BANGALORE, INDIA: Here is the complete set of guidelines for the operation of the scheme.

1. Background

1.1 The Special Incentive Package Scheme (SIPS) to encourage Investments for setting up of Semiconductor Fabrication and other micro and nano technology manufacturing industries in India was notified vide Notification No.78 dated 21st March 2007 in Part-I, Section 1 of the Gazette of India (Extraordinary) [F.No.3(1)/2007-IPHW (SIPS)] (hereinafter referred to as the said notification). In accordance with paragraph 7.1 of the said notification, an Appraisal Committee (AC) under the Chairmanship of Additional Secretary, Department of Information Technology (DIT) has been constituted vide Order No.3(1)/2007-IPHW (SIPS) dated 4.4.2007.

1.2 In pursuance of paragraph 7.2 of the said notification and for the effective functioning of the Appraisal Committee (AC), the following guidelines are being issued, namely:-

2. Definitions

2.1 Fab unit
A “fab unit” means a semiconductor wafer fabrication facility. A fab unit may have linked downstream or upstream investments in the manufacture of semiconductor grade silicon or wafers, chip design, Assemble Test Mark and Package (ATMP).

2.2 Eco-system units
“Eco-system units” means units, other than a fab unit, for manufacture of semiconductors, displays including Liquid Crystal Displays (LCD), Organic Light Emitting Diodes (OLED), Plasma Display Panels (PDP), any other emerging displays; storage devices; solar cells; Photovoltaics; other advanced micro and nano technology products; assembly and test of all the above products. These units may have downstream or upstream investments in the vertical chain.

2.3 State-of-the-art technology
"SIPS" includes a large number of products involving technologies, which are changing rapidly, and at the time of appraisal of the proposals, a view, based on the inputs from experts, may be taken, as to whether the proposal could be considered as a state-of-the-art technology.

2.4 Net Present Value (NPV)
The Net Present Value (NPV) shall be calculated in the following manner:

Σ=+=101)1(iirCNPV

where:
C = Net Cash Flow
i = Number of completed years from base year
r = Discount rate (9% in this case)
The discount rate as per SIPS will be @ 9%.

2.5 Financial closure
As per RBI circular dated 7.6.2002, the term ‘Financial Closure’ for Greenfield projects is defined as “A legally binding commitment of equity holders and debt financiers to provide or mobilize funding for the project. Such funding must account for a significant part of the project cost, which should not be less than 90 per cent of the total project cost, securing the construction of the facility.” The financial closure of the project must be certified by a Chartered Accountant. The period for financial closure and terms may be stipulated at the time of approval of the project under SIPS.

2.6 Capital expenditure
(a) “capital expenditure” shall have the meaning assigned to it in paragraph 3.3 of the said notification referred in paragraph 1.1;
(b) the expenditure incurred on plant and machinery and equipment shall include the expenditure on plant and machinery and equipments, erection and commissioning of the same, tools, dies, moulds, jigs, fixtures and parts, accessories, components, spares of the plant and machinery or
equipment for the manufacture or processing of any of the products eligible under the SIPS;
(c) expenditure on leasing or hire and purchase of plant, machinery and equipment shall be treated as capital expenditure, subject to certificate from the auditor to the effect that the transaction is in the nature of a financial lease within the meaning of AS 19 issued by the Institute of Chartered Accountants of India;
(d) expenditure on plant, machinery and equipment, tools, dies, moulds, jigs, fixtures and parts, accessories, components, spares required for in-house or captive Research and Development; purchase of technology, IPRs, patents, copyrights during the period of first ten years of the project life, shall be treated as part of the capital expenditure;
(e) cost of technology, IPRs, patents, copyrights shall be based on auditors’ certificate, purchase agreements and assessment by the technical experts.

2.7 Threshold limit
(a) the threshold limit shall be the minimum amount of the investment calculated in NPV terms for eligibility of the benefits under the SIPS;
(b) the minimum amount of such investment shall be Rs.. 2,500 crore in case of Fab units, and Rs.. 1,000 crore in case of eco-system units, made during the period of first ten years of the project following the base year;
(c) the base year for the calculation of the threshold limit will be the financial year (FY) in which application is made. For this purpose, the FY will be the year beginning on the 1st April and ending on the 31st March of the succeeding year.

2.8 SEZ units
"An SEZ unit" means a unit set up by an entrepreneur in a Special Economic Zone under the provisions of the Special Economic Zones Act, 2005 (28 of 2005) and rules made there under.

2.9 Non-SEZ units
'Non-SEZ unit' means a unit, which does not fall under any Special Economic Zone.

3. Guidelines

3.1 The AC shall be assisted by internationally reputed sector experts in the products and technologies covered under SIPS, as also any other expert as may be considered necessary by it for effective implementation of SIPS.

3.2 An investor shall submit a proposal to the Appraisal Committee in the Form appended to these guidelines along with the feasibility report. The report shall, inter-alia, provide data; surveys; projections (including financial flows for minimum 10 years); business plan; phasing of expenditure and timelines for project implementation. The AC may call for such other information or material as may be required for the purposes of appraisal of the proposal.

3.3 Only technologically sound, large projects promoted by professionally qualified and financially sound and reputed players of proven track record, shall be eligible. Investors who can attract further upstream or downstream investments shall be encouraged.

3.4 The equity to be allotted to the Central Government or any agency specified by the Government shall be at par value.

3.5 While evaluating the proposals seeking equity, AC shall, inter-alia, consider the following:

3.5.1 Equity participation is proposed to be held directly by the Central Government or through any agency specified by the Government.
3.5.2 Whether the proposed value of equity to be allotted to the Central Government or any agency specified by the Government, is at par value. The investor shall not be allowed to dilute the Government stake without the prior approval of the Government. Allotment of preferential shares or private placements to the Government or its agency shall be considered under the scheme.

3.5.3 The proposed shareholder-cum-subscription agreement between the company and promoter for the equity investment is incorporating certain affirmative rights for the Central Government or the investing agency and any other conditions has been stipulated therein.

3.6 The AC shall, on the basis of the material and advice available on record, make appropriate recommendations to the Central Government. Approval of the project under SIPS shall vest with the Government.

3.7 The applicant while submitting the application for seeking release of all incentives other than equity contribution must ensure that such request be duly accompanied by the report of the annual audited accounts as adopted by the Board of Directors and a certificate from the auditors of the company with regard to date-wise expenditure on items eligible under the scheme. Such request shall be made and entertained subject to approval of the Government after the end of FY in which the NPV (as calculated as at the base year) exceeds the threshold value of the total eligible investment. The veracity of all claims submitted by applicants will be duly verified.

3.8 Investments made before the date of the receipt of application, and investment in land made more than six months before the date of receipt of application shall not be considered for calculation of capital expenditure under the SIPS.