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2015 (2) TMI 564 - HC - VAT and Sales TaxExecution of works contract in SEZ - Zero rate tax or not - challenge to circular issued by the Commissioner in Circular No.9 of 2013, dated 24.07.2013 - Reversal of Input tax credit - interpretation of Section 18 of the TNVAT Act. - Factory located in Special Economic Zones (SEZ). The petitioner was awarded contracts for construction of their factory building and related infrastructure in the SEZ. According to the petitioner in terms of Section 18 (1)(ii) of the TNVAT Act, any sale effected to a unit which will include a deemed sale in line with the definition of sale contained under Section 2(33) of the TNVAT Act, in terms of Article 366(29A)(b) of the Constitution of India. However, the Commissioner issued the impugned circular stating that works contracts executed for SEZ units cannot have the benefit of zero rating, since goods transferred by a contractor are neither exported as such or used in the manufacture of other goods which are exported. Held that - To be considered as a zero rated sale and to be eligible for input tax credit or refund the sale should fall within one of the three categories mentioned above. Sub-Section (2) has to be read along with sub-section (1) of Section 18, and cannot be divested or segregated to be read only with clauses (i) & (iii) of sub-section 18(1), the statute does not made any such distinction between the transactions mentioned in clauses (i) (ii) & (iii) in Section 18(1) all being classified as a zero rated transactions. Therefore, to state that sub-section (2) of Section 18 will not apply to clause (ii) of Section 18(1) amounts to inserting a new provision to the statute when the statute does not contemplate of such situation/contingency. In terms of Rule 22 of the CSEZ Rules 2006, grant of exemption, drawbacks and concession to the entrepreneur or Developer shall be subject to conditions contained therein. Therefore, the scheme of the CSEZ Act, TNSEZ Act and the Rules make the position clear that benefit is intended to the SEZ unit for the authorised operations which essentially is the export activity for which approval has been granted. Hence, the contention raised by the petitioners is not tenable. Provisions of Section 21 of the Gujarat SEZ Act had primacy and purchase tax cannot be demanded. At the outset, it has to be pointed out that Section 21 of Gujarat SEZ Act and Section 12 of TNSEZ Act are not pari materia and the Revenue herein does not admit the position that the petitioners herein are not liable to pay tax, but would seriously dispute the same. Further, the petitioners herein claim ITC on the sales effected to SEZ s or its developers. That apart, there is marked and material difference with regard to zero rated sale as per under Section 5A in the Gujarat VAT Act with that of Section 18 of the TNVAT Act. The provisions are not pari materia. Furthermore, the factual background of the case was entirely different and therefore, the decision does not render support to the case of the petitioners. The interpretation of the petitioners, if accepted, it would render the statue futile. The intention of the legislation is clear from the language of Section 18 of TNVAT Act specifies the benefit for zero rated transactions. It is to be once again pointed out that the plea raised by the petitioner seeking for exemption by relying on notifications issued under Section 17 of the TNGST Act is of little avail and if according to the petitioners, the sales are exempt then they have to seek umbrage under Section 15 of the TNVAT Act, and placing reliance on Section 18 and interpreting that Section 18 has to be read in a truncated manner does not merit acceptance. It is beneficial to refer to the decision of the Hon ble Supreme Court in the case of Kerala State Cooperative Marketing Federation vs. CIT, reported in 1998 (5) TMI 6 - SUPREME Court , wherein the Hon ble Supreme Court pointed out that that it is a clear rule of statutory construction that, in trying to interpret a statutory provision, attention should be given to the setting in which the provision occurs and regard must be had to the language of an entire group of connected provisions which may form an integral whole. It is a settled rule of interpretation that in a taxing statue one has to look merely what is clearly stated, there is no room for any intendment, there is no equity about tax, there is no presumption as to tax, nothing is to be read in, nothing is to be implied and one can only look fairly to the language used. stand set aside. The impugned circular No.9 of 2013, dated 24.07.2013, is held to be valid and not contrary or ultra vires to the provisions of the Tamil Nadu Value Added Tax Act and it is not violative of Article 14 of the Constitution of India or irrational. - The proposal to levy penalty in the impugned pre-revision notices are set aside. - Petition disposed of.
Issues Involved:
1. Interpretation of Section 18 of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act). 2. Validity of Circular No.9 of 2013 issued by the Commissioner of Commercial Taxes. 3. Entitlement to zero-rating and input tax credit for transactions with Special Economic Zones (SEZ). 4. Levy of penalty by the Assessing Officers. Detailed Analysis: 1. Interpretation of Section 18 of the TNVAT Act: The primary issue revolves around the interpretation of Section 18 of the TNVAT Act, which deals with zero-rating. According to Section 18(1), zero-rated sales include: - Sales specified under Section 5(1) or (3) of the Central Sales Tax Act, 1956. - Sales of goods to any registered dealer located in a Special Economic Zone (SEZ) in the state, if such registered dealer is authorized by the Central Government. - Sales of goods to International Organizations listed in the Fifth Schedule. Section 18(2) provides that the dealer who makes zero-rated sales is entitled to a refund of input tax paid or payable on the purchase of goods that are exported as such or used in the manufacture of other goods that are exported. This refund is subject to restrictions and conditions as prescribed. The court held that Section 18(2) is not a proviso but a substantive provision that applies to all contingencies contemplated under Section 18(1). Thus, the benefits of zero-rating and input tax credit must be read in conjunction with the requirements of Section 18(2). 2. Validity of Circular No.9 of 2013: The petitioners challenged the circular issued by the Commissioner of Commercial Taxes, which stated that works contracts executed for SEZ units cannot have the benefit of zero-rating as the goods are not exported as such or used in the manufacture of other goods that are exported. The court held that the circular correctly sets out the statutory provision and is neither contrary nor ultra vires to the TNVAT Act. The circular is valid and not violative of Article 14 of the Constitution of India or irrational. 3. Entitlement to Zero-Rating and Input Tax Credit: The petitioners contended that their transactions with SEZ units or developers should be considered zero-rated and entitled to input tax credit under Section 18 of the TNVAT Act. They argued that the definition of 'sale' under Section 2(33) of the TNVAT Act includes transfer of property in goods involved in the execution of a works contract. The court held that the petitioners' interpretation of Section 18(1)(ii) as an independent scheme is incorrect. Section 18(2) applies to all zero-rated sales, including those under Section 18(1)(ii). Therefore, the petitioners must satisfy the conditions of Section 18(2) to claim the benefits of zero-rating and input tax credit. 4. Levy of Penalty by the Assessing Officers: The petitioners also challenged the assessment orders and the levy of penalties by the Assessing Officers, which were based on the impugned circular. The court observed that the Assessing Officers did not provide specific reasons for imposing penalties and mechanically proposed penalties without establishing that the conduct of the dealers was deliberate and willful. The court set aside the proposals to levy penalties in the pre-revision notices and vacated the penalties levied in the impugned assessment orders. The court directed the Assessing Officers to reconsider the cases where penalties were imposed and provide an opportunity for a personal hearing to the petitioners. Conclusion: - The circular No.9 of 2013 is valid and not contrary to the TNVAT Act. - The petitioners' transactions with SEZ units must comply with Section 18(2) to claim zero-rating and input tax credit. - The proposals to levy penalties in the pre-revision notices and the penalties in the assessment orders are set aside. - The petitioners are directed to file objections or appeals as applicable, and the Assessing Officers are to reconsider the cases with due process.
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