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2023 (3) TMI 884 - HC - VAT and Sales TaxZero Rate Sale against supply of SEZ versus Refund on Export - Sales of goods to a dealer located in a Special Economic Zone (SEZ) in the State - whether export is a condition precedent to constitute Zero Rate Sale or not - validity of Circular No.9/2013 dated 24.07.2013 - scope and ambit of Section 18 of the TNVAT Act. Whether for a sale to a dealer located in a SEZ in the State to qualify as a zero rate sale in terms of Section 2(44) read with Section 18(ii) of the TNVATAct, the goods so purchased must be exported as such or consumed or used in the manufacture of other goods that are exported, by the dealer located in Special Economic Zone? HELD THAT - There is no uniformity in terms of the benefits /tax treatment extended with regard to sales to registered dealer in SEZ. The benefit of exemption being fairly uniform and the least of the benefit extended. Some States had granted the benefit of not just exemption but also the corresponding input tax credit which is otherwise not available to exempted goods/sales. Under the TNVAT Act, sales to SEZ is treated as a Zero Rate Sale'', which is distinct from exemption - Under the TNGST Act exemption was thus granted in respect of sales tax, surcharge, resale tax and additional sales tax payable by any dealer on the sale of any goods made by such dealer to a registered dealer in SEZ for the purposes set-out in the said notification. Apart from the notification in G.O.Ms.No.15 granting exemption in respect of tax payable under the said Act by any dealer on the sale of goods made by such dealer to a registered dealer for the purposes set out in the notification, sale of goods to any registered dealer located in Special Economic Zone was treated to be a Zero Rate Sale under Section 18 read with Section 2(44) of the TNVAT Act. Zero Rating was a concept introduced for the first time in relation to tax on sale of goods in Tamil Nadu under Section 18 of the TNVAT Act. Zero Rate Sale is defined under Section 2 (44) of the TNVAT Act, to mean a sale on which no tax is payable but credit for input tax related to that sale is admissible - On a plain reading of Section 18 of the TNVATAct the benefit of Zero Rate under Section 2(44) of the Act, viz., that no tax is payable but credit for the Input Tax related to that Sales being admissible, is available to all three categories of sales mentioned in Section 18(1) of the TNVATAct. The benefits extended /granted under Section 18 of the TNVAT Act viz., Zero Rating and refund are independent nor do they overlap. Refund is not part of the benefit of Zero rating as defined under Section 2 (44) of the TNVAT Act. It is not necessary that a Zero Rate must end up/culminate/ripen into a claim of a refund - Section 18(2) and 18(3) of the TNVAT Act would get attracted only when a dealer claims the benefit of refund which is an additional benefit independent and distinct from Zero Rate Sale. From analysis of Section 18 read with Section 2(44) of the TNVAT it is clear that the order of the learned Single Judge insofar as it finds export to be a pre-requisite to qualify as Zero Rate Sale even in respect of sales covered by Section 18(1)(ii) of the TNVAT Act is without basis and contrary to the plain language of Section 18(1) of the TNVAT Act. 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. The conclusions arrived are as under 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. Export of goods is not a condition precedent or sine qua non to qualify as a Zero Rate sale as long as the sale falls within clause(ii) of Section 18 (1) of the TNVATAct. c. To claim refund in terms of the Section 18 (2) read with 18 (3) of the TNVAT Act, export of goods is an essential condition but not the benefit of Zero Rate. d. Zero Rate is distinct from exemption and thus the provisions of Section 19 (5) of the TNVATAct would not get attracted. e. The impugned circular is set-aside to the extent it is contrary to the law declared by this Court. f. The provisions of Section 18 the TNVAT Act cannot be controlled by a notification under Section 30 of the TNVAT Act inasmuch as Section 18 of the TNVAT Act confers a larger benefit. It is open to an assessee to claim a larger/ greater benefit. g. The expression sale in Section 18 of the TNVAT Act must be understood keeping in view the definition of sale under Section 2(33) of the TNVAT Act. Thus, works contract or for that matter any of the categories of mutant sales which is deemed to be sale would fall within the meaning of the expression sale employed in Section 18 of the TNVATAct. Matter remanded back to the Assessing Authority, who shall re-do the assessment keeping in mind the law declared with regard to the scope of Section 18 of TNVAT Act - petition disposed off.
