Case Law Details
Works contract 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
Tulsyan Nec Limited (the Petitioner) was engaged in the manufacture of High Tensile Fasteners, Gear Shifters etc., and its factory was located in Special Economic Zone (SEZ). The Petitioner was awarded contracts for construction of their factory building and related infrastructure in SEZ. The Petitioner inter alia contended that in terms of Section 18(1)(ii) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act), sale of goods to any registered dealer located in SEZ is zero rated sale, if such registered dealer has been authorised to establish such unit by the authority specified by the Central Government in this behalf and shall be entitled for Input tax credit or refund of the amount of tax paid on the purchase of goods specified in the First schedule including Capital Goods.
While on the other hand, the Revenue contended reversal of Input tax credit on the basis of the Circular No. 9 of 2013, dated July 24, 2013 (“the Circular”) issued by Commissioner of Commercial Taxes, Chepauk, Chennai stating that sale of goods, involved in the execution of Works contract, to any other registered dealer located in SEZ in the State is not zero rated sale, as the goods are not exported as such or consumed or used in the manufacture of other goods that are exported, as required under Section 18(2) of the TNVAT Act. Consequently relying upon the Circular, the Assessing Officer issued an Assessment Order to reverse the Input tax credit availed as the transaction involved is not a zero rated sale and imposed penalty. Being aggrieved, the Petitioner challenged the Circular and the Assessment Order by filing Writ Petition before the Hon’ble High Court of Madras.
The Hon’ble Madras High Court interalia held as under:
- Zero rated sale as defined under Section 2(44) of the TNVAT Act means sale of any goods on which no tax is payable, but credit for the Input tax related to that sale is admissible;
- To be considered as a zero rated sale and to be eligible for Input tax credit or refund, the sale transaction should fall within any of the three clauses of Section 18(1) of the TNVAT Act;
- Section 18(2) the TNVAT Act has to be read along with Section 18(1) thereof. Hence, the Petitioners contention that Section 18(2) of the TNVAT Act will not apply to Section 18(1)(ii) thereof is not sustainable as it 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 Central Special Economic Zones 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 Central Special Economic Zones Act, 2005; Tamil Nadu Special Economic Zones Act, 2005 and the Rules made thereunder makes it 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;
- 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 while interpreting 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.
Thus, the Hon’ble High Court upheld the validity of the Circular stating that Works contract 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, as not being ultra vires to the provisions of the TNVAT Act and not violative of Article 14 of the Constitution of India.
Author Bio
Please let me know applicability TDS on Works Contract for doing services to SEZ units