Analysis of DGFT Notification No. 20/2026-27 dated 02 June 2026 Amendment in Para 2.03A(iii) of Foreign Trade Policy 2023: Rationalisation of QCO Exemptions for SEZ Units and Developers.

Introduction

The Directorate General of Foreign Trade (DGFT), Ministry of Commerce & Industry, vide Notification No. 20/2026-27 dated 02 June 2026, has introduced a significant amendment to Para 2.03A(iii) of the Foreign Trade Policy (FTP), 2023 concerning the applicability of Quality Control Orders (QCOs) and Bureau of Indian Standards (BIS) requirements on imports undertaken by Special Economic Zone (SEZ) Units and SEZ Developers.

Issued under the powers conferred by Sections 3 and 5 of the Foreign Trade (Development and Regulation) Act, 1992, read with Paragraph 1.02 of FTP 2023, the amendment comes into force with immediate effect. The revised provision seeks to align the Foreign Trade Policy with the statutory framework established under the Special Economic Zones Act, 2005 and the SEZ Rules, 2006, while providing greater clarity regarding the applicability of QCOs on imports into SEZs and subsequent clearances into the Domestic Tariff Area (DTA).

The amendment represents an important policy measure aimed at facilitating business operations within SEZs, eliminating interpretational ambiguities, and ensuring consistency between the Foreign Trade Policy and the SEZ legal framework.

Background and Regulatory Context

Over the past few years, the Government of India has increasingly relied on Quality Control Orders (QCOs) issued under the BIS Act, 2016 as an instrument to ensure product quality, consumer safety, environmental protection, and adherence to prescribed Indian Standards. Products covered under QCOs are generally required to comply with applicable BIS standards and certification requirements before they can be manufactured, imported, sold, distributed, or traded in India.

However, the applicability of such QCOs to goods imported into Special Economic Zones has been a matter of practical concern. Since SEZs are deemed to be outside the customs territory of India for the purpose of authorised operations, industry stakeholders have consistently sought clarity regarding the extent to which QCOs should apply to imports intended exclusively for use within SEZs.

The present amendment addresses this issue by explicitly recognizing the distinct legal and operational status of SEZs and aligning the FTP provisions with the broader objectives of the SEZ regime.

Position Prior to the Amendment

Before the issuance of Notification No. 20/2026-27,Para 2.03A(iii) of FTP 2023 provided a limited exemption from mandatory Quality Control Orders for imports by SEZ Units. The exemption was available only under specific conditions:

• The imported goods were required as inputs for export production.
• No clearance of such imported inputs, or goods manufactured from those inputs, was permitted into the Domestic Tariff Area.
• The exemption was available only in cases resulting in physical exports.
• An undertaking to this effect had to be furnished by the SEZ Unit to the concerned Development Commissioner at the time of import.

While this provision provided relief to export-oriented manufacturing units, its scope remained relatively narrow. It did not expressly cover SEZ Developers, infrastructure-related imports, capital goods, consumables, spares, or other categories of goods required for authorised operations within the SEZ ecosystem.

Scope of the Revised Provision

The amended Para 2.03A(iii) substantially broadens the coverage of the exemption framework. Under the revised provision, exemption from QCOs issued under the BIS Act, 2016 shall be available to both SEZ Units and SEZ Developers for the import of all permissible goods required for authorised operations within Special Economic Zones.

The scope of eligible imports now expressly includes:

• Raw materials;
• Components;
• Consumables;
• Spare parts;
• Manufactured capital goods; and
• Any other permissible goods required for authorised operations.

The amendment marks a fundamental shift from an export-production-based exemption regime to an authorised-operations-based exemption framework, thereby bringing the FTP provisions in line with the legal architecture governing SEZs.

Alignment with the SEZ Act, 2005 and SEZ Rules, 2006

A key objective of the amendment is to harmonise the Foreign Trade Policy with the provisions of the SEZ Act, 2005 and Rule 27 of the SEZ Rules, 2006.

The SEZ framework permits duty-free import of goods required for authorised operations, which encompass a wide range of activities extending beyond manufacturing and exports. These include infrastructure development, warehousing, logistics, trading, services, utilities, maintenance, and other approved activities undertaken within the SEZ.

The earlier FTP provision, by limiting the exemption primarily to inputs used in export production, did not fully reflect the broader scope envisaged under the SEZ legislation. The revised provision rectifies this inconsistency and ensures that the treatment of imports under the Foreign Trade Policy is fully aligned with the statutory rights and entitlements available under the SEZ regime.

