TaxTMI 
TaxTMI 
2015 (2) TMI 564
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....ue Added Tax Act, 2006 (TNVAT Act), and the interpretation of Section 18 of the TNVAT Act, qua the transactions effected by the petitioners to units in Special Economic Zones. In majority of the cases the challenge is to the circular issued by the Commissioner of Commercial Taxes in Circular No.9 of 2013, dated 24.07.2013 and the assessment orders passed by the respective Assessing Officers which were based on the impugned circular. 3. The facts in the lead case in W.P.No.29450 of 2014, are taken into consideration. The petitioner is a public limited company incorporated under the Companies Act, engaged in the manufacture of High Tensile Fasteners, Gear Shifters etc., and its factory located in Special Economic Zones (SEZ). The petitioner was awarded contracts for construction of their factory building and related infrastructure in the SEZ. According to the petitioner in terms of Section 18 (1)(ii) of the TNVAT Act, any sale effected to a unit which will include a deemed sale in line with the definition of sale contained under Section 2(33) of the TNVAT Act, in terms of Article 366(29A)(b) of the Constitution of India. However, the Commissioner issued the impugned circular....
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....l Economic Zone Customer. The petitioners in W.P.No.15843 to 15848 of 2014, are engaged in the business of manufacture and supply of readymix concrete and effected sale to its customers located in SEZ. The petitioner in W.P.Nos.5098 to 5101 of 2014, is a dealer in Iron and Steel and have effected sale to units located in SEZ. In W.P.No.35239 to 35243 of 2013, the petitioners have executed civil works contract for SEZ units. In W.P.Nos.11808 to 11810 of 2014, the petitioners have executed interior decoration work for SEZ units. In W.P.No.1304 of 2010, the petitioners are engaged in the business of civil construction and have executed works for SEZ units. The petitioners in W.P.Nos.20682 to 20684 of 2014, are dealers and plywoods laminated sheets, doors and windows and have supplied to SEZ units located in the State of Tamil Nadu. The petitioner in W.P.Nos.4128 to 4130 of 2014, are selling hot drinks such as tea, coffee, milk etc., to establishments in SEZ and other areas and claim exemption. The petitioner in W.P.Nos.12994 and 12995 of 2014, have executed electrical works contract to SEZ units. The petitioner in W.P.No.34862 of 2014, have effected sale of goods to SEZ units. 5. T....
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....f goods specified in the first schedule including capital goods. Therefore, it is submitted that the requirement contained in sub-clause (ii) in Section 18(1) is with regard to sale of goods to any registered dealer located in SEZ. By referring to the definition of sale under Section 2(33) of the TNVAT Act, it is submitted that it includes transfer of property in goods involved in the execution of an works contract and therefore, works contract executed is to be treated a 'sale'. It is submitted that the impugned circular is wholly without jurisdiction, since on a plain reading of Section 18(1)(ii) of the TNVAT Act, there is no condition as stipulated in the circular stating that sale of goods involved in the execution of works contract to a dealer located in SEZ is not a zero rated sale as the goods are not exported as such or consumed or used in the manufacture of other goods that are exported as required under Section 18(2) of TNVAT Act. It is further submitted that Section 18(2)of the TNVAT Act, will have no applicability to a case falling under Section 18(1)(ii) of the TNVAT Act and will apply only in case involving export where refund is granted. In this regard, Rule ....
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.... meaning respectively assigned to them in that Act. Further, in terms of Section 28, the provisions of the TNSEZ Act shall be in addition to and not in derogation of the CSEZ Act and shall have effect notwithstanding anything inconsistent therewith contained in any other State law for the time being in force. It is further submitted that Section 19(5)(a) and Section 15 of TNVAT Act refer only to exemption with respect to sale of goods specified in IV Schedule and goods exempted by notification. It is submitted that the phrase 'goods exempted by notification' occurring in Section 15 of TNVAT Act come within purview of clauses (a) and (c) of Section 30(1) of TNVAT Act only and does not cover transactions described in clause (b) of Section 30(1) of TNVAT Act. It is further submitted that proviso 1, to Rule 10 of The Special Economic Zones Rules 2006, states that exemption and concession on the goods and services allowed to developer or co-developer shall also be available to the contractors including sub-contractors appointed by such developer or co-developer. Therefore, it is submitted that the term expression applicable to SEZ units which includes developers and works contra....
