While considering a batch of appeals, the Madras High Court comprising of Justice S Vaidyanathan and Justice Mohammed Shaffiq has held that the export of goods is not a condition precedent to qualify as zero rate sale when a sale falls under section 18 (1) of the Tamil Nadu Value Added Tax, 2006 (TNVAT) act
The petitioners challenged the order of the Single Judge which held that “export” is a condition precedent to constitute “Zero Rate Sale” and challenged Circular No.9 /2013 dated 24.07.2013 issued by the Commissioner of Commercial Taxes, in which it was clarified that sales of goods to a dealer located in a Special Economic Zone (“SEZ”) in the State would not qualify as a “Zero Rate Sale” unless the goods purchased by the dealer located in an SEZ is exported as such or consumed or used in the manufacture of other goods that are exported.
It was contended that in terms of the definition under Section 2(44) of the TNVAT Act, “Zero Rate Sale”, would mean a sale of goods on which no tax is payable, but credit for the Input Tax related to that sale is admissible. The petitioners stated that Section 18 of the TNVAT Act, provides for two types of benefits viz., Zero Rate and additional Refund. Both the benefits do not overlap but are independent of each other.
It was evident that there is no uniformity in terms of the benefits /tax treatment extended to sales to the registered dealer in SEZ. The benefit of exemption is uniform and the least of the benefit is extended.
It was found by the court that some States had granted the benefit of not just exemption but also the corresponding input tax credit which is otherwise not available to exempted goods/sales. Under the TNVAT Act, sales to SEZ is treated as a “Zero Rate Sale”, which is distinct from an exemption.
The bench observed that the transactions involved are work contracts apart from the conventional sale of goods covered under Section 18(1)(ii) of the TNVAT Act. It was held that “export of goods is not a condition precedent or sine qua non to qualify as a Zero Rate sale as long as the sale falls within clause(ii) of Section 18 (1) of the TNVAT Act and to claim a refund in terms of Section 18 (2) read with 18 (3) of the TNVAT Act, export of goods is an essential condition but not the benefit of Zero Rate.
While setting aside the order of the Single Judge, the Court remanded the matter back to the Appellate Authority.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
