, 2005 and the Special Economic Zones Rules, 2006 are the legal framework for FTWZ. Instructions are also issued by the Ministry of Commerce & Industries from time to time to clarify various operational aspects of FTWZ.
– Warehousing of goods on behalf of foreign or domestic clients
– Trading with or without labelling
– Packaging and repacking
– Re-sale, Re-invoice or Re-export of goods
– Assembly of complete and semi-knockdown goods
– Kitting and various value optimization services on the goods / cargo
There are two ways in which companies can operate through FTWZ:
Trading Unit: A company can become a Unit in the FTWZ for the purpose of trading, warehousing and other related activities called authorized operations.
Service Unit: Company can avail the services of CENTRAL WAREHOUSING AND TRADING (CWT) which is a Unit in the FTWZ, for trading, warehousing and other related activities called authorised operations. CWT will provide various value optimization services to its clients.
In an FTWZ, the authorised operations comprise of Warehousing, Packing, Labelling, Lashing, Shrink wrapping, Strapping, Palletization, Bottling, Clubbing, Consolidation, Quality checking, Testing, Kitting, Combination packing, Handling.
Export entitlement is available for supply of goods from Domestic Tariff Area (DTA) to FTWZ for authorised operations. The Unit or Developer can claim drawback or Duty Entitlement Pass Book in respect of goods procured from DTA. Alternatively, the same can be claimed by the DTA supplier on the basis of a disclaimer from the Unit or Developer.
Inbound taxable services as well as those performed inside the FTWZ for use in authorized operations are exempt from GST. Similarly, taxable services in relation to transportation of goods from Port to FTWZ or from one FTWZ to another FTWZ would also be exempt.
Customs duty is exempt when goods are imported into FTWZ for authorized operations.
Customs duty becomes payable at the time of clearance of goods into DTA. In case of piecemeal clearance, the customs duty would be payable on such piecemeal quantity cleared into DTA and not on the full quantity received into FTWZ. Therefore, the customs duty can be deferred by importing the goods into FTWZ.
Imported goods can be stored in FTWZ for up to 2 years without payment of customs duty. FTWZ is the only scheme in India which allows deferment of customs duty without incurring interest or penalty.
Supply of goods from DTA to FTWZ is export as per SEZ Act. Hence, benefits available for export out of India are also available for supplies from DTA to FTWZ.
Trading profit earned on re-export of imported goods from FTWZ is exempt from lncome Tax.
All transactions by the unit in FTWZ have to be in convertible foreign currency. Therefore, the sale and purchase by a trading unit and transactions of service by service unit have to be in foreign currency.
The benefits can be classified under :
– Importing products into lndia through FTWZ
– Exporting products out of India through FTWZ
– Re-exporting products out of India through the FTWZ
Import Benefits :
– Duty deferment benefits, thus unlocking working capital
– Hassle-free business environment in terms of Local laws regulatory compliance
– 24 / 7 Customs clearance enhancing speed and efficiency of India distribution
– Quatity control capability prior to duty-payment (will allow companies to have quality control before the duty payment
– Enabling implementation of Vendor Managed inventory (VMl) Model
– Postponement Distribution capabilities
– Products from India entering the FTWZ are treated as an export thereby providing immediately (Duty Drawback, DEPB Credits etc.) to suppliers or companies in DTA This will allow companies to consolidate, value- optimising and conduct quality control of before end distribution world-wide increasing supply chain efficiencies (forward & reverse)
– Local Tax Exemption (e.g. CST, Sales Tax, Excise e VAT) on purchase of material from DTA operations.
– Ability to conduct Quality Control before despatch from India and flexibility of sending in repairs or replacement
– Hassle-free business environment in terms of local laws & regulatory compliance
– Enhanced Capital Cash Flow and Higher Inventory Visibility
– Income Tax exemption on Re-export of Imported goods.
– Service tax exemption on all activities conducted inside the FTWZ including rentals & labours.
– Exemption from custom & stamp duty on imports into FTWZ, meant for re-export out of India.
– Hassle free re-export of value optimising products.
– Ability to leverage India as a regional/global distribution & value optimising hub