2016 (5) TMI 597 - HC - VAT and Sales Tax

Valuation - Whether the Anti-Dumping Duty levied on the imported components and paid by a company which purchased the finished products from the petitioner herein would form part of the sale price of the goods manufactured and sold by the petitioner to such buyer under the provisions of TNVAT Act, 2006 - Petitioner located in a Special Economic Zone, enjoying exemption under Section 26 of the SEZ Act, 2005 and the goods manufactured and sold by the petitioner were cleared by the buyer by filing a Bill of Entry, indicating thereby that such a buyer is the importer and that as a consequence, he paid the Anti-Dumping Duty. Held that - the petitioner, though located in a Special Economic Zone, is nevertheless in India, to whom a company from China has exported goods. But, the petitioner enjoyed exemption from payment of anti dumping duty only because of being located in a Special Economic Zone. This exemption was available just like a shelter so long as the goods were in the Special Economic Zone. The moment the goods got removed from out of the shelter into a Domestic Tariff Area, Section 15 of the Tamil Nadu Special Economic Zones Act and Section 30 of the Central enactment came into play. As a consequence, the anti dumping duty became payable. The purchaser paid the same or the fact that the sale had taken place prior to the clearance of the goods, is of no consequence, since the point of first import was when the goods came to India from China. Assuming that the clearance of goods by the buyer of the petitioner, which happened at the gate of the Special Economic Zone is also equivalent to an import, it could be taken only to be a second incidence of import. Anti dumping duty was leviable on the first incidence of import. This is why the expression leviable appearing in Section 15 of the State enactment and Section 30 of the Central Special Economic Zones Act is of significance. Therefore, the anti dumping duty actually became leviable from the time of export from China into India, but was not actually collected due to the protective cover given by the Special Economic Zones Act. The moment the goods went out of this protective cover, the duty automatically got attached to the goods and hence, the inclusion of the same in the sale price for the purpose of levy of value added tax is in order. Once anti dumping duty is levied, the same becomes part of the sale price, as otherwise the sale price of the product imported into India will be different from the sale price of the product domestically manufactured. Validity of penalty levied - Petitioner contended that when there is a confusion or bona fide doubt with regard to the inclusion of an item in the sale price of a product or in the turnover, the levy of penalty should be avoided - Held that - penalty is leviable under Section 27(3), if certain conditions are satisfied. They are (i) the assessing authority should be satisfied, (ii) that the escape from the assessment was due to wilful non disclosure of assessable turnover by the dealer. Sub-section (4) of Section 27 also deals with penalty, in relation to the reversal of input tax credit under Section 27(2). The penalty under Sub-section (4) is on a graded scale, with the rate of penalty for second and subsequent detections, higher than the rate in the case of first detection. No finding of fact was recorded by the Assessing Officer (i) as to how he was satisfied, and (ii) as to whether there was wilful non disclosure of assessable turnover. In fact, no finding to this effect could have been recorded by the Assessing Officer in view of the fact that the whole thing was brought to the notice of the Assessing Officer by the petitioner themselves by their letter dated 06.9.2010 seeking a clarification. Before the Appellate Deputy Commissioner, the assessee raised an objection with regard to penalty. In one paragraph, the Appellate Authority held that there was a wilful intention on the part of the assessee to evade the taxes by adopting a device and by filing incorrect and incomplete returns. In other words, the Appellate Authority did not also address himself to the question as to whether there was wilful non disclosure or not. Unfortunately, the Tribunal also misdirected itself on this issue. Therefore, the imposition of penalty at the rate of 150% under Section 27(3)(c) of the TNVAT Act, 2006 is set aside. Entitlement for refund claim - Tax inadvertently paid on the CVD component discharged on the finished goods cleared from the petitioner s SEZ unit - Held that - What was cleared by the ultimate purchaser, namely Huawei India from the unit of the petitioner in the Special Economic Zone was the finished product manufactured by the petitioner. In chronology, this was the second clearance, assuming that it is a clearance. There was actually a first clearance of the imported goods. This first clearance was made by the petitioner, when they imported the components from Huawei Technologies Co. Ltd., China. This clearance was allowed to be made without payment of duty because of the location of the petitioner in a Special Economic Zone. Therefore, the petitioner is not entitled for refund of tax inadvertently paid on CVD component. - Decided partly in favour of petitioner

