Applicability of VAT/CST on sale of goods from FTWZ to DTA

[Robert Kunnel]

Applicability of VAT/CST on sale of goods from FTWZ to DTA:-

Goods sold from FTWZ to DTA are taxed to full import duties at the time of removal to DTA which is done on the basis of Bill of Entry for Home Consumption. Since such goods are sold prior to clearance into DTA, they qualify as ‘SALE IN COURSE OF IMPORT’ as per CST Act (Year).

However, commercial tax offices of several states are taking a stand that these sale transactions are liable for payment of VAT/CST thus engaging in double taxation and also placing FTWZ at an unfair tax disadvantage making it difficult for FTWZ Units like us to generate business and develop service exports from FTWZ.

Notfn. 045/2005 grants exemption from additional duty of customs for all goods cleared from SEZ / FTWZ provided that such goods are not exempt from State Taxes (VAT/CST) when sold in DTA. The spirit of the notfn is to grant exemption from SAD to goods which are cleared from SEZ on payment of duties and meant for subsequent sale in DTA on payment of VAT/CST, in order to avoid double taxation (SAD and VAT/CST) on the same goods.

The same benefit is available in the form of refund of SAD when imported goods are cleared from the Ports and sold on payment of VAT/CST in the local market. The above needs to be clarified in clear instructions so that the implementation is proper and the benefit available to clients using FTWZ services as this benefit is a key factor in convincing clients to utilize the FTWZ which is typically located far from the port and hence involves additional logistics cost.

[Robert Kunnel]

Can I expect a reply to this please.

[Srinivasan Muthukannan]

Dear Sir,

Can i expect a reply to this please.

Still we are struggling on the same.

Please revert back on priority.

Regards

S. Muthukannan

AI Summary

Sale in course of import may attract both import duties and state VAT/CST, prompting calls for clarification. Goods sold from an FTWZ to the DTA are cleared for home consumption on a Bill of Entry and treated as a sale in course of import, yet state tax authorities are treating such sales as separately liable to VAT/CST, creating potential double taxation. Notification 045/2005 exempts additional duty of customs (SAD) for goods cleared from SEZ/FTWZ when state taxes apply on sale in DTA, and SAD refund mechanisms exist for port-cleared imports sold on payment of VAT/CST; clear instructions are requested to ensure correct application of these provisions.