TaxTMI 
TaxTMI 
2023 (3) TMI 884
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....ant : Ms. Aparna Nandakumar For the Respondent : Mr. Haja Nazirudeen Additional Advocate General Assisted by Mr. M. Venkateswaran Special Government Pleader and Mr. P. Haribabu , Govt. Advocate JUDGMENT MOHAMMED SHAFFIQ , J. The present batch of Writ appeals is filed challenging the order of the learned Single Judge inasmuch as it finds that "export" is a condition precedent to constitute "Zero Rate Sale". There are Tax Case Appeals and Writ Petitions wherein identical questions are involved and thus taken up for hearing with the present batch of Writ Appeals by consent of all parties concerned. The common question that arises for consideration revolves around the scope of Section 18 of the Tamil Nadu Value Added Tax, 2006 (hereinafter referred to as "TNVAT Act"). There is also a challenge to the Circular No.9 /2013 dated 24.07.2013 issued by the Commissioner of Commercial Taxes, in which it was clarified that sales of goods to a dealer located in a Special Economic Zone (hereinafter referred to as "SEZ") in the State would not qualify as a "Zero Rate Sale" unless the goods purchased by the dealer located in a SEZ is exported as such or consumed or used in the manufactu....
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....mers executing works contract for SEZ. 12. W.P.No.29159 of 2015 TIN No.33570523772/2012-13 Interior work, false ceiling, civil and electrical work 13. W.P.Nos.31968 to 31970 of 2015 Larsen & Toubro Ltd. TIN No.33800620015/ Engaged in manufacturing, trading, financial, import & export, undertaking execution of works contract for variety of customers executing works contract for SEZ. 14. W.P.Nos.1153 to 1156 of 2015 Consolidated Interiors TIN No.33620821249 Engaged in construction in work contract and interior work 15. W.A.Nos.1122 & 1124 of 2015 Noble Consolidated TIN No.33410821359/2007 3 AY Engaged in work contract 16. W.P.Nos.23653 & 23655 of 2021 CEE DEE YES Housing TIN 33330862143 for 32 AY Involved in the activity of execution of various building and construction contracts 17. W.P.Nos.1273 to 1276 of 2015 Arunachalam & Co TIN 33470780101 for 3 AY Engaged in execution of civil works contract 18. W.P.Nos.1293 to 1295 of 2015 TIN No.33741662410 3 AY Asst. Commissioner Engaged in manufacture of construction machinery viz.,concrete mixing etc. 19. W.A.Nos.1660 to 1663 of 2015....
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.... the TNVATAct. f) That Section 18 of the TNVAT Act, contemplates two independent benefits viz., Input Tax Credit and Refund, which was rejected. g) The submission that Section 18(2) of TNVATAct is inapplicable to clause (ii) of Section 18(1) of the TNVATAct was rejected on the premise that it amounts to inserting a new provision to the statute which is not contemplated. In other words, it would amount to rewriting the law. 3.1. After holding that export by the dealer purchasing the goods located in Special Economic Zone is a condition precedent for claiming the benefit of "zero rate sale". The learned Single Judge disposed of the writ petitions granting liberty to the petitioners therein to file an appeal in case the challenge is to orders of assessment and to file objections in case the challenge was to the Show Cause Notice. 3.2. It is this order of the learned Judge which is the subject matter of challenge in this batch comprising of Writ Appeals. The tax appeals are against the order of the Tribunal and the writ petitions are against the order of assessments / notices where the above issue is involved. 4. Case of the Appellants: 4.1. Submissions of....
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....e Sale i.e., sale on which no tax is payable but credit for the Input Tax related to that sale is admissible. Consequently, Section 18(2) of the TNVAT Act cannot be telescoped into Section 18(1)(ii) of that Act. h) The long title of the Special Economic Zones Act, 2005 ("the Central Act") cannot control the scope and operation of the provisions of that Act. A reading of the SEZ Act and its Rules will show that a SEZ Unit can also make Domestic Tariff Area (hereinafter referred to as "DTA") sales. Consequently, requirement of an export cannot in any view be read into Section 18(1)(ii) of the TNVATAct. 4.3. Submissions of Mrs.Aparna Nandakumar: a) The concept of zero rating is unique and adopted from the Value Added Tax System prevalent in European VAT Laws, Australian GST and the like. This unique concept postulates that the taxable event viz., sale or supply has the benefit of Input Tax Credit even though the sale or the supply is itself exempt. b) The aspect of dual alternative benefit which flows from Section 18(1) of the TNVAT Act, 2006 is reinforced by the provisions of Section 18(3) of the TNVAT Act, 2006 which sets a maximum time limit of 180 day....
