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.
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 Arshiya Supply Chain Management Pvt. Ltd. (ASCM), which is a Unit in the FTWZ, for trading, warehousing and other related activities called authorised operations. ASCM will provide various value optimization services to its clients.
In an FTWZ, the authorised operations comprise of trading, warehousing, packing, labelling, lashing, shrink wrapping, strapping, palletization, bottling, clubbing, consolidation, quality checking, testing, kitting, combination packing, handling, storage of empty containers, etc. as may be authorised by the Unit Approval Committee in Letter of Approval.
A Letter of Approval is the permission granted by the Unit Approval Committee to an entrepreneur to set up a unit in the FTWZ to carry on authorized operations. LOA is valid for five years from the date of commencement of the activity. It is extendable for a further five years.
Companies who are Trading entities, Importers & Exporters, 3PLs, CHAs, Freight Forwarders, Shipping Lines, Manufacturers etc., can become Units in the FTWZ. The Units are required to execute a bond-cum-legal undertaking for import and warehousing of goods inside the FTWZ.
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 service tax. 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.