Summary

Issues Involved:
1. Inclusion of Anti-Dumping Duty in Sale Price under Tamil Nadu VAT Act, 2006.
2. Imposition of Tax and Penalty under Tamil Nadu VAT Act, 2006.
3. Entitlement to Refund of Tax Paid on Countervailing Duty.

Issue-wise Detailed Analysis:

Issue (i): Inclusion of Anti-Dumping Duty in Sale Price under Tamil Nadu VAT Act, 2006

The primary question was whether the Anti-Dumping Duty paid on imported components by the buyer formed part of the sale price of goods manufactured and sold by the petitioner under the Tamil Nadu VAT Act, 2006. The court noted that the petitioner, located in a Special Economic Zone (SEZ), was exempt from paying customs and countervailing duties under Sections 7 and 26 of the SEZ Act, 2005. However, upon selling the goods to the buyer, the buyer cleared the goods from the SEZ by paying the applicable Anti-Dumping Duty.

The court emphasized that the Anti-Dumping Duty is levied under Section 9A of the Customs Tariff Act, 1975, upon importation into India. The petitioner argued that since the buyer paid the duty post-sale, it should not be included in the sale price. However, the court held that the statutory liability for Anti-Dumping Duty arises upon importation and is merely deferred due to the SEZ exemption. Once the goods are removed from the SEZ, the duty becomes payable, and thus, it forms part of the sale price. The court referenced several Supreme Court decisions, including McDowell & Co. Ltd. v. Commercial Tax Officer and Mohan Breweries and Distilleries v. Commercial Tax Officer, to support this view. Consequently, the first question of law was answered against the petitioner.

Issue (ii): Imposition of Tax and Penalty under Tamil Nadu VAT Act, 2006

The second issue was whether the imposition of tax and penalty on the petitioner was lawful. The petitioner contended that there was a bona fide doubt regarding the inclusion of Anti-Dumping Duty in the sale price, and hence, the penalty should not be imposed. The court referenced the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa, which held that penalty should not be imposed unless there was deliberate defiance of law or conscious disregard of obligations.

The court found that the petitioner had sought clarification from the Assessing Officer regarding the duty, indicating no willful non-disclosure. The initial assessment did not impose a penalty, but a subsequent revision included a penalty without sufficient justification. The court concluded that the imposition of a 150% penalty under Section 27(3)(c) of the TNVAT Act, 2006, was unwarranted and set it aside, answering the second question of law in favor of the petitioner.

Issue (iii): Entitlement to Refund of Tax Paid on Countervailing Duty

The third issue was whether the petitioner was entitled to a refund of tax paid on Countervailing Duty (CVD) inadvertently. The petitioner claimed a refund of ?14,32,184/- paid on customs duty, arguing it was payable by the buyer at the time of clearance. The court noted that the petitioner, as the importer of components, enjoyed an exemption due to their SEZ location. However, upon removing the goods from the SEZ, the exemption was withdrawn, and the duty became payable.

The court emphasized that there were two clearances: the initial import of components by the petitioner and the subsequent clearance of finished goods by the buyer. The petitioner’s claim overlooked this sequence, and thus, the court rejected the refund claim, answering the third question of law against the petitioner.

Conclusion:

The court concluded by answering the first and third questions of law against the petitioner/assessee, while the second question regarding the penalty was answered in favor of the petitioner. The appeal was allowed in part, setting aside the penalty but upholding the orders of the subordinate authorities in all other aspects. There was no order as to costs.