Economic times
22 Sep, 2007

NEW DELHI: Developers of special economic zones (SEZs) may have to provide bank guarantees to states to avail of stamp duty exemption on land.

The board of approvals (BoA), at its meeting last week, decided that developers should be given stamp duty exemption on land after they receive in-principle approval for their proposals.

However, they might be asked to provide bank guarantees equivalent to the exempted amount so states can recover the sum if developers do not use the land to build SEZs or the SEZs don’t get notified.

A source, who attended the BoA meeting, told ET that since developers start acquiring land after getting in-principle approval from the government, members agreed that this was the stage when the stamp duty exemption should be given. “It was felt that giving stamp duty refund after formal approval is given or a SEZ is notified would be unnecessarily delaying things,” the official said.

Some states, however, expressed apprehensions about being unable to recover the stamp duty exemption amount from the developer if a SEZ did not get notified for some reason. “It was felt that asking developers to furnish bank guarantees for the amount would be a sure way of getting around the problem,” the official added.

The decision would be official once it appears in the minutes of the BoA meeting. If developers are asked to furnish mandatory bank guarantees in lieu of stamp duty, it will significantly increase the initial investment.

For instance, in Haryana, a developer will have to give a bank guarantee equivalent to 8% stamp duty charged by the state. So, if a company wants to set up a SEZ on 12,500 acres at the rate of about Rs 20 lakh per acre, the bank guarantee has to be for about Rs 200 crore. The company would be able to encash the bank guarantee only after the project is notified.

Sources say the move is aimed at discouraging developers from getting into real estate plays for land earmarked for SEZ development. “A developer coming up with a mid-sized project in Gurgaon recently approached us, saying he was unable to complete acquisition of the entire land earmarked for the project. He wanted to convert it into an integrated township. We have obviously not allowed it. But there need to be specific laws to deal with such cases,” an official in the Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) told ET.

In Haryana, this is a matter of particular concern because barring Reliance and Orient Craft, all other developers have a real estate background. Meanwhile, the BoA meeting held on Tuesday formally approved 10 proposals, including three IT/ITes SEZs to be set up by Mukesh Ambani-promoted Navi Mumbai SEZ Pvt Ltd and a multi-product SEZ by Mundra Port in Gujarat.

A decision on four proposals from Uttar Pradesh was, however, deferred as the developers did not possess land. BoA chairman and commerce secretary GK Pillai clarified the proposals will be approved once the developers acquired land. The next meeting of the BoA is scheduled for October 19.
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