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.... discerned from the Preamble to the Act is to increase exports and thus Section 18 of the TNVAT Act must be understood in a manner that promotes the object of the SEZ Act and avoid a construction that would result in drifting away or diluting the object of the SEZ Act. d) Section 15 of the TNVAT Act which deals with "Exempted Sale", covers sales of goods exempted by notification. The State Government vide notification in G.O.Ms.No.193 dated 30.12.2006 and G.O.Ms.No.15 dated 29.01.2016 issued in exercise of powers under Section 17 and 30 of the TNGST/TNVAT Act respectively provides for exemption from tax on sale of goods to a dealer located in SEZ subject to the conditions set out therein. G.O.Ms.No.15 being a notification issued under Section 30 of the TNVAT Act would fall within the meaning of "Exempted Sale" in terms of Section 15 of the TNVAT Act, thus Input Tax Credit shall not be allowed in view of the restriction/embargo contained in Section 19(5)(a) of the TNVAT Act. e) Placing reliance on the notification in G.O.Ms.No.15 dated 29.01.2016 issued under Section 30 of the TNVAT Act and on Section 12 of the TNSEZ Act both of which provides for exemption on sale....
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....inated by distortionary trade, macro and exchange regulation and other regulatory governmental controls. A long-held view is that investment, in particular foreign investment, in enclaves such as SEZ, pushes forward the process of industrial development. The first known instance of a SEZ seems to have been an Industrial park set up in Puerto Rico in 1947 to attract investment from the US mainland followed by few other countries. But it was China that made the world look at SEZ as a device to promote economic development with its largest SEZ being the metropolis of Shenzhen. b. Evolution of SEZ in India : With a view promote export which is one of the markers of economic development and to earn valuable foreign exchange, periodical experiments were carried out. India experimented with the concept of Export Processing Zones (EPZ). Economic Policies and legislations are a product/result of experimentation and made on the basis of trial and error. As a part of the continuing economic experiment in 2000, the new Export and Import Policy allowed SEZs to be set up in Public, Private or Joint sector or by the State Government. The EXIM Policy, 2000 launched a new scheme of Spec....
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....t, 2005. Extension of fiscal benefits being an integral part of the SEZ Scheme, the State legislatures extended/granted different benefits in the form of exemption and "Zero-Rate". TNVAT provides for exemption vide G.O.Ms.No.15 and Zero Rating i.e., sales on which no tax is payable but input tax credit is admissible, while providing the additional benefit of refund under certain circumstances. The following Table contains the provisions relating to treatment of sales to dealers in SEZ by various States across the country : SI.No RELEVANT ACT AND PROVISIONS TAX TREATMENT OF SALE TO S.E.Z ZERO RATED SALES 1. Assam Value Added Tax Act, 2003 Section 9. Exceptions and Zero rating; and Section 2(59). Zero - rates Sales: Section 2(59). Zero-rated Sales: "Zero-rated sales" mean the sales which are subject to tax is charged and credit for Input Tax paid in the State is allowable. Section 9. Exemptions and Zero rating: Any sale of goods made by a registered dealer from a Domestic Tariff Area (DTA) to a unit located in Special Economic zone(SEZ) shall be zero rated. 2 Bihar Value Added Tax Act, 2005 Section 17. Exports to be Zero rated: Section 17. Exports to ....
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....ided that the sale of goods specified in Schedule III shall not be zero rated sale: Provided further that the sale of certain goods or sale of goods by any dealer or class of dealers as may be specified by the State Government by notification in the Official Gazette, shall not be zero rated sale. Section 2(37) "zero rated sale" means a sale of goods by a registered dealer to another registered dealer on which the rate of tax leviable shall be zero but tax credit on the purchase related to that sale is admissible. 5 Jharkhand Value Added Tax Act, 2005 Section 2 (viii) Explanation 2 (lxv) "Zero rates sales" Section 49. Sales not liable to tax and zero rates sales:- Explanation 2 (lxv) to Section 2(lviii) - "Zero Rated Sales" for the purpose of this Act means a sale of goods, in the course of Inter-State Trade or Commerce, export to outside the territory of India including sale in course of Export and Sale of Goods to any unit located in Special Economic Zone as may be notified. Section 49. Sales not liable to Tax and Zero Rated Sales:- 49(1) Notwithstanding anything contained in this Act, a Value Added Tax shall not be imposed under this Act; (i) Where such sale or purchase ....
