DGFT Eases QCO Norms for SEZ Imports Used in Authorized Operations

The Directorate General of Foreign Trade has substantially revised the Quality Control Order (QCO) regime applicable to imports made by Special Economic Zone (SEZ) Units and SEZ Developers. Through Notification No. 20/2026-27 dated 02 June 2026, the Central Government has amended Para 2.03A(iii) of the Foreign Trade Policy (FTP) 2023, bringing the policy framework in line with the SEZ Act, 2005 and SEZ Rules, 2006 and clarifying how QCOs and Bureau of Indian Standards (BIS) requirements apply to SEZ imports.

This change has a significant operational impact: SEZ Units and Developers can now import a far wider range of goods for authorized SEZ activities without having to meet QCOs at the point of import, subject to strict conditions for any subsequent movement into the Domestic Tariff Area (DTA).

The amendment has been issued under the Central Government’s powers:

  • Under Section 3 read with Section 5 of the Foreign Trade (Development & Regulation) Act, 1992 (22 of 1992)
  • Read with Paragraph 1.02 of the Foreign Trade Policy (FTP), 2023, as amended from time to time

In exercise of these powers, the Government has modified Para 2.03A(iii) of FTP 2023, with immediate effect, to specifically address the treatment of QCOs in the context of SEZ imports.

Position Under the Earlier FTP Provision

Narrow exemption restricted to export production

Before this notification, Para 2.03A(iii) of FTP 2023 provided only a limited carve‑out from mandatory QCOs:

  • The exemption was confined to imports of inputs required strictly for export production.
  • These inputs could not be diverted or cleared into the DTA, nor could goods manufactured from such inputs be supplied into the DTA.
  • The relaxation explicitly applied only to physical exports, which meant:
    • It was tied to outward movement of goods from India.
    • It did not clearly address scenarios involving services, intermediate supplies within SEZ, or captive consumption not linked directly to physical export.

Important: The earlier exemption from QCOs was also subject to para 2.03(c) of FTP, and was conditional upon furnishing an undertaking to the SEZ Development Commissioner at the time of import.

Compliance lock-in for DTA movement

Because DTA clearances were completely disallowed for such exempted inputs and the goods manufactured therefrom, SEZ Units and Developers had to:

  • Ring‑fence these imports strictly for export manufacturing.
  • Refrain from any domestic sales or transfers if such inputs were brought in exempt from QCOs.

This led to interpretational concerns and practical constraints, particularly where SEZs needed capital goods, consumables, or other items not easily classified as “inputs for export production” but still integral to authorized operations.

Revised Para 2.03A(iii): Wider Exemption, Clearer Conditions

The amended Para 2.03A(iii) significantly broadens the QCO exemption regime and directly links it to the authorized operations framework under SEZ law.

Coverage expanded to all permissible goods

Under the revised text:

  • Beneficiaries:

    • SEZ Units
    • SEZ Developers

  • Nature of goods covered:
    Exemption from QCOs at import is now available for all permissible goods required for authorized operations, including:

    • Raw materials
    • Components
    • Consumables
    • Spares
    • Capital goods

  • Legal basis:
    The scope of authorized use is expressly anchored in:

    • SEZ Act, 2005
    • Rule 27 of the SEZ Rules, 2006