Introduction
On March 31, 2026, the Ministry of Finance released notification No. 11/2026-Customs dated 31st March 2026 (hereinafter referred to as the “Notification”) under Section 25 of the Customs Act, 1962 and it came into effect on April 1, 2026.
The notification addresses a critical point of law that frequently invites ambiguity: the tax treatment of goods manufactured within a Special Economic Zone (SEZ) upon their removal into the Domestic Tariff Area (DTA) that is, the territory of India outside the Special Economic zone’s jurisdiction.
It governs the fiscal obligations of units operating in the SEZ. Specifically, it stipulates the rate and method of calculating customs duty upon the clearance of manufactured goods into DTA.
Purpose of the Notification
The purpose of this notification is to grant partial exemption from customs duty on goods manufactured inside an SEZ when they are removed to the DTA. Under the normal course of things, whenever goods are cleared from SEZ into the DTA, the law treats that movement as an import into India. Consequently, full customs duty including countervailing duty and anti-dumping duty becomes payable under Section 30 of the SEZ Act, 2005.
While the foundational objective of the SEZ Act is to facilitate export-oriented growth, the Government recognizes the necessity for reasonable regulatory flexibility. To balance the primary mandate of exports with the commercial realities facing these units, the notification introduces a concessional rate of duty. This allows SEZ units to sell into the domestic market, subject to certain conditions.
What does this imply in practice? Well, instead of having to pay the full customs duty i.e. Basic Customs Duty (BCD) along with the full Agriculture Infrastructure and Development Cess, or AIDC, an eligible SEZ unit now only has to pay a part of these charges.
Who can avail the benefits of this Notification
This notification applies only to a specific category of SEZ units. The exemption is not available to every unit automatically. The very first condition is that, the unit must have commenced production of goods on or before the 31st day of March 2025 which is a crucial cut-off date. Units that started production after this date cannot claim the benefit of this notification. Secondly, the unit must prove to the satisfaction of the proper customs officer that the goods for which the exemption is claimed fulfil all the conditions laid down in the annexure to the notification. In simple words, the benefit is only for established SEZ units that were already manufacturing before April 2025 and can demonstrate compliance with the rules.
Who is excluded from availing benefits of this Notification
The notification excludes two categories from its scope-
- Units set up in a Free Trade and Warehousing Zone (FTWZ). These are special areas within SEZs meant primarily for trading and warehousing, not for manufacturing, and therefore they are not covered.
- Goods that are first imported into an SEZ and then removed to the DTA either in the same form (as such) or after use. This means the benefit is only for goods that are actually manufactured within the SEZ, not for goods that were merely imported into the SEZ and then re-exported to the DTA without substantial transformation.
Detailed Breakdown of Tables mentioned in the Notification
This notification contains two detailed tables: Table I and Table II which specify the concessional duty rates for several categories of goods. Table I covers a vast range of goods, starting from chemicals and plastics to textiles, machinery, and electronics. The table specifies the concessional Basic Custom Duty (BCD) rate for each chapter or heading of the Customs Tariff. The goods attract a concessional rate of 9% or 6.5% instead of the much higher standard rate of 20% and 7.5% applicable prior to this notification.
Table II, on the other hand, deals with specific goods like certain fertilisers, dairy products (milk and cream), PVC flex films, footwear, solar lanterns, and certain electronic components. Table II specifies both the concessional BCD rate and the concessional AIDC rate. Some goods in Table II, such as PVC flex films, attract a BCD of 10% and an AIDC of 10% as the concessional rate compared to the standard BCD rate of 20% that was applicable prior to this notification
Important Conditions mentioned in the Annexure
The exemption is subject to strict compliance. The annexure attached to the notification lists five key conditions that every SEZ unit must strictly comply with.
Condition 1: Filing of Bill of Entry on the Common Portal and Assessment by Proper Officer
The first condition is largely procedural and absolutely mandatory. It requires the SEZ Unit to file the Bill of Entry for home consumption on the ICEGATE portal, and the Bill of Entry must be assessed by the proper officer.
Condition 2: Minimum 20% Value Addition Through Genuine Manufacturing
Moving on to the second condition. This one is about substance, not just paperwork. The goods for which the exemption is claimed must have been manufactured by the unit in the SEZ, and they must have undergone a minimum value addition (Also referred as VA) of at least 20%. The notification provides a specific formula for calculating this value addition: VA = A – (B + C) divided by (B + C), multiplied by 100.
A = Assessable Value of the goods removed into the DTA by the unit, which is essentially the price at which the goods are being sold or the value determined for customs purposes.
B = Sum total of the cost, insurance, and freight value of all imported inputs used for the manufacture of such goods
C = Value of inputs procured from the DTA itself that were used for the manufacture of such goods.
To put this formula in plain language, the unit must take the final sale value of the goods, subtract the total cost of all imported materials and all locally procured materials that went into making those goods, and then divide the result by the total material cost. The final number, multiplied by 100, gives the percentage of value that the unit itself added through its manufacturing process. This percentage must be at least 20%.
