Kerala High Court Upholds VAT Ruling on Special Economic Zones

The Kerala High Court dismissed the appeals challenging an order under Section 94 of the Kerala Value Added Tax Act, 2003. The court upheld the impugned clarification that sales to units in the Special Economic Zone by registered dealers within the Domestic Tariff Area do not qualify as deemed exports. It was held that statutory entitlements are governed by specific provisions of the Central Sales Tax Act and the KVAT Act. The court clarified that the impugned clarification has no retrospective effect, and previous clarifications would apply to earlier periods. Appellants were restrained from repaying refunds demanded.

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Issues: Challenge against order under Section 94 of KVAT Act, applicability of impugned clarification, retrospective effect of clarification, entitlement for refund, applicability of earlier clarification.

In this judgment by the Kerala High Court, the challenge raised against an order under Section 94 of the Kerala Value Added Tax Act, 2003 was considered. The appeals were against the same order, and the court decided to address them together. The Division Bench had previously upheld the validity of the impugned clarification, stating that sales by registered dealers within the Domestic Tariff Area to units in the Special Economic Zone do not qualify as deemed exports. The court held that statutory entitlements are governed by specific provisions of the Central Sales Tax Act and the KVAT Act. The Division Bench also clarified that the impugned clarification has no retrospective effect, and previous clarifications would apply to earlier periods. Consequently, demands for repayment of refunds made to appellants were restrained.

Following previous judgments, the court confirmed that the impugned clarification would only have prospective effects, not imposing liability for refund of amounts already paid under previous clarifications. The senior counsel for the appellants conceded that the appeals could be dismissed by confirming the impugned clarification. However, they requested that liabilities for the period before the impugned clarification should be governed by an earlier clarification. The court was urged to declare appellants entitled to exemptions and refunds under specific sections of the KVAT Act. The request was opposed by the Senior Government Pleader, citing previous court decisions and Supreme Court rulings on the binding nature of statutory provisions over circulars issued by the government.

The court noted that previous judgments remained unchallenged and held that until the date of the impugned clarification, the appellants would be governed by the situation clarified in the earlier circular from 2007. The court also addressed the difference in situations where refunds were granted based on previous clarifications. It was clarified that the impugned clarification would not have a retrospective effect, and appellants would be entitled to refunds if any amounts were paid in excess of the earlier circular. Ultimately, the appeals were dismissed, confirming the impugned clarification, but ensuring that appellants would be governed by the provisions of the earlier clarification and entitled to refunds if applicable.

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