SEZ Units have been given with an option to claim Refund under VAT Laws. As per the provisions of sub section (2) of Section 20 of the Karnataka Value Added Tax Act, 2003, “Tax paid under this Act on purchase of inputs by a registered dealer who is a developer of any special economic zone or an unit located in any special economic zone established under authorization by the authorities specified by the Central Government in this behalf, shall be refunded or deducted from the output tax payable by such dealer subject to such conditions and in the manner as may be prescribed”.
Based on the above said provisions of the KVAT Act, 2003. All the SEZ Units are eligible for refund of Input tax paid on the purchase of goods from the registered dealers used for the purpose of authorized operations which are approved by the Approval Committee of the Cochin SEZ authorities respectively.
On January 21, 2021, The Hon’ble High Court of Karnataka has passed an Advantageous Judgement in the Case CERNER HEALTHCARE SOLUTIONS PRIVATE LIMITED v/s THE ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES, ZONE-1, BANGALORE [STA No.155 of 2016]
Facts of the Case
CERNER is engaged in the business of Software Development and is a unit located in SEZ. The Company had filed VAT Refund Application as per Section 20 (2) of KVAT Act where the Jurisdictional Authorities had disallowed Inputs purchased by SEZ unit such as food items, housekeeping and office maintenance, printing and stationery, maintenance of photocopying machine, sports goods and events, car lease etc.
Subsequently, upon receipt of Refund Order the SEZ Unit filed Appeal before Appellate Authorities. The Appellate Authorities allowed the said Appeal filed by the SEZ Unit. Further, the Additional Commissioner (ADC) by exercising the Power under Section 64 (1) of KVAT Act (Revisional powers of ADC and CC) had disallowed the aforesaid Input Tax Credit and passed a Order dated October 03, 2016.
Accordingly, The SEZ Unit preferred an Appeal before High Court on the aforesaid ADC Order
Analysis of the Case
The discussion on eligibility of VAT Refund on Inputs to SEZ Units has been extensively made in the current case by giving light to Section 2(19), Section 20(2) of KVAT Act & Rule 130-A of KVAT Rules therein.
Analysis made by the Joint Commissioner on Section 20(2) of KVAT Act read with Rule 130-A was duly considered where he has held that the SEZ Unit involved in the current case is eligible for refund based on Rule 130-A(1)(b) i.e. “If such inputs are purchased for the purpose of setting up, operation and maintenance of an unit in processing area of SEZ” and the expression “operation” used in Rule 130A (1)(c) is completely different since the intention of law maker is to widen the benefit line to SEZ Units , SEZ Developers.
Also, there exist is no condition that SEZ unit should be engaged in the activity of involving goods as output. SEZ units are also entitled for the refund of input tax paid on inputs by a developer and also for units located in the SEZ for setting up of operations or maintenance of the unit.
Further, discussion on the terminology used in definition of Input under Section 2(19) has brought proper backup for the decision of JCCT – where under the said definition it contains ‘any other use in business’ which has completely wider meaning and includes any purchases made which are for any other uses in the business carried out by the appellant.
The Hon’ble High Court concluded that order passed by JCCT Appeals cannot be said erroneous. Also concluded that the position adopted by ADC is not in line with KVAT Laws where the order passed by ADC was based on assumption that the benefit of refund of tax paid on purchase of Inputs can be granted only in respect of manufacture and processing of goods which is not at all prescribed under the law. Accordingly, there is no justification on the part of ADC in invoking revisional power u/s 64 (1) of the KVAT Act.
Hence, Order passed by ADC has been quashed by allowing appeals filed by SEZ Unit.
Conclusion: The above landmark Judgement passed by Hon’ble High Court of Karnataka will help all the SEZ Units in substantiating the VAT Refund Eligibility which is also duly backed up with the proper interpretation of relevant Provisions of VAT Laws therein.
CA Sai Raghavendra Sumanth T
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