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.

AI Summary

Clarification Needed on VAT/CST Applicability for Goods Sold from FTWZ to DTA to Avoid Double Taxation The discussion addresses the issue of VAT/CST applicability on goods sold from Free Trade and Warehousing Zones (FTWZ) to Domestic Tariff Areas (DTA). These transactions are taxed as imports, but some state tax offices impose additional VAT/CST, resulting in double taxation. This situation places FTWZ at a competitive disadvantage. Notification 045/2005 offers customs duty exemptions for goods cleared from SEZ/FTWZ to avoid double taxation, but clear guidelines are needed for proper implementation. The forum members express frustration over the lack of resolution and request urgent clarification to facilitate business operations in FTWZ.