2015 (11) TMI 1496 - HC - VAT and Sales Tax

Sale of goods in the SEZ - works contract - Exemption under section 5A of Gujarat VAT despite of failure to obtain endorsement of custom authority on the bill as required by Rule 42(2A) - levy of interest and penalty - Held that - Having regard to the nature of the contract between the petitioner and the Adani Power Limited, which is in the nature of a works contract, when construction materials are purchased by the assessee, they are purchased for sale in the course of execution of works contract, which is to take place at a later point of time on the principle of accretion. Therefore, at the time of entry of goods into the SEZ area, there is no sale to the SEZ unit or to the developer, but the sale takes place at a later point of time. In view thereof, the assessee with a view to ensure compliance with the provisions of the SEZ law as well as requirement of endorsement of bills with a view to claim exemption from tax as zero rated sale, obtained the endorsement of the concerned authority on the purchase bills for goods which entered the SEZ area. Such goods were used in the execution of the works contract, which is not even disputed by the appellant. Appellate authority has failed to appreciate the fact that it is not possible to abide by sub-rule (2A) of rule 42 of the rules having regard to the nature of the contract which is a works contract wherein the goods which are sold to the buyer, are used in the execution of the works contract and it is only after execution that the invoices are raised. This court is, therefore, in agreement with the view adopted by the Tribunal that rule 42(2A) of the rules cannot be held to be mandatory in nature and that the endorsement on the purchase bills obtained by the respondent assessee is sufficient compliance with the provisions of sub-rule (2A) of rule 42 of the rules. - it cannot be said that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to any question of law, much less, a substantial question of law as proposed or otherwise - Decided against Revenue.

Summary

Issues:
Challenge to order under Gujarat Value Added Tax Act, 2003 - Exemption under section 5A - Endorsement of custom authority on bill - Levy of interest and penalty.

Analysis:
1. The appellant State challenged the order passed by the Gujarat Value Added Tax Tribunal, questioning the entitlement of the dealer to claim exemption under section 5A despite the absence of custom authority endorsement on the bill as required by Rule 42(2A). The respondent, engaged in construction contracts, sought exemption under section 5A for sales to Adani Power Limited in the Special Economic Zone (SEZ). The Tribunal allowed the appeal, stating that Rule 42(2A) is procedural and not a condition precedent for zero-rated sales under section 5A. It also cited section 21(1) of the SEZ Act for exemption from tax, interest, and penalty.

2. The appellant argued that the Tribunal failed to consider Rule 42(2A) properly, emphasizing the necessity of custom authority endorsement on bills for exemption under section 5A. The respondent contended that due to the nature of works contracts, obtaining such endorsements was impractical, supported by the decision in Torrent Energy Limited v. State of Gujarat. The Tribunal's decision aligned with this interpretation, asserting the exemption under section 21 of the SEZ Act.

3. The Tribunal's judgment was based on the understanding that the works contract involved sales to Adani Power Limited in the SEZ, necessitating compliance with section 5A for zero-rated sales. The appellant's insistence on custom authority endorsements was deemed hyper-technical, given the nature of the contract and the practical challenges in obtaining such endorsements on running bills.

4. Referring to the precedent in Torrent Energy Limited v. State of Gujarat, the Tribunal justified its decision by highlighting the primacy of section 21 of the SEZ Act in exempting taxes on goods within the SEZ area. Consequently, the Tribunal's order was upheld, dismissing the appeal and affirming the entitlement to tax exemption within the SEZ area under section 21 of the Gujarat Special Economic Zone Act.