SEZ sales by registered dealers don't qualify as deemed exports under CST Act Section 8 and KVAT Act Section 6

Kerala HC held that sales by registered dealers to units within SEZ do not qualify as deemed exports and are governed by Section 8 of CST Act and Section 6 of KVAT Act. The court sustained the impugned clarification on this point. However, regarding refunds already made under Annexure-I dated 15.09.2007, the court ruled that appellants need not refund amounts already received, as the department was bound by the Commissioner's original order until modified, and no retrospective effect was declared under Section 94(2). Appeal disposed of with mixed outcome.

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Issues Involved:
1. Whether the sale to an industrial unit within a Special Economic Zone (SEZ) is a deemed export.
2. The applicability of the statutory benefits under Section 13(2) or 13(3) of the Kerala Value Added Tax Act, 2003 (KVAT Act) to such sales.
3. The authority of the Authority for clarification constituted under Section 94 of the KVAT Act to modify orders passed by the Commissioner for Commercial Taxes.
4. The liability of the appellants to refund amounts already refunded based on the earlier clarification.

Detailed Analysis:

Issue 1: Deemed Export Status of Sales to SEZ Units
The court examined whether sales to industrial units within a SEZ qualify as deemed exports. Section 53 of the SEZ Act was pivotal, stating that a SEZ is deemed to be a territory outside the customs territory of India for authorized operations. Authorized operations are defined in Section 2(c) and further detailed in Sections 4(2) and 15(9). The court noted that the operations listed in the Central Government's Notification dated 27.10.2006 pertain to infrastructural development within SEZs, not manufacture or production. Therefore, SEZs are considered foreign territories only for infrastructural development purposes. The court concluded that sales to SEZ units do not qualify as deemed exports under the SEZ Act.

Issue 2: Applicability of KVAT Act Benefits
The appellants contended they were entitled to input tax credit refunds under Sections 13(2) or 13(3) of the KVAT Act based on earlier clarifications. The court referred to Section 26(g) of the SEZ Act, which provides exemptions from Central Sales Tax (CST) for goods meant for authorized operations. Section 50 of the SEZ Act allows state governments to grant exemptions from state taxes. The court also examined Section 8(6) of the CST Act, which exempts sales to SEZ units from CST if the goods are for authorized operations. Similarly, Section 6(7)(b) of the KVAT Act exempts sales of certain goods to SEZ units from state taxes. The court upheld that sales to SEZ units are not deemed exports and are governed by the CST Act and KVAT Act provisions.

Issue 3: Authority of Clarification Authority
The appellants argued that the Authority for clarification under Section 94 of the KVAT Act could not modify the Commissioner's orders. The court noted that the Authority was constituted by an amendment effective from 01.04.2009. The court held that the Authority's clarification, which modified the earlier order, was valid and within its powers.

Issue 4: Refund of Amounts Already Refunded
The court addressed whether the appellants should refund amounts already refunded based on the earlier clarification. The court noted that the earlier clarification (Annexure-I) was issued by the Commissioner under Section 94 of the KVAT Act and was binding until the Authority's new clarification. The Commissioner had not issued any retrospective clarification as empowered under Section 94(2). Therefore, the court held that the appellants were not liable to refund amounts already refunded based on the earlier clarification.

Conclusion:
The court concluded that sales to SEZ units do not qualify as deemed exports and are governed by the CST Act and KVAT Act provisions. The Authority for clarification had the power to modify the earlier order. However, the appellants were not liable to refund amounts already refunded based on the earlier clarification. The appeals were disposed of accordingly.

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