2022 (8) TMI 4 - HC - VAT and Sales Tax

Inter-State Sale: CST Liability for Movement of Capital Goods from SEZ

STATE OF KERALA, THE INSPECTING ASSISTANT COMMISSIONER SALES TAX, THE SALES TAX INSPECTOR SALES TAX Versus M/s. COVEMA WOOD PLAST, UNION OF INDIA, THE DEVELOPMENT COMMISSIONER, MS. KUMAR ARCH TECH (P) LTD.

STATE OF KERALA, THE INSPECTING ASSISTANT COMMISSIONER SALES TAX, THE SALES TAX INSPECTOR SALES TAX Versus M/s. COVEMA WOOD PLAST, UNION OF INDIA, THE ... Issues Involved:1. Tax liability on the movement of capital goods from a unit in the Cochin Special Economic Zone (CSEZ) to a unit in Udaipur, Rajasthan.2. Applicability of exemption from Central Sales Tax (CST) for inter-unit transfer under the EXIM Policy.3. Interpretation of the Special Economic Zones Act, 2005 regarding the movement of goods.4. Determination of whether the movement of goods constitutes an inter-State sale or a sale in the course of import.Detailed Analysis:1. Tax Liability on Movement of Capital Goods:The petitioner, a company registered under the Companies Act 1956, engaged in the manufacture and export of PVC Free Foam Sheets, imported capital goods duty-free under a Bond agreement and kept them in a bonded warehouse within the CSEZ. The petitioner transferred these goods to the 6th respondent's unit in Udaipur, Rajasthan, under a lease agreement. The goods were detained by Sales Tax authorities, and the petitioner contended that the movement of goods from SEZ to a 100% Export Oriented Unit (EOU) should not be treated as an inter-State sale for CST purposes. The court noted that the goods did not cross the customs frontiers of India and therefore, the CST demanded was illegal.2. Applicability of Exemption from CST for Inter-Unit Transfer:The Assistant Commissioner (Law) argued that the petitioner's unit in SEZ is not entitled to exemption in case of inter-State sale, as the capital goods intercepted were sold to the 6th respondent, making it an inter-State sale exigible under the CST Act. The petitioner contended that the inter-unit transfer was permitted under the EXIM Policy, and the goods were moved with the necessary permissions from the Development Commissioner and Customs Authorities. The court examined the EXIM Policy and the Customs Act provisions, concluding that the permissions granted under these laws do not exempt the petitioner from CST if the transaction is otherwise exigible.3. Interpretation of the Special Economic Zones Act, 2005:The court noted that Sections 51 and 53 of the Special Economic Zones Act, 2005, have an overriding effect on other laws and deem SEZs as territories outside the customs territory of India. However, the 6th respondent was not located in an SEZ but was a 100% EOU. The court found that the movement of goods from CSEZ to the 6th respondent did not fall under the provisions of the SEZ Act, 2005, and hence, the findings of the lower court on this issue were unsustainable.4. Determination of Inter-State Sale or Sale in the Course of Import:The petitioner argued that the movement of goods was in the course of import and should be exempt from CST. The court referred to the judgments in Nirmal Kumar Parsan and Ind Rubber Traders cases, which laid down the tests for determining inter-State sales and sales in the course of import. The court found that the movement of goods from Cochin to Udaipur was an inter-State transfer, as evidenced by the invoices and Bills of Entry. The court concluded that the petitioner's claim for exemption from CST on the ground of movement in the course of import was unsustainable.Conclusion:The court allowed the appeal, setting aside the judgment under appeal, and held that the movement of capital goods from CSEZ to the 6th respondent in Udaipur was an inter-State sale exigible to CST. The permissions granted under the EXIM Policy and Customs Act did not exempt the petitioner from CST liability. The findings of the lower court regarding the applicability of the SEZ Act, 2005, and the nature of the transaction were found to be incorrect. The appeal was allowed with no order as to costs.