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....holding a valid certificate of registration and which are intended for the purpose of- (a) sale or resale by him in the State of Manipur; or (b) use as raw material or as capital goods in the manufacturing and processing of goods other than those exempt from tax under this Act intended for sale in the State of Manipur; or (c) inter-States sales effected from the State of Manipur; or (d) manufacture of goods, production, processing, assembling, treating, repairing, reconditioning, re-engineering, packaging in Special Economic Zone (SEZ) and Software Technology Part (STP); or (e) for use as containers for packing of goods other than those exempt from tax under this Act for sale or resale in the State of Manipur: Provided that if purchases are used partially for the purposes specified in this sub-section, input tax credit shall be allowed proportionate to the extent they are used for the purposes specified in this sub-section. (5) Exports to be zero-rated:-A sale specified under section 5 of the Central Sales Tax Act, 1956 (Act 74 of 1956) by a dealer or an Export Oriented Unit, shall be Zero-rated. In such cases there shall be no tax payable on the turnover of such sale and the perso....
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.... the manner prescribed. Explanation- For the purpose of this section, all sale of inputs made to the dealers in a Special Economic Zone as notified by the Central Government under Section 5 of the Foreign Trade Regulation Act, 1988 shall also be zero-rated. 10. The Tamil Nadu Value Added Tax Act, 2006 Section 2(44). "Zero rate sale": Section 18. Zero-rating: Section 2(44). "Zero rate sale": 'means a sale of any goods on which no tax is payable but credit for the input tax related to that sale is admissible. Section 18. Zero- rating: 18(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 ofgoods specified in the Fest Schedule including capital goods, by a moistered dealer in the State subject to such resinctions 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 dealer located in Special Economic Zone in the State, if such registered dealer has been authonsed to establish such units by the authority specified....
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.... specified in column (2) of Schedule AA, shall be zerorated as defined in clause (59) of section 2 Schedule AA 4 By a dealer, to a dealer located in a Special Economic Zone (SEZ) EXEMPTED SALES 14 The Andhra Pradesh Value Added Tax Act, 2005 Section 7A. Exemption of tax on sale of goods for certain purposes to a unit located in a Special Economic Zone: Section 7A Exemption of tax on sale of goods for certain purposes to a unit located in a Special Economic Zone Notwithstanding anything contained in this Act, no tox under this Act shall be payable by any dealer in respect of sale of any goods made by such dealer to a registered dealer for the purpose of setting up operation, maintenance. manufacture, trading production. processing, assembling, repairing reconditioning reengineering, packaging or for use as packing material or packing accessories in an unit located in any Speciali Economic Zone or for development operation and maintenance of Special Economic Zone by the developer. of the Special Economic Zone, if such registered dealer has been authorized to establish such unit or to develop. operate and maintain such Special Economic Zone by the authority specified by th....
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....all be exempt from the tax payable under this Act. 17 Kerala Value Added Tax Act, 2003 Section 6 Levy of tax on sale or purchase of goods Section 6. Levy of tax on sale or purchase of goods: 6 (7) Notwithstanding anything contained in sub-section (1). (a) any authorised retail or wholesale distributor dealing in rationed articles namely rice, wheat and kerosene under the Kerala Rationing Order, 1966 shall not be liable to pay tax on the turnover of such (b) goods sale of any building materials, industrial inputs, plant and machinery including components, spares, tools and consumables in relation thereto to any developer or industrial unit or establishments situated in any Special Economic Zone in the State for setting up the unit or use in the manufacture of other goods shall, subject to such conditions or restrictions, as may be prescribed, be exempted from tax. 19 The MP VAT Act, 2002 Section 36 Sales no liable to tax Section 36. Sales not liable to tax: 36 (1) Notwithstanding anything contained in this Act, a tax on the sale or purchase of goods shall not be imposed under this Act:- 20 The Maharashtra Value Added Tax Act. 2002 Section 8: Certain Sales and....
