DGFT Amends FTP 2023: What the New QCO Exemption Framework Means for SEZ Units and Developers
India's regulatory landscape for Special Economic Zones (SEZs) has taken a meaningful step forward with the Directorate General of Foreign Trade (DGFT) issuing Notification No. 20/2026-27 dated 2 June 2026. The notification amends Paragraph 2.03(A)(iii) of the Foreign Trade Policy (FTP) 2023, bringing much-needed clarity to the application of Quality Control Orders (QCOs) and Bureau of Indian Standards (BIS) certification requirements for imports by SEZ Units and SEZ Developers. For businesses operating within Special Economic Zones, this amendment resolves long-standing ambiguities and recalibrates the compliance framework in a way that better aligns with the ground realities of SEZ operations.
The Context: Why This Amendment Was Needed
Over the past several years, India has aggressively expanded the scope of Quality Control Orders across a wide range of product categories. QCOs are regulatory instruments that make compliance with specific Indian Standards mandatory for manufacturing, import, storage, and sale of designated goods. The intent is to raise product quality, enhance consumer safety, and bring Indian goods in line with global standards.
However, this expansion created an unintended complication for businesses operating in Special Economic Zones. SEZs, by their very design, function as duty-free enclaves primarily oriented towards export production and trade. They operate under the SEZ Act, 2005 and the SEZ Rules, 2006 — a distinct legal framework that confers specific exemptions and privileges on units and developers operating within these zones.
The problem was a growing mismatch between the expanding QCO framework and the existing SEZ exemption provisions under the Foreign Trade Policy. The earlier provision under FTP 2023 offered QCO exemptions only in narrow, limited circumstances — specifically for inputs imported by SEZ units for the purpose of export production. This created genuine uncertainty for SEZ entities importing capital goods, spare parts, consumables, and a range of other operational materials that did not fit neatly into the category of "inputs for export production." SEZ Developers, who import goods for infrastructure development and zone management, were largely left out of the exemption framework altogether.
The result was confusion, inconsistent interpretation at the port level, and avoidable compliance burdens on legitimate SEZ operations. The DGFT's amendment directly addresses these gaps.
What Has Changed: Key Provisions of the Amendment
The revised Paragraph 2.03(A)(iii) introduces several important changes that collectively broaden and clarify the QCO/BIS exemption framework for SEZs.
1. A Much Wider Scope of Eligible Goods
Under the earlier provision, only inputs imported specifically for export production qualified for QCO exemption. The amended framework extends this exemption to all permissible goods imported by SEZ Units or SEZ Developers for authorised operations within the SEZ. This now includes raw materials, parts, components, materials, replacement parts, and critically — capital goods. The inclusion of capital goods is particularly significant, as SEZ units frequently import machinery, equipment, and technology tools that are central to their manufacturing and processing operations but had previously fallen into a grey zone under the old provision.
2. SEZ Developers Are Now Explicitly Covered
One of the most notable additions in the amendment is the explicit inclusion of SEZ Developers within the exemption framework. Previously, the provision primarily addressed SEZ Units — the companies that set up operations within the zone to manufacture, process, or trade goods. SEZ Developers, who are responsible for building and maintaining the infrastructure of the SEZ itself, were not clearly covered. The amended provision removes this ambiguity, giving Developers the regulatory certainty they need to import goods for zone development and management without facing unnecessary QCO compliance hurdles.
3. Exemption Is Tied to Use Within the SEZ
The expanded exemption comes with a clear and logical condition: the imported goods must be used within the SEZ for authorised operations. The exemption is not a blanket waiver — it is specifically tied to the purpose for which the goods are imported. This ensures that the relaxation is used appropriately and does not become a loophole for circumventing quality standards in the domestic market.
4. Mandatory QCO and BIS Compliance for DTA Clearance
A critical clarification in the notification concerns the movement of goods from the SEZ into the Domestic Tariff Area (DTA). The notification unambiguously states that any removal, transfer, or clearance of imported goods — or products manufactured or processed from such goods — from the SEZ into the DTA will require full compliance with the applicable Quality Control Orders, BIS certification requirements, and all other relevant laws and regulations in force at the time of clearance.
This is a significant and well-reasoned provision. It ensures that the QCO exemption serves its intended purpose of facilitating SEZ operations and export activity, without undermining the quality and safety standards that protect domestic consumers. Businesses that import goods under the SEZ exemption and later seek to sell or transfer them into the Indian domestic market cannot bypass BIS and QCO requirements — they must meet all applicable standards before such clearance is permitted.
5. The Undertaking Requirement Continues
SEZ Units and Developers are still required to submit an undertaking to the concerned Development Commissioner at the time of import, confirming that the conditions of the exemption will be complied with. This procedural requirement ensures accountability and provides a mechanism for regulatory oversight.
What This Means for SEZ Businesses?
For companies operating in SEZs, the practical benefits of this amendment are substantial. The removal of ambiguity around capital goods and spare parts means that procurement planning becomes more straightforward. Import teams no longer need to navigate uncertain territory when sourcing machinery or operational materials. SEZ Developers gain a clearer compliance roadmap for their infrastructure-related imports. Overall, the amendment improves the alignment between FTP provisions and the SEZ Act and Rules — reducing the risk of conflicting interpretations at the ground level.
For companies that also engage in DTA sales or are considering diversifying into the domestic market, the message is equally clear: plan your compliance strategy carefully. BIS certifications and QCO requirements must be factored into your DTA clearance process from the outset.
Conclusion
The DGFT's amendment to FTP 2023 is a well-targeted regulatory correction that reflects the government's commitment to making India's SEZ framework more practical and business-friendly. By broadening the QCO exemption to cover all authorised operational imports — including capital goods — and by bringing SEZ Developers formally within the framework, the notification eliminates a major source of regulatory uncertainty. At the same time, by firmly restating BIS and QCO compliance obligations for DTA clearances, it ensures that quality standards in the domestic market remain fully protected. SEZ businesses would be well advised to review their import strategies, update their compliance frameworks, and ensure their teams are fully conversant with the new provisions as India's quality control ecosystem continues to evolve.