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....he unit or to the developer in SEZ do not go outside the country, yet, in view of the definition of Section 2(m) of the SEZ Act, they are to be treated as 'export' and all benefits given to export under any other law should be given. It is further submitted that the Chattisgarh High Court pointed out that SEZ Act, treats the units as well as the developers on the same footing and they have the same liabilities and same benefits. Reliance was also placed on the decision of the High Court of Andhra Pradesh in the case of Flow More Limited vs. DCTO, reported in 2013-57-VST-84(AP), wherein it was held that Section 51 of the SEZ Act, gives overriding effect over other laws and therefore, Section 7A of the A.P VAT Act which deals with exemption of tax on the sale of goods for certain purposes to unit located in any SEZ is construed as exempting the sale effected by a registered dealer alone to another registered dealer in SEZ, it would render the very provision ineffective. 6.5 With regard to the transaction relating to supply of hot milk and beverages, it is submitted that the hot milk is exempted from tax as per the clarification issued by the Commissioner and inspite of the....
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....oners. With regard to the decision of the Gujarat High Court in the case of Torrent Energy Pvt. Ltd., (supra) it is submitted that the same is clearly distinguishable on facts. The scope of the Gujarat SEZ Act was interpreted and Section 21 of the Gujarat SEZ Act is entirely different and it is not couched as Section 12(2) of the TNSEZ Act. Further, it is submitted that in Section 12(1) of the TNSEZ Act is reflected in Section 18(1) & (2) of the TNVAT Act and the same is not the case with regard to the Gujarat VAT Act. Further, it is submitted that the statutory provision has not been challenged and the provisions cannot be read in the manner done by the petitioners and the impugned circular states the statutory provision clearly to serve as a guideline for the Assessing Officers and the same is valid. 8. In reply the learned counsels for the petitioners submitted that Section 18(2) of the TNVAT Act cannot read into or superimposed into Section 18(1)(ii) of the TNVAT Act and a person who supplies to SEZ cannot be worse of than a dealer who supplies to a DTA unit, who will be entitled to credit under the TNVAT Act. Therefore, it is submitted that construction of a statute if irra....
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.... have challenged the circular issued by the Commissioner in Circular No.9 of 2013, dated 24.07.2013 and the assessment orders passed by the respective Assessing Officers reversing the input tax credit availed by the petitioners and levying penalty. In certain cases, the challenge is only to the assessment orders, but in the grounds raised in the Writ Petitions, the petitioners have contended that the assessments could not have been made by relying on the circular and the circular is contrary to the statutory provisions. The controversy raised in this Writ Petitions revolves on the interpretation of Section 18 of the TNVAT Act, which reads as follows:- Section 18:- Zero-rating.- (1) The following shall be zero-rate sale for the purpose of this Act, and shall be eligible for input tax credit or refund of the amount of the tax paid on the purchase of goods specified in the First Schedule including capital goods, by a registered dealer in the State, subject to such restrictions and conditions as may be prescribed:- (i) A sale as specified under sub-section (1) or (3) of Section 5 of the central Sales Tax Act, 1956 (Central Act 74 of 1956); (ii) Sale of goods to any registered ....
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....Section 19(9) of the TNVAT Act. While on that issue, it was pointed out that Section 19 of the TNVAT Act deals with input tax credit, Section 2(24) of the TNVAT Act, defines 'input tax' and this tax paid by the registered dealer to another registered dealer on the purchase of goods is entitled to avail as credit termed as input tax credit provided that the registered dealer, who claims credit shall establish that the tax due on such purchases has been paid by him in the manner prescribed. Therefore, it was pointed out that amount which is to be refunded in the case of zero rated sale by filing application under Section 18(2) is that input tax paid by the dealer for the purchase of the goods and Section 18 gives such benefit to the registered dealer despite the fact, no tax is payable by him on the export sale. It was pointed out that the expression 'input tax credit' cannot be divested from Section 18 of the TNVAT Act, and what is enjoyed by the dealer as credit is granted as a refund, since there is no tax liability. Further it was held that for all practical purposes the benefit which accrues to the registered dealer is in effect the input tax credit which ripens ....
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.... In Maxwell's Interpretation of Statutes, 10th Edition at page 162, while dealing with the cardinal rule of construction of the provisions of a Section with proviso is elucidated as under:- The proper course is to apply the broad general rule of construction, which is that a section or enactment must be construed as a whole, each portion throwing light if need be on the rest. The true principle undoubtedly is, that the sound interpretation and meaning of the statute, on a view of the enacting clause, saving clause, and proviso, taken and construed together is to prevail 15. As already held the refund claim which the dealer is entitled to under Section 18(2) is that amount which he enjoys as a credit which ripens into a refund claim because the transaction at his hands is not taxable. Therefore, the interpretation given by the petitioners, if accepted would tantamount to rewriting the statutory provision. Sub-section (2) of Section 18 is not a proviso to clauses (i) & (iii) of Section 18(1). In fact, it is a substantive provision and shall be read into all contingencies contemplated in Section 18(1) of the TNVAT Act. The word or is conspicuously missing in between cla....
