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2015 (11) TMI 1079 - MADRAS HIGH COURT

2015 (11) TMI 1079 - MADRAS HIGH COURT - 2015 (325) E.L.T. 259 (Mad.) , [2016] 89 VST 163 (Mad) - Levy of purchase tax on the Inter State stock transfer effected from warehouse located in SEZ to DTA u/s 12 of the Tamil Nadu Value Added Tax Act, 2006 - whether the petitioner company, being a SEZ unit, is entitled to exemption from levy of purchase tax on the interstate stock transfer effected from warehouse located in SEZ - Held that:- The petitioner company sent a proposal for setting up a unit .....

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by the NOKIA group in the State. The above said approval dated 7.3.2011 is subject to various terms and conditions both in regard to the export of the goods/services as well as clearances and supply of goods/services in the domestic tariff area. - It is explicit that if any goods removed from a Special Economic Zone to the Domestic Tariff Area shall be chargeable to duties of customs including anti-dumping, countervailing and safeguard duties. Further, it is also relevant to extract Sectio .....

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ted anywhere in India is export sales of SEZ unit because SEZ territory is deemed to be a foreign territory. The petitioner cleared the goods from SEZ unit to domestic tariff area and such removal of goods claimed as branch transfers under Section 6(A) of the CST Act, exempt from tax, however, such domestic tariff area clearances consequently attract provisions of Section 15 of TNSEZ Act. Therefore, Section 2(1(b) of the TNVAT Act stands attracted justifying levy of purchase tax. - proposal for .....

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Section 15 of the TNSEZ Act, the first respondent has confirmed the liability of purchase tax under Section 12 of the TNVAT Act at 14.5%. - It is very deplorable to note that being a SEZ unit, having availed the hospitality and resources of the State of Tamil Nadu, the petitioner had diverted significant part of the turnover to other States by effecting interstate stock transfers which would not only defeat the very object of the SEZ Policy but also would have a considerable impact both on .....

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petitioner had accepted the terms prescribed in the approved letter dated 7.3.2011 for its setting up in SEZ unit, of which, one of the conditions is that the petitioner can supply/sell the goods or services in the domestic tariff area in terms of the provisions of the Special Economic Zones Act, 2005 and rules and orders made thereunder. Therefore, levy of purchase tax confirmed by the first respondent on the interstate stock transfer effected from warehouse located in SEZ by the petitioner, i .....

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g the assessments for the years 2012-13 and 2013-14, levy of purchase tax on the Inter State stock transfer effected from warehouse located in SEZ under Section 12 of the Tamil Nadu Value Added Tax Act, 2006 (in short, TNVAT Act, 2006) has been imposed, the petitioner has filed the present writ petitions. The petitioner has also challenged the consequential notices of assessment and demand, dated 25.6.2014 issued by the first respondent. 2. It is pertinent to note that as against the above said .....

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Sales Private Limited, dealers in Mobile Phones, is a company incorporated under the Companies Act, 1956 and it has reported a total cum taxable turnover of ₹ 218,89,.36,541 and ₹ 2,17,11,37,117 for the assessment year 2012-13 and ₹ 827,50,85,371 and ₹ 825,44,43,497 for the assessment year 2013-14 respectively. Since certain defects were found by the Assessing Officer, it was proposed to revise the assessments for the years 2012-13 and 2013-14 under Section 27 of the TNV .....

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irst respondent is right in imposing of purchase tax on the Inter State stock transfer effected from warehouse located in SEZ under Section 12 of the TNVAT Act, 2006 read with Section 15 of the Tamil Nadu SEZ Act? 5. Separate counter affidavits in both the writ petitions were filed on behalf of the respondents, wherein, it is stated that the writ petitions are not maintainable since the petitioner has challenged the orders of assessment dated 25.6.2014 as well as orders of rectification dated 30 .....

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It is further stated that the petitioner approached the State Government for setting up of a unit in the Special Economic Zone at Sriperambudur and pursuant to negotiation, a Memorandum of Understanding was entered into by the petitioner with the State Government in terms of which, various benefits have been extended to the petitioner by the State and concessions by way of levies and duties as well as the benefits of deferment of taxation has been provided by the State to the petitioner company .....

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r are exempted from levy of purchase tax only in respect of exports and in respect of clearances from the SEZ unit to the domestic tariff area, are liable to purchase tax in terms of Section 15 of the TNSEZ Act. The intention behind the enactment of SEZ Act is to encourage manufacture and exports as well as increase the inflow of foreign exchange and therefore, exemption is provided from the levy of tax on transactions between units within SEZ as well as exported, however, turnover from local cl .....

