SEZ exemption and VAT penalty limits clarified where housekeeping materials were excluded and nil-tax invoicing was treated as avoidance.

Cleaning materials supplied to establishments in a Special Economic Zone did not qualify for exemption under Section 6(7)(b) of the Kerala Value Added Tax Act, 2003 because the provision was confined to building materials, industrial inputs, plant and machinery, and connected consumables used for setting up the unit or for manufacture. Form No.43 describing the items as housekeeping materials also supported denial of the exemption. Penalty under Section 67(1) was upheld where invoices were issued on a nil-tax basis despite a patent tax liability, as the conduct was treated as deliberate avoidance rather than bona fide doubt. A notice under Section 25(1) based on investigation material was held to be jurisdictionally valid.

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Issues: (i) Whether cleaning materials supplied to establishments in a Special Economic Zone were exempt under Section 6(7)(b) of the Kerala Value Added Tax Act, 2003. (ii) Whether penalty under Section 67(1) of the Kerala Value Added Tax Act, 2003 was justified notwithstanding Form No.43 issued by the purchaser. (iii) Whether notice issued under Section 25(1) of the Kerala Value Added Tax Act, 2003 was without jurisdiction.

Issue (i): Whether cleaning materials supplied to establishments in a Special Economic Zone were exempt under Section 6(7)(b) of the Kerala Value Added Tax Act, 2003.

Analysis: The exemption was confined to building materials, industrial inputs, plant and machinery, and connected consumables used for setting up the unit or for manufacture of other goods. Cleaning materials used for housekeeping and maintenance of the premises did not satisfy that statutory requirement. The fact that Form No.43 referred to housekeeping materials and housekeeping consumables also showed that the goods did not fall within the exemption.

Conclusion: The goods were not exempt, and the claim under Section 6(7)(b) failed.

Issue (ii): Whether penalty under Section 67(1) of the Kerala Value Added Tax Act, 2003 was justified notwithstanding Form No.43 issued by the purchaser.

Analysis: Penalty was upheld because the statutory language itself made the tax liability clear and the petitioner raised invoices showing nil tax despite that position. Form No.43 did not protect a dealer who had omitted the taxable component while dealing in goods not covered by the exemption. On the facts, the conduct was treated as deliberate avoidance of tax rather than a case of bona fide doubt.

Conclusion: The penalty under Section 67(1) was valid and justified.

Issue (iii): Whether notice issued under Section 25(1) of the Kerala Value Added Tax Act, 2003 was without jurisdiction.

Analysis: The Assessing Officer could proceed on the basis of material that emerged after investigation and in the wake of the penalty orders. No legal bar was shown against issuance of the notice under Section 25(1), and the challenge based on lack of jurisdiction was rejected.

Conclusion: The notice under Section 25(1) was not jurisdiction and was sustainable.

Final Conclusion: The writ petitions failed because the exemption claim was untenable, the penalty was sustained, and the subsequent assessment notice was held to be legally maintainable.

Ratio Decidendi: A dealer cannot claim exemption for goods that do not fall within the statutory exemption and cannot avoid penalty where the tax liability is patent and the invoice is raised on a nil-tax basis despite that liability; a notice issued on the basis of investigation material is not without jurisdiction merely because penalty proceedings have already been initiated.

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