TaxTMI 
TaxTMI 
2016 (5) TMI 1037
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....h, learned Special Government Pleader (Taxes) appearing for the respondents. BACKGROUND FACTS 3. The appellant is a company having a unit located in the Special Economic Zone at Sriperumbudur. The unit of the appellant was issued with a Letter of Approval dated 7.3.2011 by the Competent Authority for the setting up of a unit for the purpose of "Trading and Warehousing Services for Mobile Phone and Sets and Mobile Phone Parts and Accessories". 4. There is also another company by name Nokia India Private Limited, which has a manufacturing unit within the same Special Economic Zone. From the said manufacturing company namely Nokia India Private Limited, the appellant purchased mobile phones during the period 2012-13. The phones so purchased were either sold by the appellant in the Domestic Tariff Area after paying applicable duties and taxes including value added tax or transferred to the branches of the appellant located in other States, by way of stock transfer. 5. Suddenly, the appellant was issued with notices on various dates in May, June, July and September 2013, in relation to the assessment year 2012-13, on the ground that the appellant was liable to pay purchase tax on th....
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....r State Law for the time being in force, by virtue of Section 28 of the TNSEZ Act, 2005. 10. However, the case of the appellant was resisted by the respondents on the short ground that under Section 15(a) of the TNSEZ Act, 2005, every removal of goods from the Special Economic Zone to the Domestic Tariff Area is chargeable to sales tax. Therefore, the respondents claim that the protection under Section 28 was not available to such cases. REASONINGS OF THE LEARNED JUDGE 11. By the order impugned in these appeals, the learned Judge held (i) that the inter-state stock transfer to the branches of the appellant located in other States, would not come within the purview of the term "authorised operations"; (ii) that the liability of the appellant to pay purchase tax was not exempted in view of Section 15(a) of the TNSEZ Act, 2005; and (iii) that the appellant, after having availed the hospitality and resources of the State of Tamil Nadu, was not entitled to divert significant part of their turnover offered to other States by effecting inter-state stock transfers. After holding so, the learned Judge distinguished the decision of the Gujarat High Court on an identical issue in Tor....
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....ection 12(1)(a) of the TNSEZ Act, 2005, grants exemption from the levy of taxes both on the sale as well as the purchase of goods, Section 15(a) merely makes the goods removed from SEZ to Domestic Tariff Area chargeable to sales tax and additional sales tax, but not to purchase tax. He also submitted that if inter-state stock transfer by a company located in a SEZ cannot be taken to be an "authorised operation", then the same would lead to a very disastrous consequence namely that the exemption under Section 12(1) will go in entirety. 14. Referring to paragraphs 22 and 26(ii) of the counter affidavit filed by the respondents before the learned Single Judge, Mr.P.S.Raman, learned Senior Counsel further contended that even according to the respondents, exemption is provided from the levy of tax on transactions between units within the SEZ as well as exports. Therefore, he contended that there was no logic in denying the exemption in respect of purchase tax for inter-state stock transfers. The learned Senior Counsel also submitted that no obligation is cast upon a unit located in a Special Economic Zone, only to make exports. These units are allowed to effect local sales also, ....
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....ent) and the scheme of the TNSEZ Act, 2005. 18. The Parliament enacted the Special Economic Zones Act, 2005 with a view to provide for the establishment, development and management of Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto. Section 3(1) of the Act enables the Central Government, the State Government or any person, either jointly or severally, to establish a Special Economic Zone, for the manufacture of goods or rendering of services or for both or as a free trade and warehousing zone. Section 5 of the Act prescribes the guidelines for notifying an area as a Special Economic Zone. A careful look at Section 5 would show that these guidelines include (i) generation of additional economic activity; (ii) promotion of exports of goods and services; (iii) promotion of investment from domestic and foreign sources; (iv) creation of employment opportunities; (v) development of infrastructural facilities; and (vi) maintenance of sovereignty and integrity of India. The areas falling within the Special Economic Zone may be demarcated into (i) processing area for the manufacture of goods or rendition of services; (ii) area f....
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....ection 51 of the Central Enactment confers overriding effect upon the Act, vis-a-vis any other law. Section 53 declares a Special Economic Zone to be a territory outside the Customs Territory of India, for the purpose of undertaking the authorized operations. The Special Economic Zone will be deemed to be a port, inland container depot, land station and land customs station under Section 7 of the Customs Act, 1962. 24. In accordance with Section 50 of the Central Enactment, the State of Tamil Nadu enacted Act 18 of 2005. Section 2(f) of the Tamil Nadu Act made it clear that all words and expressions used, but not defined in the Tamil Nadu Act will have the same meaning, as assigned to them in the Central Enactment. 25. Section 3 of the Tamil Nadu Act is in pari-materia with Section 5(1) of the Central Enactment. Therefore, the Government is guided, while forwarding a proposal for establishment of a Special Economic Zone by 6 factors namely, (i) generation of additional economic activity; (ii) promotion of exports of goods and services; (iii) promotion of investment from domestic and foreign sources; (iv) creation of employment opportunities; (v) development of infrastructur....
