Such units will not be under physical but only fiscal bond, and will execute legally enforceable undertakings (LUTs). No bank guarantee will be demanded from such units. The panel headed by N Sheshagiri was appointed by the National Task Force on IT and software development. It submitted its report to the task force this week.

The panel said that launching of the scheme will create a competitive climate for investment and production, and integrate local and export production for maximising economies of scale.

According to industry sources, such a scheme is necessary as producing IT hardware at unviable economies of scale result in high cost of production. The hardware industry took recourse to a continuously decreasing added value inmanufacture, while its software counterpart flourished due to series of incentives given and procedural simplifications.

The S-Bit unit can import all its needs without payment of all import duties, and on a self-declaration basis. A single-window agency will be created by the centre to look after administration, post-audit, dispute resolution and facilitation of the S-Bit units, S-Bit zones, and S-Bit habitats. Officers designated by the department of electronics will be associated with this agency.

The panel has suggested that the entire sale within the S-Bit unit be treated as the basis of the calculation of concessions allowed on customs duty and countervailing duty. While there will be no rebate for exports up to 25 per cent, there will be a 25 per cent concession for exports between 25 and 50 per cent. An S-Bit unit may send goods for processing to its sub- contractors in other S-Bit units without permission.

The sale of IT products manufactured from one S-Bit unit to another will be equivalent tointernational trade, and will not qualify as domestic sale. Deemed export benefits can be availed through an extension of the DEPB scheme or advanced-licensing scheme, or duty-drawback scheme. All the benefits available to an export-oriented unit will also be available to S-Bit units.

All S-Bit units manufacturing IT products including electronic components and data communication equipment/parts will be exempted from income tax for six years, provided the unit commences production by January 1, 2000. This exemption applies also for existing units who become S-Bit units by January 1, 2000.

The panel said that the S-Bit scheme would be revenue neutral in the long run for the government, and will help the IT industry sufficiently enough to meet the demands of a zero-duty regime under the WTO-ITA by 2003.