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2(1)(b) of the TNVAT Act stands attracted justifying the levy of purchase tax. However, input tax credit is available and will be set off against tax remitted on intra state/CST sales. The petitioner has only remitted an amount of ₹ 159.49 crores only with respect to intra and interstate sales, but claims exemption in relation to the bulk of its turnover, of an amount of ₹ 776.87 crores relating to SEZ clearances to branches in other states. Thus, while utilizing the hospitality and .....

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7. As regards the challenge to the orders, dated 30.7.2014 passed by the first respondent in rectification applications, it is stated that the petitions filed under Section 84 of the TNVAT Act, seeking a rectification of an alleged error apparent of mistakes is wholly misplaced and the first respondent has rightly rejected the same. With these averments, the respondents sought for dismissal of the writ petitions. 8. The issue involved in these writ petitions, is whether the petitioner company, .....

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iz., 10. Section 12(1) of the TNSEZ Act refers to exemption from levy of taxes on the sale or purchase of goods under the Tamil Nadu General Sales Tax Act, 1959, which Act has been later repealed by the TNVAT Act, by virtue of said TNVAT Act, tax on sale and purchase of goods is being levied and collected. However, there is a saving clause provided in Section 87 of the TNVAT Act, which provides that reference to the Tamil Nadu General Sales Tax Act would be construed as a reference to the TNVAT .....

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e TNSEZ Act provides, All other words and expressions used and not defined in this Act but defined in the Special Economic Zones Act, 2005 shall have the meaning respectively assigned to them in that Act. Therefore, the definitions of enterpreneur and authorized operations contained in the SEZ Act, 2005 apply mutatis mutandis to the TNSEZ Act and the term entrepreneur has been defined in Section 2(j) of SEZ Act as, a person who has been granted a letter of approval by the Development Commissione .....

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pproval, dated 7.3.2011 by the MEPZ Special Economic Zone Authority for setting up of a unit for the purpose of trading & warehousing services for mobile phone handsets and mobile phone parts and accessories. In the present case, the goods in question were purchased by the warehouse of petitioner company located in Nokia SEZ from another company located in Nokia SEZ and the said goods were used for carrying out the authorized operations of the petitioner company, viz., for the purpose of t .....

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z., transfer of property in goods, existence of two persons and valuable consideration and these conditions are encapsulated in the definition of sale in Section 2(33) of the TNVAT Act, which defines sale to mean transfer of property in goods by one person to another for cash, deferred payment or other valuable consideration. When goods are removed for stock transfer to the branches of the petitioner in other states, none of these conditions are satisfied. Therefore, since stock transfers to o .....

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pted from levy of purchase tax. He would also contend that the Government of Tamil Nadu had announced its SEZ Policy, wherein, it has been expressly stated that the industrial units and other establishments within the SEZs would be exempted from all local taxes and levies, including sales tax, VAT and purchase tax or any other cess or levy of state government in respect of all transactions between the units/establishments within the SEZs and hence, there is no justification on the part of the fi .....

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Bench of Hon ble Supreme Court inKailash Nath versus State of U.P. reported in AIR 1957 SC 790 that if an exemption applies, the tax levied is without jurisdiction. He also relied upon a decision of the Gujarat High Court in Torrent Energy Ltd. Versus State of Gujarat reported in (2014) 71 VST 582, wherein, the Division Bench of Gujarat High Court has held that the over-riding effect given to Gujarat SEZ Act by virtue of Section 22 would mean that the exemption from purchase tax granted by Sect .....

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hen compared to pari materia exemption under the Gujarat SEZ Act, the learned senior counsel would contend that the petitioner company is entitled to exemption from levy of purchase tax under Section 12. 15. As regards the alternative remedy, the learned senior counsel would contend that although the remedy of statutory appeal to the Appellate Deputy Commissioner is provided under Section 51 of the Act, however, it is subject to making deposit of 25% of the difference of the tax assessed by the .....

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TNSEZ Acct, goods sold/cleared by the SEZ unit of the petitioner are exempted from levy of purchase tax in regard to the turnover pertaining to exports alone, however, the petitioner had cleared the goods from SEZ unit to the domestic tariff area, which are liable to tax in terms of Section 15 of the TNSEZ Act. It is contended that the provision of Section 12(1) cannot be read or interpreted in isolation as it grants exemption from the levy of sales/purchase tax relating to authorized operations .....