Issues Involved:
1. Interpretation of "Zero Rate Sale" under Section 18 of the Tamil Nadu Value Added Tax (TNVAT) Act, 2006. 2. Validity and scope of Circular No. 9/2013 dated 24.07.2013 issued by the Commissioner of Commercial Taxes. 3. Eligibility for Input Tax Credit (ITC) and refund under Section 18 of the TNVAT Act. 4. Applicability of Section 18(2) of the TNVAT Act to sales made to Special Economic Zones (SEZs). 5. Treatment of works contracts under Section 18 of the TNVAT Act. 6. Interaction between Section 18 of the TNVAT Act and notifications issued under Section 30 of the TNVAT Act. Detailed Analysis: 1. Interpretation of "Zero Rate Sale" under Section 18 of the TNVAT Act: The judgment clarifies that Section 18 of the TNVAT Act identifies three categories of transactions that qualify as "Zero Rate Sale": - Sales specified under Section 5(1) or 5(3) of the Central Sales Tax Act, 1956. - Sales to any registered dealer located in SEZs in the State. - Sales to international organizations listed in the Fifth Schedule. A "Zero Rate Sale" is defined under Section 2(44) of the TNVAT Act as a sale on which no tax is payable but credit for the input tax related to that sale is admissible. The judgment emphasizes that Zero Rate Sale is distinct from exemption, and the benefits under Section 18(1) of the TNVAT Act include both Input Tax Credit and refund, which are independent of each other. 2. Validity and Scope of Circular No. 9/2013: The challenge to Circular No. 9/2013 was rejected by the learned Single Judge, as the circular was not statutory in nature. The judgment reiterates that the circular cannot override statutory provisions and must be interpreted in line with the TNVAT Act. 3. Eligibility for Input Tax Credit (ITC) and Refund: The judgment highlights that Section 18 of the TNVAT Act provides two distinct benefits: Zero Rate Sale (where no tax is payable but input tax credit is admissible) and refund. It clarifies that export is not a precondition to claim the benefit of Zero Rate Sale under Section 18(1)(ii) of the TNVAT Act. However, for claiming a refund under Section 18(2), the goods must be exported as such or used in the manufacture of other goods that are exported. 4. Applicability of Section 18(2) to Sales Made to SEZs: The judgment rejects the interpretation that Section 18(2) applies to all categories of sales under Section 18(1). It emphasizes that the conditions in Section 18(2) apply only when a dealer claims a refund, not for claiming the benefit of Zero Rate Sale under Section 18(1)(ii) for sales to SEZs. 5. Treatment of Works Contracts: The judgment clarifies that the term "sale" under Section 18 of the TNVAT Act includes works contracts, as defined under Section 2(33) of the TNVAT Act. This is in line with the expanded definition of "sale" following the 46th Amendment to the Constitution of India, which includes transfer of property involved in the execution of works contracts. 6. Interaction between Section 18 and Notifications under Section 30: The judgment states that the scope of Section 18 of the TNVAT Act cannot be curtailed by notifications issued under Section 30 of the TNVAT Act. It asserts that if two benefits are available (exemption under a notification and Zero Rate under Section 18), an assessee can claim the larger benefit. The judgment sets aside the circular to the extent it contradicts the law declared by the court. Conclusion: The judgment sets aside the order of the learned Single Judge to the extent it requires export as a precondition for Zero Rate Sale under Section 18(1)(ii) of the TNVAT Act. The cases are remanded to the Assessing Authority for reassessment in line with the clarified legal position. The judgment emphasizes that Zero Rate Sale and refund are independent benefits, and works contracts fall within the scope of "sale" under Section 18. The judgment also invalidates any restrictive interpretation imposed by subordinate legislation or circulars that contradict the statutory provisions.
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