FTWZ inter-unit transfers treated as non-taxable under VAT law where goods move within the SEZ framework.

Transfers of goods between units in a Free Trading and Warehousing Zone are treated under the SEZ framework as transactions beyond the customs frontiers of India, with inter-unit movement within the zone or between SEZ and FTWZ units regarded as export and import for statutory purposes. On that basis, the movement of IT products, cables and similar apparatus from one FTWZ unit to another was not a local sale and did not attract tax under the Tamil Nadu Value Added Tax Act, 2006. The reasoning also excludes liability under the central sales tax regime where the transaction is statutorily deemed to occur in a special economic zone setting.

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Issues: Whether the sale of IT products, cables and other apparatus from a trading unit in a Free Trading and Warehousing Zone to another unit in the same or another Free Trading and Warehousing Zone is liable to tax under the Tamil Nadu Value Added Tax Act, 2006.

Analysis: The application was considered in the light of the Tamil Nadu Value Added Tax Act, 2006, the Special Economic Zones Act, 2005, the Central Sales Tax Act, 1956, the Tamil Nadu Special Economic Zone (Special Provisions) Act, 2005 and the Customs Act, 1962. A Free Trading and Warehousing Zone was treated as a special economic zone and, for the purposes of the SEZ regime, as a deemed foreign territory beyond the customs frontiers of India. Transactions of goods between units located in the same or different SEZ or FTWZ were treated as export and import within the statutory scheme. Such transfer of warehoused goods between bonded warehouses in FTWZ was therefore not regarded as a local sale attracting VAT or CST.

Conclusion: The transfer of goods from one FTWZ unit to another FTWZ unit was held not liable to tax under the Tamil Nadu Value Added Tax Act, 2006.

Ratio Decidendi: Transactions between SEZ or FTWZ units that are statutorily treated as export and import, and are effected beyond the customs frontiers of India, do not attract State sales tax or central sales tax.

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