2025 (2) TMI 1014 - HC - VAT / Sales Tax

Works contract - Exemption to subcontractors in terms of Entry 59-A of the 1st schedule to the AP VAT Act - HELD THAT - Entry 59A exempts all goods sold within the SEZ area by an operator developer a co-developer or contractor or by any of the above. The term contractor has now been interpreted to include sub-contractors by virtue of the Judgment of the erstwhile High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh in M/s. Larsen and Toubro and Others vs. State of Andhra Pradesh 2006 (10) TMI 377 - ANDHRA PRADESH HIGH COURT . However Section 7A which was introduced subsequently on 24.09.2008 states that exemption of tax on sale of goods within the Special Economic Zone will be available on sale of any goods to persons who have been authorized to establish unit in the SEZ or authorized to develop operate and maintain a SEZ. The further condition is that only such sales of goods made for the purposes set out in Section 7A would be eligible for such exemption. In the present case entry 59A states that all goods sold by the persons mentioned in entry 59A would be eligible for exemption. Section 7A also provides for such exemption. However the said exemption is subjection to certain conditions - When there is a possibility of conflict between two provisions of law the rule of harmonious construction would have to be applied to see if both provisions of law can operate simultaneously. Applying this principle there are no reason as to why both provisions cannot operate at the same time. At best Section 7A is a more restrictive provision of law whereas item 59A is a more expansive exemption. It may also be noted Entry 59A was not deleted from the Act when Section 7A was introduced and came to be deleted much later. This is also a factor which has to be taken into account while trying to harmonize both the provisions of law. Conclusion - There are no reason to hold that there is a conflict between Section 7A of AP VAT Act and Entry 59A of the 1st Schedule to the AP VAT Act. In the absence of a conflict the non-obstante clause does not come into operation and consequently the petitioner was entitled to the benefit of Entry 59-A of the 1st schedule which exempts all the sales made by the petitioner in the course of execution of the works contract for M/s. Abhijeet Projects Limited. All the impugned orders are set aside and the Writ Petitions are allowed.

Summary

The Court considered the issue of whether a sub-contractor was entitled to an exemption under Entry 59-A of the AP VAT Act for the turnover relating to works contracts in the context of a Special Economic Zone (SEZ). The petitioner, a sub-contractor, argued that they were entitled to the exemption based on past judicial interpretations and the wording of the relevant provisions. The authority for Advance Ruling and the Sales Tax Appellate Tribunal had held that the benefit under Entry 59-A was no longer available due to the introduction of Section 7-A. The Court analyzed the provisions of Section 7-A and Entry 59-A, considering the interpretation of the non-obstante clause and the principle of harmonious construction. The Court concluded that there was no conflict between the provisions, and the petitioner was entitled to the benefit of Entry 59-A. As a result, the Court set aside the impugned orders and allowed the writ petitions.The core legal questions considered by the Court were:1. Whether a sub-contractor was entitled to an exemption under Entry 59-A of the AP VAT Act for works contracts in an SEZ?2. How should the provisions of Section 7-A and Entry 59-A be interpreted and reconciled?The Court analyzed the relevant legal framework, including Section 7-A and Entry 59-A of the AP VAT Act. It noted the past judicial interpretation that sub-contractors were covered under Entry 59-A. The Court considered the views of the authority for Advance Ruling and the Sales Tax Appellate Tribunal, which held that Section 7-A superseded Entry 59-A. The Court discussed the purpose of a non-obstante clause and the principle of harmonious construction in interpreting conflicting provisions of law.Key evidence and findings included the contractual relationship between the petitioner and the main contractor, as well as the orders of the authority for Advance Ruling and the Sales Tax Appellate Tribunal. The Court found that there was no conflict between Section 7-A and Entry 59-A, and both provisions could operate simultaneously. It emphasized that Entry 59-A was not deleted when Section 7-A was introduced, indicating that both provisions could coexist.The Court's interpretation and reasoning focused on reconciling the provisions of Section 7-A and Entry 59-A. It concluded that the petitioner was entitled to the benefit of Entry 59-A and set aside the impugned orders, allowing the writ petitions. The Court established the core principle that conflicting provisions of law should be harmonized where possible to give effect to the legislative intent.In conclusion, the Court held that there was no conflict between Section 7-A and Entry 59-A of the AP VAT Act. The petitioner was entitled to the exemption under Entry 59-A for works contracts in the SEZ. As a result, the Court set aside the impugned orders and allowed the writ petitions, with no order as to costs.