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....or entrepreneur under sub-section (1). 17. It is submitted that in terms of clause (a) of Section 12(1) every developer or entrepreneur shall be entitled for exemption from the levy of taxes on the sale or purchases of goods under the TNGST Act, if such goods are meant to carry on authorised operations by the developer or entrepreneur. 18. The contention of the petitioners is that they being contractors or works contractors for developers or contractors/sub-contractors of developers who are authorised to carry on such operation by the Development Commissioner as defined under Section 2(h) of the CSEZ Act are entitled to exemption. The fundamental error in such submission is that the scope of the provisions of TNVAT Act and the scope of the benefits accruing under the CSEZ and TNSEZ Act have been completely lost sight of. It has to be pointed out that the Special Economic Zones Act, both the Central as well as the State Act and the TNVAT Act operate in a different field. It is relevant to take note of sub-section (2) of Section 12 of TNSEZ Act which states that the Government may prescribe the manner in which and the terms and conditions subject to which the exemption shall be....
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....exempted from tax, then the dealers are not eligible to claim input tax credit as per Section 19(5)(a) of the TNVAT Act. Therefore to enjoy the benefit granted under Section 18, it is necessary for the dealer to establish that the input tax paid or payable by him on the purchase of those goods which were exported as such or consumed or used in the manufacture of other goods that are exported as specified in sub-section (1) of Section 18 subject to such restrictions and conditions as may be prescribed. 21. It was argued that the petitioners have effected sale or performed works contract to Developers/Entrepreneur who have been authorised under the provisions of the SEZ Act and in terms of Section 26(1)(g), they are exempt from levy taxes in sale or purchase of goods , Rule 9 of the CSEZ Rules, 2006, deals with grant of approval for authorised operations. In terms of the said Rule, the Developer is required Form C7 furnishing several details, in particular, details of the activities in the processing area for which approval is sought for, and details of the activities in the non-processing area with appropriate undertaking as regards the correctness of the information furni....
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....s developers. That apart, there is marked and material difference with regard to zero rated sale as per under Section 5A in the Gujarat VAT Act with that of Section 18 of the TNVAT Act. The provisions are not pari materia. Furthermore, the factual background of the case was entirely different and therefore, the decision does not render support to the case of the petitioners. The interpretation of the petitioners, if accepted, it would render the statue futile. The intention of the legislation is clear from the language of Section 18 of TNVAT Act specifies the benefit for zero rated transactions. 23. The contention that the phrase goods exempted by notification occurring in Section 15 of TNVAT Act would not cover transaction under clause (b) of Section 30(1) of TNVAT Act, does not merit acceptance for the following reason. Section 15 of TNVAT seeks to define what is exempted sale in the absence of any definition in Section 2 of TNVAT as Section 2(20) only defines exempted goods. For the purpose of TNVAT, sale of goods specified in the fourth schedule and goods exempted by notification by the Government are exempted sale. Section 30 of TNVAT is in pari materia with Section....
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.... been made by any of the petitioners to produce any such document rather it is a admitted case that the nature of sale effected by them was neither exported as such or consumed or used in the manufacture of other goods that are exported as specified in Section 18(1) of the TNVAT Act. 27. In the case of Innanuri Gopal vs. State of A.P., reported in 1964 14 STC 742, pertain to a notification issued under Section 9 of the AP General Sales Act exempting from tax the sale or purchase of certain goods. The claim for exemption by the appellant was denied and the reasoning given by the department was disapproved by the Hon'ble Supreme Court. Interpreting the exemption notification and pointing out that if the intention can be gathered from the construction of the statute or the rule or by the necessary implication therefrom, the matter is different and in the said case, the position was contrary. The said decision cannot be applied to the facts of this case in the light of the clarity as found in the Section 18 of the TNVAT Act. 28. It is to be once again pointed out that the plea raised by the petitioner seeking for exemption by relying on notifications issued under Section 17 o....
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....r what circumstances, penalty is leviable. In fact, mechanically there is a proposal to levy penalty. It is a settled legal principle that when there is a proposal to levy penalty, the Assessing Officer has to specifically record a finding that the conduct of the dealer was deliberate and the suppression was wilful with an intend to avoid payment of tax. No such conclusion has been arrived at by the Assessing Officers while proposing to levy penalty or while imposing penalty in the assessment orders. Therefore, in all the impugned pre-assessment notices, wherever penalty has been proposed, the same shall stand set aside. In respect of the penalty levied in the impugned assessment orders, the same shall stand vacated. 30.2 In two cases, namely, W.P.Nos.6555 and 6556 of 2014, the petitioners have contended that the question of reversal of ITC does not arise, since they have shown the ITC in their books but they have not availed the credit. Therefore, in the said cases, the petitioner is directed to file a petition under Section 84 of the TNVAT Act, seeking for reversion of assessment and on such application being filed, the Assessing Officer shall consider the same after af....