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Issues: (i) Whether sale of goods to a unit located in a Special Economic Zone was exempt from value added tax under the Andhra Pradesh Value Added Tax Act, 2005 notwithstanding that the selling dealer was unregistered. (ii) Whether detention of the goods under the check-post provisions was lawful when the goods were claimed to be exempt under the SEZ and VAT enactments.
Issue (i): Whether sale of goods to a unit located in a Special Economic Zone was exempt from value added tax under the Andhra Pradesh Value Added Tax Act, 2005 notwithstanding that the selling dealer was unregistered.
Analysis: The exemption scheme under section 7 of the Andhra Pradesh Value Added Tax Act, 2005 read with Schedule I treated sale of goods to a unit in a Special Economic Zone as exempt. Section 7A, which refers to a sale by a dealer to a registered dealer in an SEZ for specified purposes, could not be read so narrowly as to nullify the exemption or to override the wider SEZ-based protection. The Special Economic Zones Act, 2005 granted overriding effect and section 26, together with rule 27 of the Special Economic Zones Rules, 2006, supported exemption for authorised operations and contractors certified for the SEZ project. The fact that the first petitioner was not itself the SEZ unit did not defeat the exemption where the goods were consigned for use in the SEZ project of the unit.
Conclusion: The sale was exempt from VAT, and the seller's lack of registration did not deprive the transaction of the exemption.
Issue (ii): Whether detention of the goods under the check-post provisions was lawful when the goods were claimed to be exempt under the SEZ and VAT enactments.
Analysis: Section 45(3) of the Andhra Pradesh Value Added Tax Act, 2005 permitted detention only where tax was payable on the goods carried. Once the goods were found to be exempt under the VAT and SEZ framework, the foundation for detention disappeared. The invoice and supporting documents showed that the goods were meant for the SEZ project, and the invocation of check-post detention on the footing of non-registration or alleged discrepancy could not sustain the detention in the face of the exemption.
Conclusion: The detention was unlawful and the impugned notice was liable to be set aside.
Final Conclusion: The exemption applicable to SEZ-related supplies prevailed, and the detention proceedings could not stand once the goods were found not liable to VAT.
Ratio Decidendi: Goods supplied for an authorised SEZ project are exempt from VAT under the SEZ and VAT exemption provisions, and check-post detention cannot be sustained where no tax is payable on the goods carried.
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