2014 (7) TMI 113 - HC - VAT and Sales Tax

SEZ - Non obstante clause - levy of purchase tax - whether the non-obstante clause contained in section 22 of the SEZ Act had a limited application - Held that - nonobstante clause has to be seen in light of the legislative intent - Such intention, however, has to be gathered from the statute containing such nonobstante clause. We have perused sections 21 and 22 of the SEZ Act and also other provisions contained in the SEZ Act. There is nothing to indicate that section 22 of the SEZ Act desired to have limited application when it came to the fiscal benefits contained in section 21 of the SEZ Act. As we have noted, section 21 of the SEZ Act granted several benefits of tax waivers to the transactions entered into in the specified areas within the SEZ. These were necessarily State taxes. But for section 21 of the SEZ Act such taxes would be levied even on the transactions entered into within the said specified areas. In absence of section 22 of the SEZ Act, there would be a conflict between various taxing statutes and section 21 of the SEZ Act. In order to avoid such conflict, section 22 of the SEZ Act was enacted giving overriding effect. Without making any matching provision in the VAT Act, the overriding effect given to the provisions made in the SEZ Act by virtue of section 22 of the Act cannot be whittled down. If the VAT Act and in particular, sections 5A and 9(5) also had a similar non-obstante clause, it would become a matter of legal scrutiny as to which one of the two non-obstante clauses would prevail. In the present case, we are not confronted with such a situation. It was in this background that the Supreme Court in the case of Ketan Parekh (supra) had an occasion to consider as to which one of the two clauses, namely, Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 and Recovery of Debts Due to Banks and Financial Institutions Act, 1993, would prevail since both contained non-obstante clauses. State legislature desired to give overriding effect to all the provisions of SEZ Act over other State laws and in terms of section 21, particularly, in respect of fiscal statutes, prescribing levy of various duties. There was no intention to limit the operation of this non-obstante clause. No such intention is borne out from the SEZ Act. We are afraid any other contrary intention emerging from any other State fiscal statute would not limit the scope of the non-obstante clause when no overriding effect is given to such provision though enacted much after SEZ Act was introduced. Demand raised by the respondents from the present petitioners for payment of purchase tax under section 9(5) of the VAT Act is invalid and impermissible. The same is, therefore, quashed. The tax recovered, if any, from the petitioners shall be refunded with statutory interest - Decided in favour of assessee.

Summary

Issues Involved:
1. Authority to levy Value Added Tax (VAT) or Purchase Tax on capital goods and fuel used in SEZ units.
2. Interpretation of Section 21 and 22 of the Gujarat Special Economic Zone Act, 2004 (SEZ Act).
3. Validity of Section 9(5) of the VAT Act in relation to SEZ units.
4. Overriding effect of SEZ Act over VAT Act provisions.

Detailed Analysis:

Issue 1: Authority to Levy VAT or Purchase Tax on SEZ Units
The petitioners challenged the respondents' authority to levy VAT or Purchase Tax on capital goods and fuel used in generating energy in SEZ units. The petitioners argued that Section 21 of the SEZ Act provides for total exemption from State taxes for units in SEZ areas. Despite this, the State authorities demanded purchase tax after the introduction of Section 5A to the VAT Act and matching provisions in Section 9 of the VAT Act. The court noted that the SEZ Act's provisions have an overriding effect, and the State's demand for purchase tax was challenged.

Issue 2: Interpretation of Section 21 and 22 of the SEZ Act
Section 21 of the SEZ Act grants exemptions from various State taxes to SEZ units, including sales tax, purchase tax, and other levies. Section 22 provides that the SEZ Act's provisions will have effect "notwithstanding anything contained in any other law for the time being in force." The court emphasized that this non-obstante clause gives the SEZ Act an overriding effect over other State laws, including those enacted later.

Issue 3: Validity of Section 9(5) of the VAT Act
The petitioners contended that Section 9(5) of the VAT Act, which levies purchase tax on zero-rated sales, is inconsistent with the SEZ Act and should be declared invalid. The court observed that while the VAT Act provisions aimed to collect purchase tax from SEZ units, such legislative intent must be clearly translated into valid enactment. The court held that without a clear provision giving VAT Act provisions primacy over the SEZ Act, no such tax could be levied.

Issue 4: Overriding Effect of SEZ Act over VAT Act Provisions
The court held that the non-obstante clause in Section 22 of the SEZ Act gives it an overriding effect over other State laws, including the VAT Act. The expression "for the time being in force" was interpreted to include laws made later. The court noted that the SEZ Act's non-obstante clause was intended to avoid conflicts with other State laws and ensure that SEZ units enjoy the tax exemptions granted under Section 21. The court found no legislative intent to limit the non-obstante clause's application.

Conclusion:
The court quashed the demand for purchase tax from the petitioners under Section 9(5) of the VAT Act, declaring it invalid and impermissible. The tax recovered from the petitioners was ordered to be refunded with statutory interest by May 31, 2014. The judgment emphasized the overriding effect of the SEZ Act's provisions over other State laws, including those enacted after the SEZ Act.