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:
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.