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2015 (11) TMI 882 - KERALA HIGH COURT

2015 (11) TMI 882 - KERALA HIGH COURT - [2016] 91 VST 175 (Ker), 2016 (344) E.L.T. 191 (Ker.) - Levy of VAT on supply to SEZ units - Deemed export or not - Liability of the petitioner to pay tax under the Kerala Value Added Tax Act - purchases of sandalwood at the auction - Assessee contends that goods so purchased are taken by her directly to the unit in the Madras Export Processing Zone - case of the respondents that the transaction of sale would attract tax under the KVAT Act since the sale w .....

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"authorised operations" is defined in Section 2(c) of the Act as meaning operations which may be authorised under Section 4(2) and Section 15(9) of the Act. Section 4(2) and Section 15(9) speak of such operations, which are authorised by the Central Government, and in respect of which the Developer of a unit has the authorisation of the Board of Approval. Further, an overview of the provisions of the SEZ Act indicates that it is a special law enacted with the specific object of providing an inte .....

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he Parliament did not intend to treat a supply from the DTA to a unit in the SEZ as an export for the purposes of the CST Act or Article 286 of the Constitution. Had the Parliament any such intention, then it would not have been necessary to provide for an exemption from State taxes, levies and duties, at the discretion of State Legislatures for, any sale of goods to an SEZ unit, would have qualified as an export sale for the purpose of the CST Act, and there would have been no necessity for an .....

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ct or under the respective State legislations. In the absence of any exemption, therefore, such sales effected from the DTA to a unit in the SEZ would not qualify to be export sales for the purposes of S. 5 (1) of the CST Act or for the purposes of Art. 286 of the Constitution of India. - Movement of the goods from Kerala to the unit of the petitioner in the SEZ would not qualify as an export for the purposes of Section 5(1) of the CST Act or for the purposes of Article 286 of the Constitut .....

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Nambiar, J. For the Petitioner : Sri. Raju Joseph ( SR. ) For the Respondent : Sri. Liju V. Stephen JUDGMENT The petitioner in this writ petition runs a unit in the Madras Export Processing Zone, Tambaram, Chennai. The said unit is engaged in the manufacture of essential oils, natural extracts and products of sandalwood. As part of its business operations, the petitioner sources sandalwood from Marayoor in Kerala, where it participates in auctions conducted by the Forest Department of the State .....

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e respondents that the transaction of sale would attract tax under the KVAT Act since the sale was concluded in the State of Kerala. 2. The brief facts that are necessary for a disposal of this case may now be noticed; The petitioner, who is a registered dealer under the Tamil Nadu Value Added Tax Act as well as the Central Sales Tax Act (hereinafter referred to as the 'CST Act'), is an exporter of articles like pre Indian Sandalwood chips and chips powder. These items are procured from .....

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sandalwood at Marayoor. At the auction so held, the petitioner's bid was found to be the highest in respect of three lots viz. Lot No.76/2015, 101/2015 and 106/2015 and she was given a letter of acceptance of her bid in respect of the said three lots. Later, the bids were formally confirmed in favour of the petitioner, as evidenced by Exts.P7 to P10 and she was asked to pay the value of the goods as also the applicable tax under the KVAT Act in respect of the goods. This was paid by the peti .....

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was, however, rejected by Ext.P19 communication informing the petitioner that no exemption was available. The petitioner, therefore, withdrew W.P.(C).No.9096/2015 without prejudice to her right to file a fresh writ petition challenging the order denying exemption. This writ petition was then filed challenging Exts.P9, P10, P14, P16 and P19 to the extent they contemplate a payment of tax under the KVAT Act on the sale value of goods sold to the petitioner, and seeking, inter alia, a declaration t .....

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the KVAT Act on the sale value of the goods sold to her. 4. I have heard the learned Senior Counsel Sri.Raju Joseph for the petitioner and the learned Government Pleader Sri.Liju V Stephen for the respondents. 5. On a consideration of the facts and circumstances of the case and the submissions made across the bar, I find that the following two issues arise for consideration in the instant case; (i) Whether the movement of the goods from Kerala to the unit of the petitioner in the Madras Export .....

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Z Act'), Special Economic Zones (SEZ) created under the said Act are seen as foreign countries for the purposes of trade and hence, when the goods sold to the petitioner were transported from the DTA to the unit of the petitioner in the SEZ, there was an export of the goods for the purposes of Article 286 of the Constitution of India read with Section 5(1) of the CST Act. It is contended that the Special Economic Zones Act, 2005 should also be seen as a law enacted by the Parliament pursuant .....

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er the TNVAT Act that in Tamil Nadu, such sales are treated as Zero Rate Sales for the purposes of the TNVAT Act. 6. Before dealing with the contentions urged on behalf of the petitioner, it would be apposite to refer to some of the legal provisions that have a bearing on the issue of sales in the course of exports. Article 286 of the Constitution of India reads as follows: "286. Restrictions as to imposition of tax on the sale or purchase of goods- (1) No law of a State shall impose, or au .....

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e or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub- clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." 7. It is clear from a perusal of the aforesaid provision t .....

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rliament in this regard is the Central Sales Tax Act, 1956. Section 5 of the CST Act, which is relevant for the purposes of the instant case, reads as follows: 5. When is a sale or purchase of goods said to take place in the course of import or export:- (1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to t .....

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le or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export.] (4) The provisions of sub-section (3) shall not apply to any sale or purchase of goods unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly fille .....

