Court invalidates purchase tax, orders refund with interest. SEZ Act prevails over State laws.

The court quashed the demand for purchase tax from the petitioners under Section 9(5) of the VAT Act, declaring it invalid and impermissible. The tax recovered was ordered to be refunded with statutory interest by May 31, 2014. The judgment emphasized the overriding effect of the SEZ Act's provisions over other State laws, including those enacted after the SEZ Act.

---

---

Issues Involved:
1. Authority to levy Value Added Tax (VAT) or Purchase Tax on capital goods and fuel used in SEZ units.
2. Interpretation of Section 21 and 22 of the Gujarat Special Economic Zone Act, 2004 (SEZ Act).
3. Validity of Section 9(5) of the VAT Act in relation to SEZ units.
4. Overriding effect of SEZ Act over VAT Act provisions.

Detailed Analysis:

Issue 1: Authority to Levy VAT or Purchase Tax on SEZ Units
The petitioners challenged the respondents' authority to levy VAT or Purchase Tax on capital goods and fuel used in generating energy in SEZ units. The petitioners argued that Section 21 of the SEZ Act provides for total exemption from State taxes for units in SEZ areas. Despite this, the State authorities demanded purchase tax after the introduction of Section 5A to the VAT Act and matching provisions in Section 9 of the VAT Act. The court noted that the SEZ Act's provisions have an overriding effect, and the State's demand for purchase tax was challenged.

Issue 2: Interpretation of Section 21 and 22 of the SEZ Act
Section 21 of the SEZ Act grants exemptions from various State taxes to SEZ units, including sales tax, purchase tax, and other levies. Section 22 provides that the SEZ Act's provisions will have effect "notwithstanding anything contained in any other law for the time being in force." The court emphasized that this non-obstante clause gives the SEZ Act an overriding effect over other State laws, including those enacted later.

Issue 3: Validity of Section 9(5) of the VAT Act
The petitioners contended that Section 9(5) of the VAT Act, which levies purchase tax on zero-rated sales, is inconsistent with the SEZ Act and should be declared invalid. The court observed that while the VAT Act provisions aimed to collect purchase tax from SEZ units, such legislative intent must be clearly translated into valid enactment. The court held that without a clear provision giving VAT Act provisions primacy over the SEZ Act, no such tax could be levied.

Issue 4: Overriding Effect of SEZ Act over VAT Act Provisions
The court held that the non-obstante clause in Section 22 of the SEZ Act gives it an overriding effect over other State laws, including the VAT Act. The expression "for the time being in force" was interpreted to include laws made later. The court noted that the SEZ Act's non-obstante clause was intended to avoid conflicts with other State laws and ensure that SEZ units enjoy the tax exemptions granted under Section 21. The court found no legislative intent to limit the non-obstante clause's application.

Conclusion:
The court quashed the demand for purchase tax from the petitioners under Section 9(5) of the VAT Act, declaring it invalid and impermissible. The tax recovered from the petitioners was ordered to be refunded with statutory interest by May 31, 2014. The judgment emphasized the overriding effect of the SEZ Act's provisions over other State laws, including those enacted after the SEZ Act.

---