Extension of Benefits to SEZ Developers

One of the most significant aspects of the amendment is the explicit inclusion of SEZ Developers within the ambit of the exemption. SEZ Developers routinely import a variety of goods for the establishment, operation, and maintenance of SEZ infrastructure, including:

• Power generation and distribution equipment;
• Construction machinery;
• Building and infrastructure materials;
• Utility systems;
• Communication and information technology equipment;
• Security and surveillance systems; and
• Capital assets required for authorised operations.

By expressly extending the QCO exemption to SEZ Developers, the amendment removes a major area of uncertainty and facilitates smoother implementation of infrastructure projects within Special Economic Zones.

Applicability of QCO Exemption within SEZs

The revised provision clarifies that the exemption from Quality Control Orders applies only in respect of the use of imported goods within the SEZ for authorised operations. Accordingly, goods imported without complying with QCO or BIS certification requirements may be freely utilised within the SEZ, provided such use is connected with authorised operations approved under the SEZ framework.

This clarification is particularly significant as it recognises the distinct regulatory treatment accorded to SEZs while simultaneously preserving the integrity of India's quality control regime for the domestic market.

Treatment of Clearances into the Domestic Tariff Area

While liberalising the import framework for SEZs, the notification also introduces an important safeguard regarding movement of goods into the Domestic Tariff Area. The amended provision unequivocally states that any removal, transfer, or clearance of imported goods, or goods manufactured or processed therefrom, from an SEZ into the DTA shall be subject to compliance with:

• Applicable Quality Control Orders;
• Bureau of Indian Standards certification requirements; and
• Any other laws, rules, regulations, or statutory requirements in force at the time of such clearance.

This provision ensures that products entering the Indian domestic market continue to meet prescribed quality and safety standards, irrespective of the exemption available at the stage of import into the SEZ.

Regulatory and Commercial Implications

The amendment has important implications for businesses operating within Special Economic Zones.

For SEZ Units, the revised framework facilitates easier access to global supply chains by eliminating the need to evaluate QCO applicability at the import stage for goods intended exclusively for authorised operations within the zone. This is expected to reduce compliance costs, improve procurement efficiency, and strengthen export competitiveness.

For SEZ Developers, the amendment provides long-awaited regulatory certainty regarding imports required for infrastructure development and maintenance activities. This is likely to support faster project execution and improve the overall ease of doing business within SEZs.

From a broader trade facilitation perspective, the amendment reinforces India's commitment to creating a business-friendly environment for export-oriented industries while maintaining robust quality controls for goods entering the domestic market.

Compliance Requirements

Although the exemption framework has been expanded, the notification continues to require procedural safeguards. SEZ Units and SEZ Developers availing the exemption must furnish an undertaking to the concerned Development Commissioner at the time of importation. The undertaking must confirm that:

• The imported goods shall be used solely for authorised operations within the SEZ; and
• Any subsequent clearance into the Domestic Tariff Area shall comply with all applicable QCO, BIS, and other statutory requirements.

Businesses operating within SEZs will therefore need to maintain adequate records and controls to ensure compliance with these conditions.

Policy Significance

The amendment reflects a balanced and pragmatic policy approach. On one hand, it facilitates trade, investment, infrastructure development, and export-oriented manufacturing by removing unnecessary regulatory constraints on imports into SEZs. On the other hand, it preserves the objectives of the Quality Control Order regime by ensuring that products entering the domestic market remain subject to prescribed Indian standards and certification requirements.

The notification therefore strikes an appropriate balance between trade facilitation and consumer protection, while enhancing policy certainty for businesses operating within India's Special Economic Zones.

Conclusion

DGFT Notification No. 20/2026-27 dated 02 June 2026 constitutes a significant policy refinement in the administration of Quality Control Orders with respect to Special Economic Zones. By amending Para 2.03A(iii) of the Foreign Trade Policy, 2023, the Government has broadened the scope of QCO exemptions to cover all permissible goods imported by both SEZ Units and SEZ Developers for authorised operations, thereby aligning the FTP with the provisions of the SEZ Act, 2005 and the SEZ Rules, 2006.

The amendment removes longstanding ambiguities, provides greater operational flexibility to SEZ stakeholders, facilitates infrastructure development and export-oriented activities, and strengthens India's attractiveness as a global manufacturing and investment destination. Simultaneously, by mandating full compliance with applicable QCOs and BIS requirements for any goods entering the Domestic Tariff Area, the notification safeguards domestic quality standards and ensures continued regulatory oversight.

In essence, the revised provision represents a carefully calibrated measure that advances the twin objectives of trade facilitation and regulatory compliance, while reinforcing the strategic role of Special Economic Zones in India's export-led growth and industrial development agenda.

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