TMI Blog2016 (5) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant is entitled to apportion their exports and domestic sales in such a manner that they achieve a positive net foreign exchange within the stipulated period. Therefore, 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. Whether the right conferred upon a developer or entrepreneur under Section 12(1) is circumscribed by the provisions of Section 15(a) of the TNSEZ Act, 2005 - removal of goods from the SEZ to the Domestic Tariff Area - Held that:- a direct export from a unit located in a SEZ to a foreign country cannot take place without the goods being removed from the SEZ to the Domestic Tariff Area, unless an airport or seaport is also located within the SEZ. Similarly, a direct sale to a local purchaser within the State cannot also take place without the goods being removed from the SEZ to the DTA. Likewise, an inter-state sales in terms of the Central Sales Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant, questioning the orders of assessment relating to the assessment years 2012-13 and 2013-14 under the Tamil Nadu Value Added Tax Act, 2006 (hereinafter referred to as the TNVAT Act, 2006). 2. We have heard Mr.Arvind P.Datar and Mr.P.S.Raman, learned Senior Counsel appearing for the appellant and Mr.AL.Somayaji, learned Advocate General assisted by Dr.Anitha Sumanth, 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 af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the appellant, the inter-state stock transfer made by them to their own branches located in other States, is an operation authorised by the Letter of Approval and hence, the appellant claims that they have an exemption by virtue of Section 12(1)(a) of the Act. Such exemption, according to the appellant, is available notwithstanding anything inconsistent therewith contained in any other 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 vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect inter-state stock transfer, that will enure to the benefit of another State where a local sale may be effected, is erroneous; and (g) that the distinction sought to be made by the learned Judge to the decision of the Gujarat High Court in Torrent Energy Limited, is also erroneous. 13. Supplementing the above arguments, it is contended by Mr.P.S. Raman, learned Senior Counsel for the appellant that while Section 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the expression authorized operations , in terms of the Letter of Approval granted by the Competent Authority? and (ii) Whether the right conferred upon a Developer or Entrepreneur under Section 12(1), is circumscribed by the provisions of Section 15(a)? QUESTION - (i) 17. In order to find an answer to the first question, it may be necessary to take note of the scheme of the Special Economic Zones Act, (Central Enactment) 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 economi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to The Constitution, the Central Government is not competent to grant exemption. Therefore, while the Central Enactment provides for exemption to the units located in SEZs created thereunder, only in respect of the taxes, levies and duties that can be imposed by the Central Government, a State Enactment alone can provide for exemption from payment of taxes, levies and duties that can be imposed exclusively by the State Government. 23. Section 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 Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake such operations, which the Development Commissioner may authorise. But, the Development Commissioner can grant a Letter of Approval under Section 15(9) only after the Approval Committee had granted approval. Section 15(9) also obliges the Development Commissioner to specifically mention in the Letter of Approval, the list of authorized operations . 28. It will be of interest to note that there are no provisions in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to apportion their exports and domestic sales in such a manner that they achieve a positive net foreign exchange within the stipulated period. 31. As we have indicated earlier, the Letter of Approval dated 7.3.2011 was issued in the name of the Development Commissioner. This is in terms of Section 15(9) of the Central Enactment. Since the Letter of Approval was issued in the name of the Development Commissioner, 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 operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the terms and conditions subject to which, the exemptions shall be granted to the Developer or entrepreneur under Sub-Section (1) . 35. This Section 12 is actually in parimateria with Section 26(1) of the Central Enactment. Sub-Sections (1) of both these provisions, namely, Section 12 of the Tamil Nadu Act and Section 26 of the Central Act contain a list of exemptions available to a developer or entrepreneur. These 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 Ena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same expression shall be chargeable . Both Sections make the chargeability contingent upon the conditions specified in the Rules made by the respective Governments. 39. But, there is an essential difference between the field of operation of Section 30 of the Central Act and Section 15 of the State Act. For all practical purposes, a Special Economic Zone is treated as a territory out of India. Therefore, the moment goods are removed from a Special Economic Zone and they enter a Domestic Tariff Area, an import 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 othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our possible scenarios. The first is that the goods may be exported to a foreign country. We do not think that there is any Special Economic Zone in the country, within which is located an airport or a seaport, so as to enable a unit inside the Special Economic Zone to export their goods and services directly from the Special Economic Zone, without such goods or services ever entering a Domestic Tariff Area. Even if the goods or services produced by a unit in a Special Economic Zone are entirely exported, those goods 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom a Special Economic Zone to the Domestic Tariff Area for the purpose of being supplied to a purchaser located in a different State, by way of inter-state sales, even then sales tax and additional sales tax as stipulated under Tamil Nadu General Sales Tax Act, 1959 and the Tamil Nadu Additional Sales Tax Act, 1970 would become payable. 48. The above consequences are not what are contemplated by Section 15 of the Act. Therefore, we are of the considered view that the expression removed from a SEZ to a DTA appearing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEZ, from sales tax, purchase tax, etc. Section 22 of the SEZ Act also conferred an overriding effect for the Gujarat SEZ Act upon all other enactments. But, the State relied upon certain provisions of the Gujarat Value Added Tax Act, which levied purchase tax even upon SEZ Units on zero rated sales. But, a Division Bench of the Gujarat High Court held that without there being any provision giving the prescriptions contained in Gujarat VAT Act, primacy over Section 21 of the SEZ Act, no purchase tax could be levied 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat SEZ Act or not. Therefore, we are of the considered view that the learned Judge, in the orders impugned in the present appeals, could not have distinguished Torrent Energy Ltd. merely on the basis of the decision in Tulsyan. 58. For a moment, we shall keep aside Torrent Energy Ltd. and consider the interplay of Section 12(1) read with Section 28 of the Tamil Nadu SEZ Act vis-a-vis Section 12 of the Tamil Nadu VAT Act, 2006. We have already extracted Section 12 of the Tamil Nadu SEZ Act, 2005 in paragraph 34. Section 28 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any goods (the sale or purchase of which is liable to tax under this Act), in circumstances in which no tax is payable by that registered dealer on the sale price of such goods under this Act, and either - (a) consumes or uses such goods in or for the manufacture of other goods for sale or otherwise; or (b) disposes of such goods in any manner other than by way of sale in the State; or (c) despatches or carries them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce 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 circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conomic Zones. In any event, Clause (a) of Sub-section (1) of Section 12 of TNSEZ Act, 2005 exempted a developer or entrepreneur from the levy of taxes both on the sale as well as the purchase of goods, under the Tamil Nadu General Sales Tax Act, 1959. Therefore, we are unable to sustain the objections of the learned Advocate General. 69. As a matter of fact, after the Government of India announced the concept of Special Economic Zones in the year 2000, through a revision in the EXIM Policy 1997-2002, with a view to provide an internationally competitive and hassle free environment for export production, the Government of Tamil Nadu also issued a policy for Special Economic Zones in the State of Tamil Nadu in the year 2003. Paragraph 5(a) of the Policy Note issued by the Government of Tamil Nadu reads as follows: Developers of SEZs, and industrial units and other establishments within the SEZs will be exempted from all local taxes and levies, including Sales Tax, Turnover Tax, VAT, Purchase Tax, Mandi Tax, Octroi, Electricity Cess, or any other kind of Cess or any other levy of the State Government in respect of all transactions made between units/establishments within the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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