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....the TNSEZ Act, which are similar to Sections 4(2) or 15(9). Therefore, it appears that the power for the grant of approval and the procedure for making an application and processing the same are all to be found only in the Central Enactment, as there are no provisions in the State Enactment with regard to these matters. This is why Section 28 of the TNSEZ Act does not merely contain a non-obstante clause, but also contains a stipulation that the State Act shall be in addition to and not in derogation of the Central enactment. 29. The above conclusion is also fortified by the fact that the very Letter of Approval to the appellant herein was granted on 7.3.2011, not by any State Authority, but by the office of the Development Commissioner, MEPZ Special Economic Zone, the Department of Commerce of the Ministry of Commerce and Industry, Government of India. The Letter of Approval dated 7.3.2011, issued to the appellant by the Development Commissioner indicates the authorised operations the appellant is entitled to carry on. In column No.1 of the Letter of Approval, under the heading Authorized Operations it is indicated that no items of manufacture are to be undertak....
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....missioner, as contemplated under Section 15(9) of the Central Enactment, the operations indicated in the Letter of Approval as authorised operations very clearly satisfy the definition of the expression under Section 2(c). In other words, the inter state stock transfer made by the appellant to its own branches located outside the State, is very clearly authorised by Condition No.(v) of the Letter of Approval. Hence, the Department as well as the learned Judge were in error in thinking that an inter-state stock transfer would not come within the purview of the expression authorised operations . 32. We cannot forget that the very entitlement of a unit located in a SEZ to the benefits of the privileges and concessions, is contingent upon the unit carrying on authorised operations. If a unit carries on any unauthorised operation, the very Letter of Approval is liable for cancellation in terms of Condition No.(xiii) that we have extracted above. In fact, the State has not withdrawn any of the other benefits, privileges or concessions to the appellant on the ground that they have stopped carrying on authorised operations. Therefore, to say that the inter-state stock tr....
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.... exemptions, under both Enactments, are made available, subject only to Sub-Sections (2) of Section 12 of the Tamil Nadu Act and Section 26 of the Central Act. Sub-Sections (2) of both provisions empower the respective Governments to prescribe the manner, in which, and the terms and conditions, subject to which, the exemptions can be granted. 36. After listing out under Section 12(1) the exemptions available to a developer or entrepreneur, the State Enactment also provided, under Section 14, for the transfer of ownership in goods brought into or produced or manufactured in any unit in a SEZ. This Section also provides for removal of goods from the unit or zone and this Section is in parimateria with Section 29 of the Central enactment. Section 14 of the State Enactment reads: "14. The transfer of ownership in any goods brought into, or produced or manufactured in any Unit or Special Economic Zone or removal thereof from such Unit or Zone shall be allowed, subject to such terms and conditions as may be prescribed". 37. Keeping in mind the features of Sections 12 and 14, let us now have a look at Section 15. Section 15 of the State Enactment is exactly similar to Section 30 of th....
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....ort takes place. An importer becomes liable to pay duties of customs, anti-dumping, countervailing and safeguard duties, the moment the imported goods arrive into the territory of India. The chargeability to duties of customs, countervailing duty etc., does not depend upon the question as to whether the importer proposes to make use of the goods for his own consumption or for sale in India. Even in cases where the importer proposes to process those goods to make out of them yet another product so as to re-export them to the same or another country, the chargeability does not get removed. He would only be entitled, upon re-export, to duty drawback or credit, etc. 40. In other words, the arrival of goods into the Domestic Tariff Area from Special Economic Zone is exactly akin to the arrival of imported goods into the territory of India. The event that gives rise to the chargeability to the duty of customs, anti-dumping etc., is the very arrival of the goods into the territory of India. But in contrast, the taxable event in respect of provisions of the TNGST Act, TNVAT Act etc., is the sale or purchase of goods that takes place within the territory. But unfortunately, Section 15 of t....
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....s and services will have to necessarily enter the Domestic Tariff Area before reaching the airport or seaport. 43. The second scenario is that the goods or services produced by a unit located inside the SEZ are sold to a local purchaser within the State, in which, the SEZ is located. When such an event takes place, the goods are removed from the SEZ to the Domestic Tariff Area and they are supplied to the local purchaser within the State. In such cases, a taxable event takes place in terms of the provisions of the Tamil Nadu General Sales Tax Act, 1959 or TNVAT Act, 2006. This position is admitted by both sides and in so far as such direct sales made by the appellant to a local purchaser within the State are concerned, the appellant is said to have admitted the said liability and also paid sales tax, additional sales tax etc. 44. The third possible scenario is where the goods or services produced by a unit located within the SEZ of a particular State, are sold to a purchaser located in yet another State. In such a case, the sale takes place within the scope of the Central Sales Tax Act, 1956. Therefore, the seller namely the unit located in SEZ pays sales tax either under S....
