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TMI Blog2023 (3) TMI 884X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 manufacture of other goods that are exported. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctrical 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 Sujana Metal products Circular No.9/2013 -Act Cell-III/22237/2013 Dealer in iron and steel inside the state of TN and resale the same inside the state to locally as well as the units located in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts 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 Mr.N.Venkataraman, Senior Advocate: a) That sales to a registered dealer located in a SEZ in the State must be deemed to be an export. SEZ is treated as a territory outside India. b) A sale to a registered dealer located in an SEZ in the State would constitute an export and thus qualify as a Zero Rate Sale. c) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 days for either utilization of Input Tax Credit or claiming of refund. c) The rights and obligations that pertain to developers, co-developers and entrepreneurs within the SEZ are identical. The only point of difference is that the developer and the co-developer as defined in Section 2(f) and 2(g) of the SEZ Act, 2005 respectively gets the letter of approval to establish a Zone, under Section 4 of the SEZ Act, 2005. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 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 sales to dealers in SEZ, it was submitted that the benefit of Zero Rate under Section 18 of the TNVAT Act ought to be understood as being distinct and covering/dealing primarily for circumstance different from what is provided in notification in G.O.Ms.No.15 dated 29.01.2016 and Section 12 of TNSEZ Act. Thus the condition of export as mentioned in Sub-Section (2) to Section 18 of the TNVAT Act, must be complied/fulfilled. f) Refund which is provided for under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nomic 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 Special Economic Zones. SEZ's are the markers of government's strategy to create an "export-oriented" economy. In May 2005, the Government of India effectuated its policy through a legislative measure/action by introducing "Special Economic Zones (SEZ) Act of 2005" endorsing its commitment to a long-term and stable policy for the SEZ structure. In other words, what was previously an administrative construct was given a legislative framework. The SEZ Act, received the assent of the President of India on 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ONS 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 be Zero rated: (1) In the case of a sale in the course of export under Section 5 of the Central Sales Tax Act, 1956 (74 of 1956); or sale of any input made to any dealer in a special economic zone outside the customs territory of India; or sale (including sale outside India and Domestic Tariff Area) by an export oriented unit, there shall be no tax payable on the turnover of such sale and the person exporting the goods or selling them shall be entitled, in the manner prescribed, to a credit of input tax paid-(a) on the purchase of the goods sold in the course of export (excludi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "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 takes place out side the State of Jharkhand; or (ii) Where such sale or purchase takes place in the course of Import of goods into the territory of India or Export of goods out of the territory of India. 49(2) The following shall be Zero-rated sales for the purpose of this Act, and shall be eligible for Input Tax Credit under sub-Section (4) of Section 18 of this Act- (i) Sale of taxable goods in the course of inter-State trade and commerce falling within the scope of Section 3 of the Central Sales Tax Act, 1956. (ii) Sale of goods falling within the scope of sub-Sections (1) and (3) of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 person exporting the goods shall be entitled, in the manner prescribed, to a credit of input tax paid (i) on the purchase of the goods sold in the course of export, or ii) on the purchase of inputs and capital assets which have been used for the manufacture of goods sold in the course of export. Provided that the input tax credit on account of capital assets shall be allowed to the extent and the manner prescribed. Explanation-For the purposes of this sub-section all sale of inputs made to dealers in a Special Economic Zone outside the Customs Territory of India shall also be Zero-rated. 7 The Manipur Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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 by the Central Government in this behart (iii) sale of goods to international organisations listed out in the Fifth Schedule 18(2) The dealer, who makes a zero rate sale shall be entitled to refund of input tax paid pr payable by him on the purchase of 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 may be prescribed. 11 The Tripura Value Added Tax Act, 2004 Section 2(38) "zero rating Section 13 Exports 2(38) Zero rating means complete removal of tax up to the zero rated stage of produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Central Government in this behalf. 15 The Chhattisgarh Value Added Tax Act, 2003 Section 38(1) Sales not liable to tax: Section 38. Sales not liable to tax: 38(1) Notwithstanding anything contained in this Act, a tax on the sale or purchase of goods shall not be imposed under this Act- (i) .... (ii) .... (iii) .... (iv) where sale is made to such registered dealer for the purpose of manufacture, production, processing assembling repairing reconditioning. re engineering, packaging or for use as trading or packing material or packing accessories in a unit located in any Special Economic Zone, who has been authorized to establish such unit by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchases not to be liable to tax Section 8. Section & Certain Sales and purchases not to be liable to tax: (3) The State Government may by general or special order, published in the (Official Gazette and subject to such conditions and restrictions as may be specified in the said order, exempt from payment of tax any class or classes of sales of goods made by any unit in the Special Economic Zone, a [developer or co-developer] of the Special Economic Zone, any export oriented in any unit in the Software Technology Pack, or any kind in the Electronic Hardware Technology Park. (i) where such sale or purchase takes place outside the State of Madhya Pradesh, or (ii)where such sale or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 it considers necessary in the public interest so to do, notify grant of exemption from payment of whole of tax payable under this Act in respect of any class of sales or purchase for the purpose of promoting the scheme of Special Economic Zones or promoting exports, subject to such conditions as may be laid down in the notification. 