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Section 15 of the TNSEZ Act. 18. Heard the learned senior counsel appearing for the petitioners and the learned counsel appearing for the respondents and perused the entire materials available on record. 19. The Government of India had announced a Special Economic Zone Scheme in April 2000 with a view to provide an internationally competitive environment for exports. The objectives of Special Economic Zones include making available goods and services free of taxes and duties supported by integr .....

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by Parliament in May, 2005 and received Presidential assent on the 23rd of June, 2005. After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to Central as well as State Governments. 20. Section 2(za) defines 'Special Economic Zone', Section 2(zc) defines 'units', Section 2(j) defines entrepreneur. Section 3 deals with .....

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of tax on the sale or purchase of goods under the TNGST Act, if the goods are meant to carry on the authorised operations by the developer or entrepreneur. Therefore, by virtue of both the Central Act and in particular the State Act exemption is granted on the sale or purchase of goods, if the goods are meant to carry on authorized operations. 21. The petitioner company sent a proposal for setting up a unit in the Nokia Special Economic Zone by making an application dated 17.2.2011 to MEPZ Spec .....

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arious terms and conditions both in regard to the export of the goods/services as well as clearances and supply of goods/services in the domestic tariff area. The relevant terms and conditions specified in the approval letter, dated 7.3.2011 are extracted hereunder: You (the petitioner) shall export the goods manufactured/goods imported/procured for trading and services, including items of trading, as per provisions of the Special Economic Zones Act, 2005 and Rules made thereunder for a period o .....

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fer from warehouse located in SEZ which attracts levy of purchase tax in terms of Section 12 of the TNVAT Act,2006 read with Section 15 of the TNSEZ Act. 23. It is to be noted that the petitioner had accepted the terms prescribed in the approved letter dated 7.3.2011 for its setting up in SEZ unit, of which, one of the conditions is that the petitioner can supply/sell the goods or services in the domestic tariff area in terms of the provisions of the Special Economic Zones Act, 2005 and rules an .....

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under the Customs Tariff Act, 1975, where applicable, as leviable on such goods when imported; and (b) the rate of duty and tariff valuation, if any, applicable to goods removed from a Special Economic Zone shall be at the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty. 24. A perusal of the above, it is explicit that if any goods removed from a Special Economic Zone to the Domestic Tariff Area shall be c .....

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adu General Sales Tax, 1959 and the Tamil Nadu Additional Sales Tax, 1970 and the entry tax under the Tamil Nadu Entry of Motor Vehicles into Local Areas Act, 1990 and the Tamil Nadu Entry Goods into Local Areas Act, 2001 where applicable, as leviable on such goods when imported; and b) The rate of sales tax, additional sales tax and entry tax, if any, applicable to goods removed from a Special Economic Zone shall be at the rate in force as on the date of such removal, and where such date is not .....

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e above said amounts at 14.5% has been confirmed by invoking Section 12 of the TNVAT Act, 2006. It is relevant to extract Section 12 of the TNVAT Act, 2006, which reads as under: 12. Levy of Purchase tax. (1) Subject to the provisions of sub-section (1) of section 3, every dealer, who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act), in circumstances in which no tax is payable by t .....

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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. 27. According to the learned senior counsel, the petitioner company is entitled to the benefit of exemption from levy of purchase tax by virtue of Section 12(1) of the TNSEZ Act, which provides exemption from the levy of taxes on the sale or purchase of goods under the Tamil Nadu General Sales Tax Act if such goods are me .....

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Section 12 of TNSEZ Act provides exemption from the levy of taxes on the sale or purchase of goods subject to the condition that such goods are meant to carry on the authorized operations by the Developer or entrepreneur. It is to be noted that the definitions authorized operations, developer and entrepreneur have not been defined in TNSEZ Act, 2005. However, we can find definitions of these words in Section 2 of Special Economic Zones Act, 2005 as under: 2(c) "authorized operations" .....

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whole of India (including the territorial waters and continental shelf) but does not include the areas of the Special Economic Zones; 29. Section 2(f) of TNSEZ Act envisages that the expressions used and not defined in TNSEZ Act but defined in the Special Economic Zones Act, 2005 have the meanings respectively assigned to them in the said Act. Therefore, the expressions, developer, entrepreneur and domestic tariff area defined in the Special Economic Zones Act, 2005 would apply to TNSEZ Act. 30 .....