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....t of tax in certain cases: (1) The sale of goods as specified in Schedule-I shall be exempt from tax under this Act subject to conditions and exceptions set out therein. (2)........ (3)Zero-rate of tax in certain cases: When calculating the output tax in relation to the following cases of dealers, the rate of tax shall be Zero rated (I) Export from India, Le, the tax applicable to the exported commodities would be zero and credit/refund would be available for VAT paid on Inputs going into such exports (ii) Sales from Domestic Tariff Area to Special Economic Zones would be eligible for the same treatment as in sub-section (1) of this Section. (iii) Exports of export oriented Units and EHTP/STP Units would be taxed at zero (0%) Supplies from DTA to such Units would be zero-rated and the supplying Unit would get credit/refund for VAT paid on inputs used by them . (iv) Sales from SEZ Units and units under FTZ's would be exempt from levy of VAT (v) Goods and services provided by EPZ/EPIP would be taxed at zero% 22 The Rajasthan Value Added Tax Act, 2003 Section 8. Exemption of Tax: Section 8. Exemption of Tax: (1)...... (2)....... (3)........ (4) The State Government may if....
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....me States had granted the benefit of not just exemption but also the corresponding input tax credit which is otherwise not available to exempted goods/sales. Under the TNVAT Act, sales to SEZ is treated as a "Zero Rate Sale'', which is distinct from exemption. 8. Legislative History of Tax Treatment to SEZ in Tamil Nadu: With the above background relating to the object and purpose behind establishment of Special Economic Zones, we shall examine the benefit/tax treatment under the SEZ Act, TNSEZ Act, TNGST Act followed by TNVATAct: a. Tax Benefit under Special Economic Zone Act, 2005: "Section 26. Exemptions, drawbacks and concessions to every Developer and entrepreneur. ... (g) exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 (74 of 1956) if such goods are meant to carry on the authorised operations by the Developer or entrepreneur. Section 51. Act to have overriding effect. The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect....
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....ered dealer operation has been authorised to establish such units of such other establishments within the Special Economic Zone are to develop, operate and maintain such Special Economic Zone by the authority specified by the Central Government, subject to the following conditions." Under the TNGST Act exemption was thus granted in respect of sales tax, surcharge, resale tax and additional sales tax payable by any dealer on the sale of any goods made by such dealer to a registered dealer in SEZ for the purposes set-out in the said notification. d. Tax Treatment under TNVAT Act : With the introduction of TNVAT Act, 2006, a notification in G.O.Ms.No.15, Commercial Taxes and Registration (B1) was issued under Section 30 of the TNVAT Act, granting exemption to sales of goods to a registered dealer for the purposes mentioned therein. The relevant portion of the same is extracted hereunder : "No. II(1)/CTR/(d-4)/2016 (TNGG Extraordinary -Part II -Sec. 1- No.21/January 29, 2016) [GO. Ms. No. 15. Commercial Taxes and Registration (B1). 29th January 2016. Thai 15, Manmadha. Thiruvalluvar Aandu-2047.] In exercise of the powers conferred by sub-sections (1)....
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....e 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 dealer located in Special Economic Zone in the State, [for the purpose of use in manufacture, trading, production, processing, assembling, packaging or for use as packing material or packing accessories]i Added by Section 7 of the Second Amendment (13 of) 2015, effective from 29.01.2016 if such registered dealer has been authorised to establish such units by the authority specified by the Central Government in this behalf; and (iii) Sale of goods to International Organisations listed out in the Fifth Schedule. (2) The dealer, who makes zero rate sale, shall be entitled to refund of input tax paid or Payable by him on purchase of those goods, which are exported as such or consumed or used in the manufacture of other goods that are exported as specified in sub-section (1), subject to such restrictions and conditions as....
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.... (2) to Section 18 of TNVAT Act viz., goods sold are exported as such or consumed or used in the manufacture of other goods that are exported as specified in sub-section(2) to Section 18 of the TNVAT Act, subject to such restrictions and conditions as may be prescribed. g. The benefits extended /granted under Section 18 of the TNVAT Act viz., Zero Rating and refund are independent nor do they overlap. Refund is not part of the benefit of Zero rating as defined under Section 2 (44) of the TNVAT Act. It is not necessary that a Zero Rate must end up/culminate/ripen into a claim of a refund. h. Section 18(2) and 18(3) of the TNVAT Act would get attracted only when a dealer claims the benefit of refund which is an additional benefit independent and distinct from Zero Rate Sale. 12. For the sake of completion, it may be relevant to note that there was an amendment to clause (ii) to sub-section(1) to Section 18 of the TNVAT Act, vide Second Amendment Act (13 of 2015) effective from 29th January, 2016, consequent to the amendment, dealer in sales to SEZ is treated to be Zero Rate only if such sale is for the purpose mentioned in Section 18 (1) (ii) of the TNVAT Act. The relevant p....