24 The Telangana Value Added Tax Act, 2005 Section 7A. Exemption of Tax on sale of goods for certain purposes to an unit located in any Special Economic Zone: Section 7A Exemption of Tax on sale of goods for certain purposes to a unit located in any Special Economic Zone: Notwithstanding anything contained in this Act, no tax under this Act shall be payable by any dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by virtue of any law other than this Act. b. Tax Treatment under Tamil Nadu Special Economical Zone Act, 2005 : A Developer or entrepreneur was granted exemptions under Section 12 of SEZ Act, the relevant portions of which reads as under: "12(1) Subject to the provisions of sub-section (2), every Developer or entrepreneur shall be entitled to the following exemptions, namely: - (a) exemption from the levy of taxes on the sale or purchase of goods under the Tamil Nadu General Sales Tax Act, 1959, if such goods are meant to carry on the authorised operations by the Developer or entrepreneur; (b) exemption from the tax payable under the Tamil Nadu Additional Sales Tax Act, 1970 (Tamil Nadu Act 14 of 1970);..." c. Tax Treatment und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) and (2) of section 30 of the Tamil Nadu Value Added Tax Act, 2006 (Tamil Nadu Act 32 of 2006) and in supersession of the Commercial Taxes and Registration Department Notification No.II(1)/CTR/58(h-14)/2006 published at pages 8 and 9 of Part II-Section 1 of the Tamil Nadu Government Gazette, Extraordinary, dated the 30th December, 2006, the Governor of Tamil Nadu hereby makes an exemption in respect of the tax payable under the said Act by any dealer on the sale of goods made by such dealer to a registered dealer for the purpose of setting up, operation and maintenance of a unit located in a Special Economic Zone in the State of Tamil Nadu as notified by the Government of India, or for development, operation and maintenance of a Special Economic Zone by the developer of the Special Economic Zone, if such registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 may be prescribed. (3) Where the dealer has not adjusted the input tax credit or has not made a claim for refund within a period of one hundred and eighty days [from the date of making zero rate sale], such credit shall lapse to Government." 11. On a close analysis of Section 18 read with 2(44) of the TNVATAct, the following position would emerge: a. Section 18 of the TNVAT Act, identifies three categories of transactions/sales which would constitute "Zero Rate Sale", during the relevant period viz., "(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 authorised to establish such units by the authority specified by the Central Government i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection(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 provisions read as under: "18. Zero-rating .-. "(ii) Sale of goods to any registered dealer located in Special Economic Zone in the State, the purpose of use in manufacture, trading, production, processing, assembling, packaging or for use as packing material or packing accessories if such registered dealer has been authorised to establish such units by the authority specified by the Central Government in this behalf." 13. On the basis of the above analysis of Section 18 read with 2(44) of the TNVATAct we find that the order of the learned Judge insofar as it finds that to claim the benefit of Zero Rate Sale in the context of sales to dealer located in SEZ in the State and thus covered by Section 18(1)(ii) of the TNVATAct, the condition stipulated in Section 18 (2) of the TNVAT Act viz., the goods purchased must be exported as such or consumed or used in the manufacture of other goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 circumstances such credit becomes recoverable along with interest." (emphasis supplied) ii. Union of India v. Rabinder Singh, (2012) 12 SCC 787: "25. We accept the submission of Shri Tripathi that the two parts of Section 52( f ) are disjunctive, which can also be seen from the fact that there is a comma and the conjunction "or" between the two parts of this clause ( f ) viz. ( i ) does any other thing with intent to defraud, and ( ii ) to cause wrongful gain to one person or wrongful loss to another person. If the legislature wanted both these parts to be read together, it would have used the conjunction "and". " (emphasis supplied) Thus, the expression "or" employed between "input tax" and "refund" in Section 18 of the TNVAT Act would show that the two benefits are distinct and independent of each other. b. If two benefits are available - it is open to the assessee to claim larger benefit: The attempt by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt: 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 the legislature. The courts always presume that the legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect. A construction which attributes redundancy to the legislature will not be accepted except for compelling reasons such as obvious drafting errors." (emphasis supplied) ii. In, RBI v. Peerless General Finance & Investment Co. Ltd., (1987) 1 SCC 424: "34. Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt that the department could not, by issuing a circular subsequent to the notification, add a new condition to the notification thereby either restricting the scope of the exemption notification or whittle it down. 7. A three Judge Bench of this Court in the case of Tata Teleservices Ltd. v. Commissioner of Customs reported in (2006) 1 SCC 746 has taken a similar view. In para 10, it was held as under: ............ The Bombay Bench was also correct in its conclusion that the circular sought to impose a limitation on the exemption notification which the exemption notification itself did not provide. It was not open to the Board to whittle down the exemption notification in such a manner." (emphasis supplied) ii. CCE v. Himalayan Cooperative Milk Product Union Ltd., (2000) 8 SCC 642: "8. Such notifications by which exemption or other benefits are provided by the Government in exercise of its statutory power, normally have some purpose and policy decision behind it. Such benefits are meant to be provided to the investors and manufacturers. Therefore, such purpose is not to be defeated nor those who may be entitled to it are to be deprived by interpreting the notification w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9) 2 SCC 645: "When the law creates a legal fiction such fiction should be carried to its logical end. There should not be any hesitation in giving full effect to it. (emphasis supplied) 15. For all the above reasons, we are of the view that the order of the learned Single Judge insofar as it holds that export is a condition which ought to be satisfied for the purpose of claiming the benefit of Zero Rate in respect of sale to a dealer located in SEZ falling under Section 18 (1) (ii) of the TNVATAct i.e., a sale on which no tax is payable but Input Tax Credit in relation to such sale is admissible, is unsustainable. However, a dealer effecting zero rate sale to claim refund it may be necessary to demonstrate that the goods have been exported as such or consumed or used in the manufacture of other goods that are exported, subject to such restrictions and conditions as may be prescribed. 16. To sum up : a. Section 18 of the TNVAT Act, confers two benefits viz., Zero Rate i.e., sale on which no tax is payable but on which Input Tax Credit is admissible and the second being refund in addition to the above benefit of Zero rate. The benefits are independent of each other. b. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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