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scheme, the SEZ area is deemed to be a foreign territory for the purposes of trade operations and levy of various taxes and duties. As per the provisions of Sec 53 of the Special Economic Zone Act 2005 SEZ area is deemed to be foreign Territory. The relevant provision reads as under (1) A Special Economic Zone shall, on and from the appointed day, be deemed to be territory outside the customs territory of India for the purpose of undertaking the authorized operations. 2) A Special Economic Zone .....

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ude the areas of the SEZ. The term export has been defined in sec 2(m) of the SEZ Act 2005, Export means (i) Taking goods, or providing services, out of India from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise ; or (ii) Supplying goods , or providing services , from the Domestic tariff Area to a Unit or Developer; or (iii) Supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Econom .....

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omestic tariff area to SEZ unit is treated as export of the dealer and import of the SEZ unit vice versa the sale of goods by SEZ unit to a dealer of Domestic tariff area will be import of the dealer and export of the SEZ unit. Thus all sales effected by SEZ unit to a dealer situated anywhere in India is export sales of SEZ unit because SEZ territory is deemed to be a foreign territory. The petitioner cleared the goods from SEZ unit to domestic tariff area and such removal of goods claimed as br .....

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fact that the petitioner effected stock transfer to other states having imported the goods from outside India to its warehouse located in SEZ area, which is nothing but domestic tariff area sales and such transaction is liable to sales tax, as if the goods are imported goods and in terms of Section 15 of the TNSEZ Act, the first respondent has confirmed the liability of purchase tax under Section 12 of the TNVAT Act at 14.5%. As already stated that Section 12 of TNSEZ Act provides exemption fro .....

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trued that they should achieve the object of the SEZ Policy. In fact, only with a view to attract larger foreign investment in India, the Special Economic Zones (SEZs) Policy was announced by the Government of India. This policy was intended to make SEZs an engine for economic growth supported by quality infrastructure and by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations in order to promote export and to achieve the target of economic .....

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since the petitioner had neither consumed or used the purchased goods in or for the manufacture of other goods for sale or otherwise nor disposed such goods in any manner other than by way of sale in the State nor installed and used such goods in the factory for the manufacture of any goods. He further contended that as regards the consignment sales, i.e. interstate stock transfer from warehouse located in SEZ, goods would be sent to depots in other States and VAT would be paid when the goods ar .....

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ner has exported goods/services of an amount of ₹ 1759.32 and 674.24 crores respectively and claimed exemption thereon; d) the petitioner has remitted tax of an amount of ₹ 159.49 and ₹ 45.96 crores only in respect of intra and inter-state sales and e) the petitioner claims exemption in relation to the bulk of its turnover, of amount of ₹ 776.87 crores and ₹ 533.18 crores relating to SEZ clearances to branches in other States, of course, sales of such goods are ther .....

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cussions, Section 15 has been brought into TNSEZ Act, which specifically insists that any goods removed from SEZ to domestic tariff area, shall be chargeable to tax. Further, Section 30 of the SEZ Act also provides specifically that any goods removed from a SEZ area to Domestic Tariff area shall be liable for import duty as is leviable on import of such goods as per the provision of Custom Tariff Act. It is admitted fact that the petitioner had accepted the terms prescribed in the approved lette .....

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ed by the learned senior counsel appearing for the petitioner in Torrent Energy Ltd., reported supra, does not come to the rescue of the petitioner in the given facts and circumstances of the case. In this regard, it is relevant to refer a decision of this Court in Tulsyan Nee Limited versus The Assistant Commissioner (CT) rendered in a batch of writ petitions in W.P.Nos.21453 of 2008, etc., wherein, in similar circumstances, this Court has held as under in para 22: 22. In the case of Torrent En .....

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provides for total exemption from payment of various State taxes of units situated in SEZ area; Section 22 of the Gujarat SEZ Act contains a non-obstante clause; the SEZ Act would have overriding effect over the State fiscal statutes. The Revenue took a stand that Section 22 of the Gujarat SEZ Act gives overriding effect only to existing state laws and not toSection 5Aand Section 9(5) of the Gujarat VAT Act, which was introduced subsequently that is w.e.f., 01.04.2008; non-obstante clause be giv .....

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purchase tax cannot be demanded. At the outset, it has to be pointed out that Section 21 of Gujarat SEZ Act and Section 12 of TNSEZ Act are not pari materia and the Revenue herein does not admit the position that the petitioners herein are not liable to pay tax, but would seriously dispute the same. Further, the petitioners herein claim ITC on the sales effected to SEZ's or its developers. That apart, there is marked and material difference with regard to zero rated sale as per underSection .....

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