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er which the Central Government may, by notification in the Official Gazette, specify in this behalf.] 8. It will be seen from a reading of the above provision that there are certain transactions that, although they take place within the territorial limits of India, are nevertheless deemed to be in the course of export out of the territory of India. The said provisions have to be read in the backdrop of the concept of export as understood under the CST Act. When so read it follows that only if t .....

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ignificant to note, in this connection, that the phrase "crossing the customs frontiers of India" is defined in Section 2(ab) of the CST Act as follows: 2. Definitions:- In this Act, unless the context otherwise requires:- (a) ....................... (aa) ....................... (ab) "crossing the customs frontiers of India" means cross the limits of the area of a customs station in which imported goods or exported goods are ordinarily kept before clearance by customs authori .....

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refore, on a plain reading of the CST Act, be deemed to be an export for the purposes of the said Act. 10. I must, however, advert to the provisions of the SEZ Act, 2005 for it is the contention of the learned Senior Counsel for the petitioner that the SEZ Act is also a law enacted by Parliament, and the said Act also provides a definition for the term "export", which can be taken into consideration when examining the issue of whether or not a sale occasioned an export of the goods out .....

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es and reads as follows: "7. Exemption from taxes, duties or cess.- Any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area by.- (i) a Unit in a Special Economic Zone; or (ii) a Developer, shall, subject to such terms, conditions and limitations, as may be prescribed, be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule." 12. The words "export" and "import" are defined in .....

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special Economic Zone, by a unit or developer from a place outside India by land, sea or air or by any other mode, whether physical or otherwise; or (ii)receiving goods, or services by a Unit or Developer from another Unit or Developer of the same Special Economic Zone or a different Special Economic Zone;" 13. The provisions of Sections 49 to 53 of the SEZ Act are also relevant and they read as follows: "49. Power to modify provisions of this Act or other enactments in relation to Sp .....

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; or (b) shall apply to a Special Economic Zone or a class of Special Economic Zones only with such exceptions, modification and adaptation, as may be specified in the notification. Provided that nothing contained in this section shall apply to any modifications of any Central Act or any rules or regulations made thereunder or any notification or order issued or direction given or scheme made thereunder so far as such modification, rule, regulation, notification, order or direction or scheme rel .....

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prised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses. 50. Power of State Government to grant exemptio .....

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ions 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 by virtue of any law other than this Act. 52. Certain provisions not to apply.- (1) The provisions contained in the Chapter XA of the Customs Act, 1962 (52 of 1962) and the Special Economic Zones Rules, 2003 and the Special Economic Zones (Customs Procedure) Regulations, 2003 made thereunder shall not, with effect from such d .....

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action taken or purported to have been done or taken including any rule, notification, inspection, order or notice made or issued or any permission or authorisation or exemption granted or any document or instrument executed under the said provisions of the Act, rules and regulations referred to in sub-section (1) shall, in so far as they are not inconsistent with the provisions of this Act, be deemed to have been done or taken or made or issued or granted under the corresponding provisions of t .....

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t,   inland container depot, land station and land customs stations, as the case may be under section 7 of the Customs Act, 1962 (52 of 1962): Provided that for the purposes of this section, the Central Government may notify different dates for different Special Economic Zones. 14. It will be seen from a reading of Section 53 of the SEZ Act that an SEZ is deemed to be a territory outside the customs territory of India only for the purposes of undertaking authorised operations. The term &quo .....

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n internationally competitive environment for exports and there are specific provisions therein that are tailored to provide tax exemptions and other benefits to the units situated in the SEZ's. The overriding effect given to provisions of the Act is only with a view to further the objects of the Act and cannot confer on the units in the SEZ a status other than what is contemplated for the purposes of their functioning under the Act. It is against this schematic backdrop that one has to cons .....

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or providing services out of India from a unit in the SEZ. Similarly, the word "import" does not include the bringing of goods into a unit in the SEZ, from the DTA. It is also relevant to note that Section 7 of the SEZ Act that deals with exemption from taxes, duties and cesses does not specifically grant an exemption from Customs duties or CST or State VAT levies. The exemption from State VAT levies is separately contemplated under Section 50 of the SEZ Act and is left to the discret .....

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n export sale for the purpose of the CST Act, and there would have been no necessity for an exemption provision. As a matter of fact, even under the CST Act, through an amendment that was brought in with effect from 10.09.2004, Section 8(6) of the Act was amended to provide an exemption from CST in cases where there is an inter-state sale effected to registered dealers who are permitted to set up units in SEZ's. The said provision reads as follows: 8. Rates of tax on sales in the course of i .....

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onditioning, re-engineering, packaging or for use as packing material or packing accessories in a unit located in any special 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 authorised to establish such unit or to develop, operate and maintain such special economic Zone by the authority specified by the Central Government in this behalf.] 15. Similarly, under the KVAT Act, there .....

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n 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.] 16. The aforesaid provisions seem to suggest that the legislative intention under the SEZ Act was to treat sales to units in the SEZ as taxable sales, subject to specific exemptions that were provided for, either under the CST Act or under the respective State legislations. In the absence of any e .....

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nected that it could be said that the sale occasioned the movement of the goods to the unit in the EPZ. It is pointed out that the integral nature of the transaction could be gathered from the fact that the petitioner had introduced herself as having a unit in the SEZ before submitting its bids, she had participated in the e-tender from the unit in the SEZ, the acceptance of her bid was intimated to her at the same address, the sale consideration was paid from the said address and the petitioner .....

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