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....ove conclusion arrived at by the learned Judge is also unsustainable for the following reasons: a. Significance of the expression "or": The order of the learned Single Judge fails to take into account the significance of the expression 'or' employed in Section 18 (1) of the TNVAT Act. The expression "or" employed in Section 18(1) of the TNVAT Act, between Input Tax Credit and refund makes it clear that they are disjunctive and independent of each other. Expression ''or'' is a disjunctive participle and connects alternatives, corresponding to 'either' i.e., "either this" or "that". In this regard, it may be relevant to refer to the following judgments: i. Union of India v. Ind-Swift Laboratories Ltd., (2011) 4 SCC 635: "17. ......The issue is as to whether the aforesaid word "or" appearing in Rule 14, twice, could be read as "and" by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole we find no reason to read the word "or" in between the expressions "taken" or "utilised wrongly" or "has been erroneously refunded" as the word "and". On the happening of any of the three aforesaid circ....
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.... is the duty of the authorities to grant such benefits if the applicant is otherwise entitled to such benefit." (emphasis supplied) c. Legislature presumed not to waste words - Redundancy to be avoided: Beneficial legislation must be construed in a manner that it advances the object. The Legislature is deemed not to waste words or to say anything in vain and a construction which attributes redundancy to the legislature will not be accepted Chanshyamdas v. Regional Asstt. Commr., Sales Tax, AIR 1964 SC 766. It is trite law that the provision must be read as whole and effect must be given to every part of the Statute. Section 18 (1) (ii) of the TNVAT Act would become redundant if export is to be treated as a prerequisite to fall under Section 18 (1)(ii) of the TNVAT Act. It would then possibly be covered by Section 18(1)(i) resulting in Section 18(1)(ii) being reduced to a superfluity. In this regard, it may be relevant to refer to the judgments of Hon'ble Supreme Court: i. Nathi Devi v. Radha Devi Gupta, (2005) 2 SCC 271, "14. It is equally well settled that in interpreting a statute, effort should be made to give effect to each and every word used by ....
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....ithin a section or between two different sections or provisions of the same statute. It is the duty of the court to avoid a head-on clash between two sections of the same Act. " (emphasis supplied) d. Interpretation resulting in importing conditions to an exemption / benefit to be avoided: It is impermissible to whittle down/curtail the width of beneficial legislation by importing conditions through a process of interpretation for that would amount to judicial legislation. Section 18(1)(ii) of the TNVATAct only requires sales to be made to a registered dealer located in a SEZ. Export is not a condition for a sale to fall within the said clause. Thus, importing the requirement of export for a transaction to be covered by Section 18(1)(ii) of the TNVAT Act is to import condition to an exemption which is unsustainable. In this regard, it may be relevant to refer to the following judgments: i. Union of India v. Inter Continental, 2008 SCC OnLine SC 22: "6.We entirely agree with the view taken by the High Court that the department could not, by issuing a circular subsequent to the notification, add a new condition to the notification thereby either restr....
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....n of sale was expanded by the 46th amendment to the Constitution of India stands incorporated in the definition of Sale under Section 2 (33) of the TNVATAct. Thus, the argument by the Revenue that sale in Section 18 of TNVAT Act would not include works contract is impermissible. In this regard, it may be relevant to refer to the following judgments of the Hon'ble Supreme Court: a. Mysore v. Fakkrusab Babusab Karanandi, (1977) 1 SCC 666: "3. It is now settled law that when a legal fiction is enacted by the legislature, the Court should not allow its imagination to boggle but must carry the legal fiction to its logical extent and give full effect to it." b. Union of India v. Jalyan Udyog, (1994) 1 SCC 318 : 19. It is well settled that where a fiction is created by a provision of law, the court must give full effect to the fiction, and as is often said, it should not allow its imagination to be boggled by any other considerations. Fiction must be given its due play; there is to be no halfway stop". c. Builders' Assn. of India v. Union of India, (1989) 2 SCC 645: "When the law creates a legal fiction such fiction should be c....