‘ZERO RATE SALES’ UNDER TAMIL NADU VALUE ADDED TAXES ACT, 2006

Section 2(44) of Tamil Nadu Value Added Tax Act, 2006 (‘Act’ for short) defines the terms ‘zero rate sale’ as a sale of any goods on which no tax is payable but credit for the input tax related to that sale is admissible.

Section 18(1) of the Act provides that the following shall be ‘zero rate sale’ and shall be eligible for input tax credit or refund of the amount of the tax paid on the purchase of goods specified in the I Schedule including capital goods, by a registered dealer in the State, subject to such restrictions and conditions as may be prescribed-

• A sale as specified under Section 5(1) or Section 5(3) of Central Sales Tax Act, 1956;
  • Section 5(1) of the Central Sales Tax Act, 1956 provides that a sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have cross the customs frontiers of India;
  • Section 5(3) of the Central Sales Tax Act, 1956 provides that notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export.
• Sale of goods to any registered dealer located in Special Economic Zone in the State, if such registered dealer has been authorized to establish such units by the authority specified by the Central Government in this behalf; and
• Sale of goods to international organizations list out in the V Schedule-
  • The International Labor Organization;
  • The United Nations Children’s’ Fund;
  • The United Nations Development Program;
  • The United Nations Educational Scientific and Cultural Organization;
  • The United Nations Food and Agricutural Organizations;
  • The United Nations Information Service;
  • The United Nations Military observers Group in India;
  • The United Nations Office for population Studies;
  • The United Nations Technical Assistant Board;
  • The World Health Organization;
  • The World Bank;
  • The United Nations Industrial Development Organizations.

Section 18(2) of the Act provides that the dealer, who makes zero rate sales, shall be entitled to refund of input tax or payable by him or purchase of those goods, which are exported as such or consumed or used in the manufacture of other goods that are specified subject to such restrictions and conditions as may be prescribed.

Section 18(3) provides that where the dealer has not adjusted the input tax credit or has not made a claim for refund within a period of 180 days from the date of accrual of such input tax credit, such credit shall lapse to Government.

Rule 11(2) of Tamil Nadu Value Added Tax rules, 2006 provides that the dealer who claims refund due to sale effected by him under Section 18(2) shall file an application in Form W to the assessing authority along with copies of invoices or bills of related purchases within 180 days from the date of accrual of such claim.   The assessing authority after verification of the correctness of the claim, shall issue refund within 90 days from the date of receipt of the application in Form W.

Vide Circular No. 9/2013, dated 24.07.2013 the Commission of Commercial Taxes, Chepauk, Chennai issued instructions for eligibility criteria for zero rate sale.   In this circular it is indicated that the Department is consistently taking a view those benefits of zero rating is available only to units located in SEZ as provided under TN VAT Act.   According to the circular there is no specific provision for zero rating the sales of contractors of Developer of Co-Developer of SEZ under the TNVAT Act, 2006.   Further sale of goods, involved in the execution of works contract, to any registered dealer located in SEZ in the State is not used in the manufacture of other goods that are exported as required under Section 18(2) of the TNVAT Act, 2006.   The transactions in the nature of works contract are therefore liable to be taxed at the rates specified in the First Schedule to TNVAT Act, 2006 whether undertaken by contractor or sub contractor and the payment is subjected to TDS.

In the said circular it has been further indicated that exemption notifications are issued by the Government on the sale of any goods for use in execution of projects by main or sub contractors of any dealers who have entered into agreement directly or indirectly with certain SEZ developers in Tamil Nadu. Government is vested with powers to grant exemption to a person is on case to case base only. The Circular made it clear that zero-rating is applicable as provided under Section 18 of the Act and the benefits of zero rating are not extended to any other categories of dealers or transactions unless Government issues order to that effect.

The circular further indicated that this circular cannot be made use of for legal interpretation of the provisions of law, as it is clarificatory in nature.

The eye brows are raised on the circular since the said circular is against to the provisions of SEZ Act.   Section 50 of the Special Economic Zone Act gives powers to State Governments to grant exemption.   The State Government  may for the purpose of giving effect to the provisions of the Act, notify policies for developers and units and take suitable steps for enactment of any law-

• Granting exemption from the State taxes, levies and duties to the developer or the entrepreneur;
• Delegating the powers conferred upon any person or authority under any State Act to the Development Commissioner in relation to the Developer of the entrepreneur;

Rule 32 of the SEZ Act provides exemption from Central Sales Tax Act in levying of taxes on sale or purchase of goods other than newspapers shall be available on goods meant for undertaking authorized operations by the Developer or the unit. The dealers selling goods in the course of interstate trade or commerce to a registered dealer under the Central Sales Act, 1956 shall furnish a declaration in Form – I prescribed under Central Sales Tax (Registration and turnover) Rules, 1957.

The said circular is not the policy as declared by the State Government but it is in clarificatory nature.