Broadly, the CBEC report has sought the removal of numerous exemptions, drawbacks and concessions that have turned SEZs into tax-avoidance conduits for importers and exporters without any genuine business to back them.

The CBEC’s revenue loss estimate Rs 1,75,000 crore has been derived from concessions extended for capital goods and raw material procured by functioning SEZs developers  ... The CBEC had estimated an overall revenue loss of Rs 3,50,000 crore involved in the creation of all SEZs since 2006, when the Act was passed.

The report has also suggested redefining the term "exports" by deleting the provision that allows exports to include supplying goods from one unit to another in the same or different SEZ. Investigations have found that the provision enables exporters to claim concession by transferring goods to another SEZ without physically exporting anything.

... Further, provisions of the Customs Act and Central Excise Act should be made applicable to SEZs for recovery of interest, fines or penalties if a unit fails to utilise exempted goods for authorised operations or is unable to account for the goods it imports. Currently, these provisions are exempt under SEZ Act.

Among the other key recommendations are provisions for the valuation of goods under the Custom Valuation Rules 1988, surprise checks by custom officials to examine goods and the introduction of documents for SEZs that procure goods domestically (many tend to show these purchases as imports to benefit from duty concessions).

The report has also said, the direct delivery facility without custom assessment at present prevalent only for movement of all goods within SEZs, should be restricted to emergency cargo and units with impeccable track records.

From the security perspective, CBEC has suggested that cargo, vehicles, documents and people passing in and out of SEZs should be made open to custom surveillance, both physically and through close circuit television as an anti-smuggling measure.

http://www.business-standard.com/india/news/sez-act-needs-overhaul-cbec/383867/