Condition 3: The 30% Cap on DTA Sales
The third condition is about quantity. It imposes a clear limit about the quantity of the goods cleared into DTA. In any given financial year, the total value of goods removed to the DTA while availing this exemption cannot go beyond 30% of the highest annual FOB (free on board) value of exports of manufactured goods that the unit has achieved in any one of the three immediately preceding financial years.
SEZ Units cannot use this route to sell more than 30% of your best annual export performance into the domestic market. The original motive of the SEZ Act remains intact and unchanged: that the primary focus must remain on exports. So, suppose an SEZ unit had its best export year at ₹100 crores. In that case, goods only up-to worth ₹30 crores can be removed into the DTA under this concessional scheme.
Condition 4: No Double Benefits on Inputs
The fourth condition is about preventing something that is commonly called “double dipping.” It says that the unit cannot claim any benefit of duty drawback or any other export benefit available under the Foreign Trade Policy in respect of any of the inputs used to manufacture the goods that you are removing to the DTA.
It signifies that an SEZ unit cannot claim both i.e. the concessional duty benefit under this notification and also other export incentives like duty drawback for the same inputs. This condition exists precisely to prevent units from gaining an unfair advantage by claiming multiple benefits on the same set of inputs.
Condition 5: Production of Certificate and Declaration at the Time of Removal
Finally, the fifth condition. This one kick in at the time the goods are actually removed from SEZ to DTA. At that moment, the SEZ Unit must produce a certificate from the jurisdictional Development Commissioner. That certificate has to confirm three things:
- The date on which your unit commenced production in the SEZ.
- The annual FOB value of exports of manufactured goods made by your unit in each of the preceding three financial years.
- The extent of value addition you have achieved, as prescribed in Condition No. 2.
In addition to the certificate a declaration has to be furnished, stating that failure to comply with the conditions of the notification, full duty leviable on the exempted goods will be paid by the importer or the person who avails the exemption.
The Validity period of the Notification
The Notification came into force on April 1, 2026, and it will remain effective only up to March 31, 2027. In other words, it can be considered as a limited benefit and not a permanent amendment.
The implication for SEZ units is clear. Any unit seeking to avail itself of this concessional duty structure must plan its removals to the Domestic Tariff Area carefully within the prescribed one-year window. Once March 31, 2027 has passed, the notification automatically ceases to have effect. Beyond that date, the normal customs duty rules will apply once again, as if this notification had never been issued.
That said, this time limit is not arbitrary. It serves a practical purpose for the government as well. The one-year duration provides the authorities with sufficient opportunity to assess how the scheme is functioning as to whether it is achieving its stated objectives, how many units are actually utilising the benefit, and what impact the scheme is having on government revenue and on export performance. Based on that assessment, the government may then take a decision on whether to continue the scheme, introduce modifications, or allow it to expire.
Audit and Compliance
The notification also subjects all units claiming exemption under it to audit under Rule 79 of the Special Economic Zones Rules, 2006. This is an important compliance requirement. It means that the tax authorities have the power to examine the records, accounts, and documents of the unit to verify that all conditions have been correctly followed. If any unit is found to have claimed the exemption fraudulently or without fulfilling the conditions, it will be liable to pay the full duty that was otherwise exempted. The declaration required under the fifth condition makes the unit personally responsible for such payment in case of non-compliance.
Impact on SEZ units
In practical terms, this notification offers a calibrated and conditional window for SEZ units to service the domestic market at reduced customs duty. For a unit that has been exporting successfully, this is an opportunity to sell a portion of its manufactured goods within India without paying the full import duty. However, the conditions are stringent. The 20% value addition requirement means that pure trading or simple assembly operations will not qualify. The 30% cap on DTA sales relative to past export performance ensures that the unit’s primary character as an export-oriented entity is not lost. The requirement of a certificate from the Development Commissioner adds a layer of administrative oversight. Units must carefully evaluate whether they meet all the conditions before planning any DTA removal under this notification.
AMLEGALS Remarks
The Notification appears to be a fairly well thought out piece of legislation. It attempts to strike a balance between two objectives that often pull in opposite directions: on the one hand, promoting exports, and on the other, providing SEZ units with a reasonable avenue to access the domestic market. It is important to clarify that this is not a blanket exemption. It is, quite simply, a conditional concession.
For those SEZ units that meet the eligibility criteria that is, they commenced production before March 2025, have a credible export track record, and can genuinely demonstrate 20 per cent value addition this notification offers a real and tangible benefit for the financial year 2026-2027.
Having said that, the other side of the picture cannot be ignored. The conditions attached are strict. The 30 per cent cap on DTA sales is fairly tight. The prohibition on double benefits means that units must make careful choices about which incentives to claim. And then there is the audit requirement, which is by no means a minor matter. Taken together, these conditions mean that units cannot afford to be casual about compliance. They must proceed with caution, and they must ensure that every requirement is met correctly.