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....ing in Section 15(a) has to be correlated to a taxable event. This is made clear by the rider contained in the last part of Section 15(a). This rider reads as "where applicable as leviable on such goods when imported" 48. Whenever an inter-state stock transfer takes place, the State, in which, the factory is located, cannot levy and collect the local sales tax, as no taxable event takes place in the State. This is why Section 15(a) uses the rider "where applicable as leviable". Take for instance a case where imported goods arrive at the Chennai Port. When the importer of such goods is located in Andhra Pradesh or Karnataka and such importer takes the imported goods from Chennai Port to his own godown in Andhra Pradesh or Karnataka, so as to sell them in his State, no sales tax under the Tamil Nadu General Sales Tax Act becomes leviable on this imported goods. This is what is signified by the rider appearing in the last part of Section 15(a). 49. The fallacy in the interpretation given by the respondents to Section 15(a) could be understood very easily by looking at it from another angle. The respondents agree that if an export takes place from a unit located in SEZ to a foreign c....
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....under the VAT Act. The overriding effect given to the SEZ Act under Section 22, was held by the Gujarat High Court not to have a limited application. 52. But, the above decision had been distinguished by a learned Judge of this Court in a decision rendered on 09.01.2015 in Tulsyan Nec Ltd. v. The Assistant Commissioner on the ground inter alia (i) that Section 21 of the Gujarat SEZ Act and Section 12 of the Tamil Nadu SEZ Act are not in pari materia, (ii) that the petitioners in Tulsyan were claiming input tax credit on the sales effected to the Units in Special Economic Zone, and (iii) that there is a marked and material difference with regard to zero rated sale as per Section 5-A of the Gujarat VAT Act and as per Section 18 of the TNVAT Act. 53. The distinguishing features pointed out by a learned Judge in Tulsyan Nec. Ltd., appealed to the learned Judge against whose orders the present appeals arise. Hence, the learned Judge held that the decision of the Gujarat High Court in Torrent Energy Ltd. is not worthy of acceptance. 54. But, in the order under appeal, the learned Judge omitted to see that the comparison drawn between Section 5-A of the Gujarat VAT Act and Section 18 o....
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....8 of the Tamil Nadu SEZ Act, 2005 reads as follows: "The provisions of this Act shall be in addition to and not in derogation of the Special Economic Zones Act, 2005 and shall have effect notwithstanding anything inconsistent therewith contained in any other State law for the time being in force." 59. Interestingly, the Gujarat High Court was also confronted with an amendment made to Sections 5-A and 9(5) of the Gujarat VAT Act, under Amendment Act 9 of 2008, in the light of the provisions of Sections 21 and 22 of the Gujarat SEZ Act, 2004. Section 22 of the Gujarat SEZ Act, which contained the clause relating to overriding effect, was anterior to the amendments introduced in 2008 to the Gujarat VAT Act. Section 22 of the Gujarat SEZ Act also used the very same phrase "for the time being in force", as is used in Section 28 of the Tamil Nadu SEZ Act, 2005. Tamil Nadu VAT Act, 2006 is a subsequent legislation and hence, it is contended before us, as it was contended before the Gujarat High Court that the phrase "for the time being in force" cannot cover a subsequent legislation or a subsequent amendment. But, the Gujarat High Court overruled the said objection on the basis of thr....
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....mmerce or in the course of export out of the territory of India; or (d) installs and uses such goods in the factory for the manufacture of any goods, shall pay tax on the turnover relating to the purchase aforesaid at the rate specified in the Schedules to this Act. (2) Notwithstanding anything contained in clause (24) of section 2, the dealer who pays tax under sub-section (1) shall be entitled to input tax credit on the goods specified in the First Schedule." 63. The plain language of Section 12(1) indicates that purchase tax is leviable upon every dealer, who, in the course of business, purchases any goods in circumstances in which no tax is payable by that registered dealer on the sale price of such goods under the Act. But, this levy under Section 12(1) is offset by the input tax credit that is allowed under Sub-section (2) of Section 12. Therefore, Sub-section cannot be read in isolation from Sub-section (2). 64. Moreover, the primary condition for the invocation of Section 12(1) is that the purchase by one dealer should be in circumstances in which no tax is payable by the selling dealer on the sale price of the goods. The phrase "in circumstances" appearing in Sect....