Zero-rating under Tamil Nadu VAT is independent of refund conditions, and works contract sales remain covered by the statutory definition.

Zero-rating under Section 18(1)(ii) of the Tamil Nadu VAT Act is a distinct statutory benefit and does not depend on export of the goods; the export condition applies only where refund is claimed under Section 18(2). A sale to a registered dealer in a Special Economic Zone can therefore qualify for zero-rating without proving export as such. Transactions in the nature of works contract are also treated as "sale" if they fall within the Act's definition, so they are not excluded from Section 18. A circular or exemption notification cannot add conditions to, or curtail, the statutory zero-rating benefit.

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Issues: (i) Whether a sale of goods to a registered dealer located in a Special Economic Zone in the State qualifies as a zero-rate sale under Section 18(1)(ii) of the Tamil Nadu Value Added Tax Act, 2006 only if the goods are exported as such or consumed or used in the manufacture of other goods that are exported; (ii) Whether transactions in the nature of works contract fall within the expression "sale" for the purpose of Section 18 of the Tamil Nadu Value Added Tax Act, 2006; (iii) Whether the impugned circular and the exemption notification could control or curtail the statutory benefit available under Section 18 of the Tamil Nadu Value Added Tax Act, 2006.

Issue (i): Whether a sale of goods to a registered dealer located in a Special Economic Zone in the State qualifies as a zero-rate sale under Section 18(1)(ii) of the Tamil Nadu Value Added Tax Act, 2006 only if the goods are exported as such or consumed or used in the manufacture of other goods that are exported.

Analysis: Section 2(44) defines zero-rate sale as a sale on which no tax is payable but input tax credit related to that sale is admissible. Section 18(1) identifies distinct classes of zero-rate sales and separately uses the expression "or" between input tax credit and refund, indicating that the two benefits are independent. Section 18(2) applies only where the dealer claims refund and not to the basic entitlement of zero rating under Section 18(1)(ii). Reading the export condition from Section 18(2) into every transaction covered by Section 18(1)(ii) would distort the statutory scheme and make the clause redundant.

Conclusion: Export is not a condition precedent for a sale covered by Section 18(1)(ii) to qualify as a zero-rate sale; the contrary view was rejected.

Issue (ii): Whether transactions in the nature of works contract fall within the expression "sale" for the purpose of Section 18 of the Tamil Nadu Value Added Tax Act, 2006.

Analysis: The definition of "sale" under Section 2(33) of the Tamil Nadu Value Added Tax Act, 2006 includes the transfer of property involved in the execution of works contract. The deeming fiction created by the taxing statute must be given full effect. Once the Act treats such transactions as sales, they cannot be excluded from Section 18 merely because the transaction is a works contract.

Conclusion: Works contract transactions fall within the expression "sale" for the purpose of Section 18 where the statutory definition is satisfied.

Issue (iii): Whether the impugned circular and the exemption notification could control or curtail the statutory benefit available under Section 18 of the Tamil Nadu Value Added Tax Act, 2006.

Analysis: Section 18 confers a statutory zero-rating benefit that is distinct from exemption. A circular or notification issued under a different provision cannot whittle down or add conditions to the plenary statutory benefit. Section 19(5) is attracted to exempted sales, not to zero-rated sales. The circular was therefore unsustainable to the extent it imposed the export condition for zero-rating.

Conclusion: The circular was set aside to the extent it conflicted with the statute, and the exemption route could not override the zero-rating provision.

Final Conclusion: The governing principle is that zero rating under Section 18(1)(ii) is a distinct statutory benefit from refund, export is relevant only for refund under Section 18(2), and works contract sales are not excluded from the statutory definition of sale. The matters were remitted for fresh consideration in accordance with this interpretation.

Ratio Decidendi: Where a statute separately grants zero-rating and refund as independent benefits, the conditions attached to refund cannot be read into the basic zero-rating entitlement unless the text expressly so provides.

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