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2015 (11) TMI 1496 - GUJARAT HIGH COURT

2015 (11) TMI 1496 - GUJARAT HIGH COURT - [2016] 88 VST 83 (Guj) - Sale of goods in the SEZ - works contract - Exemption under section 5A of Gujarat VAT despite of failure to obtain endorsement of custom authority on the bill as required by Rule 42(2A) - levy of interest and penalty - Held that:- Having regard to the nature of the contract between the petitioner and the Adani Power Limited, which is in the nature of a works contract, when construction materials are purchased by the assessee, the .....

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as zero rated sale, obtained the endorsement of the concerned authority on the purchase bills for goods which entered the SEZ area. Such goods were used in the execution of the works contract, which is not even disputed by the appellant. - Appellate authority has failed to appreciate the fact that it is not possible to abide by sub-rule (2A) of rule 42 of the rules having regard to the nature of the contract which is a works contract wherein the goods which are sold to the buyer, are used in .....

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legal infirmity so as to give rise to any question of law, much less, a substantial question of law as proposed or otherwise - Decided against Revenue. - Tax Appeal No. 614 of 2015 - Dated:- 11-9-2015 - Harsha Devani And A. G. Uraizee, JJ. For the Appellant : Mr Maithili Mehta, Asstt Govt Pleader For the Respondent : Mr Uchit N Sheth, Adv. ORDER ( Per : Honourable Ms. Justice Harsha Devani ) 1. The appellant State of Gujarat in this appeal under section 78 of the Gujarat Value Added Tax Act, 200 .....

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pite of failure to obtain endorsement of custom authority on the bill as required by Rule 42(2A) ? (2) Whether the Hon ble Tribunal in the facts and circumstances has erred in deleting levy of interest and penalty?" 2. The respondent assessee is engaged in the business of execution of construction contracts. The assessee entered into a contract with Adani Power Limited for design, engineering, erection, fabrication, testing, commissioning and construction of power project in the Special Eco .....

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that the assessee was not liable to pay tax on the sale of goods in the SEZ to Adani Power Limited in view of section 5A of the Act which provides for exemption of sale of goods to developer, codeveloper or unit of SEZ. The determining authority, however, observed that there should be an endorsement of the customs authority to prove that the sale was made to the developer or co-developer of SEZ. The assessee, accordingly, claimed exemption from payment of tax on the sale of goods in the course .....

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h is a co-developer and, therefore, the assessee was entitled to exemption as zero rated sale under section 5A of the Act. It was brought to the notice of the first appellate authority that the purchase bills were endorsed by the customs/SEZ authorities before their entry into the SEZ for use in execution of the works contract. The first appellate authority, however, dismissed the appeal on the ground that the running bills which were issued by the assessee to Adani Power Limited did not bear th .....

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hile rule 42(2A) of the rules prescribe a procedure to the effect that if the tax invoice is endorsed by the Customs/SEZ authority, then the sale will be treated as a zero rated sale under section 5A of the Act. The Tribunal held that however, rule 42(2A) of the rules is simply a procedural rule and does not lay down any condition precedent that only on fulfillment of such condition, the sale has to be treated as zero rated sale. The Tribunal accordingly held that rule 42(2A) of the rules to be .....

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g that there is a basic flaw in the impugned judgment of the Tribunal, inasmuch as, the Tribunal has failed to appreciate the provisions of sub-rule (2A) of rule 42 of the rules in proper perspective. It was submitted that sub-rule (2A) of rule 42, specifically requires that the copy of the bill should be endorsed by the customs authority for the assessee to be entitled to exemption of tax under section 5A of the Act. It was submitted that in the facts of the present case, the running bills whic .....

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as proposed or as may be formulated by this court. 4. On the other hand, Mr. Uchit Sheth, learned advocate appearing on behalf of the respondent assessee supported the impugned order passed by the Tribunal by submitting that on both counts, the impugned order passed by the Tribunal is just, legal and proper. It was submitted that the assessee is engaged in the execution of works contracts and that having regard to the nature of the contract in question, it was not possible to obtain endorsement .....

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s and transactions within the processing area of the zone or in the demarcated area or between the units in the processing area and the demarcated area, from all taxes, cess, duties, fees or any other levies under any State law to the extent specified therein, even otherwise, such transactions were not amenable to tax. The attention of the court was invited to the decision of this court in the case of Torrent Energy Limited v. State of Gujarat, (2014) 71 VST 582 (Guj.), wherein the court has hel .....

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of the State Acts, those not only existing, but made later on. The court, accordingly, held that the demand raised by the respondent authorities for payment of purchase tax under section 9(5) of the Act on zero rated goods purchased by the petitioners and consumed in their SEZ units to be invalid and impermissible. The learned advocate submitted that the Tribunal has rightly applied the above decision to the facts of the present case while holding that even otherwise the sale transaction was ex .....

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Act, which provides for zero rated sale for the purpose of the Act and tax credit on the purchase related to sale of goods to the Developer, Co-developer or unit of Special Economic Zone as defined in the Gujarat Special Economic Zone Act, 2004. The determining authority, however, observed that the deemed sale of goods is considered to be sale in the execution of a works contract as per the definition of sale under the VAT Act and for the purpose of proving that such sale has been made to the D .....

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SEZ area, there is no sale to the SEZ unit or to the developer, but the sale takes place at a later point of time. In view thereof, the assessee with a view to ensure compliance with the provisions of the SEZ law as well as requirement of endorsement of bills with a view to claim exemption from tax as zero rated sale, obtained the endorsement of the concerned authority on the purchase bills for goods which entered the SEZ area. Such goods were used in the execution of the works contract, which .....

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nt of the customs authority on the invoices itself. The appellate authority has failed to appreciate the fact that it is not possible to abide by sub-rule (2A) of rule 42 of the rules having regard to the nature of the contract which is a works contract wherein the goods which are sold to the buyer, are used in the execution of the works contract and it is only after execution that the invoices are raised. This court is, therefore, in agreement with the view adopted by the Tribunal that rule 42( .....

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wherein it is held thus: "It can, thus, be seen that after April 1, 2008, the VAT Act has made provisions for collection of purchase tax even from units located in SEZ areas in relation to "zero rated sale". The legislative scheme appears to be that the sales which fall under the "zero rated sales" would invite no sales tax to be borne by eh seller, but the purchaser would have to pay the purchase tax and, in turn, would be entitled to take tax credit as provided under .....

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