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The Videocon Group has requested the Centre to withdraw the SEZ approval for its planned IT Park in Jalpaiguri, but its officials in Calcutta clarified that the project itself was on.

“Earlier, the project was planned as a special economic zone (a tax-free enclave) but now we have decided to change it to a domestic project,” group vice-president Gautam Sengupta said.

Units in SEZs have to export whatever they produce but, Sengupta said, “after mulling over the recent economic slump in Europe and the US, and the strictures by their governments to control outsourcing, we could assess that it was not possible for us to sell the entire produce outside India”.

He added: “This prompted us to (seek a) change (in) the project’s status... meaning we would not avail the facilities of an SEZ and can sell the products in India.”

The inter-ministerial board of approval, chaired by commerce secretary Rahul Khullar, will consider the request on January 24, sources in Delhi said.

“The developer has requested withdrawal of the formal approval (for SEZ status) stating the company is not able to implement the project owing to the latest business outlook of the region,” says the agenda paper of a board of approval meeting.

A Union commerce ministry official, however, said that although the developer had cited the economic slowdown, the “main reasons for the move were the Direct Taxes Code and the imposition of the Minimum Alternate Tax (MAT)”.

SEZ developers — and the units set up there — got high tax exemptions but the new tax code and the imposition of MAT have cut down the benefits of setting up factories in these special zones as opposed to ordinary industrial parks.

According to the revised Direct Taxes Code draft, expected to come into force in April 2012, exemptions for special zones will be confined to those that already exist. As a prelude to the shift to the new tax code, the 2011-12 Union budget proposed an MAT of 18.5 per cent on the book profits of SEZ developers and units, who were earlier exempted from MAT.

Commerce ministry officials said the uncertainty over tax exemptions for the new SEZs had led to declining interest in the tax-free enclaves and prompted several requests for withdrawal of SEZ approval.

SEZ approval comes in three phases: preliminary approval, formal approval and notification. According to the latest statistics, there are 583 approved SEZs in India, 381 of them notified, and 148 zones have gone operational with 3,308 units. However, between December 2008 and July 2011, as many as 33 developers surrendered their SEZ projects.

Videocon Realty and Infrastructure Ltd had been given both preliminary and formal approval for its IT-and-ITES project on a 25-acre plot at Dabgram on Siliguri’s outskirts. The company said it had decided about a year ago not to pursue the SEZ status and so did not seek notification.

An official said the company plans to use 30 per cent of the total space for its own businesses, such as director-to-home television and mobile phones, and is looking for an anchor investor for the remaining portion.

It is also seeking some relaxations in the terms under which it is allowed to lease land to IT players according to its development agreement with the Siliguri Jalpaiguri Development Authority.

Videocon has physical possession of the land, given to it by the previous Left Front government. It plans to start construction from March and complete the three-phase project in four to five years.

In the first phase, one lakh square feet of space will be built on, which will go up to one million square feet when fully completed. The company, promoted by the Dhoot family, plans to invest Rs 500 crore in the project and expects to create 30,000-odd jobs.

“In the first phase, we will invest Rs 100 crore and generate employment for 10,000 people or so. We will visit Siliguri next week to work on the progress of the project,” Sengupta said.

“Along with IT and ITES, we have thought of using the infrastructure for educational purposes.”

Infrastructure major Larsen and Toubro too has approached the commerce ministry to surrender its planned IT and ITeS special zone at Coimbatore in Tamil Nadu, citing “economic unviability”.

“The developer has requested de-notification of the SEZ... in the changed economic scenario,” the agenda paper of the board of approval meeting says.

Several others too had moved the board with de-notification requests. They include DLF, Bata India, Unitech Infopark, Maytas Ventures, Essar (Hazira SEZ), and Satyam Computer Services.

Others such as Reliance, Parsvnath and Ranbaxy Laboratories have sought additional time for executing projects, citing the economic slowdown.

Commerce secretary Khullar has said that the withdrawal of the income-tax exemption will dent both the viability of the SEZ scheme as well as India’s image as a safe place to invest.

To offset the slump in interest in the special zones, the commerce ministry is promoting “national investment and manufacturing zones” or NIMZs, which are said to be SEZs in a new avatar with a crucial difference: the NIMZs are meant to boost domestic manufacturing.