No material produced to substantiate argument advanced, issue left undecided.

 Facts in Brief:

1. The petitioner, who is a registered dealer under the Tamil Nadu Value Added Tax Act as well as the Central Sales Tax Act (hereinafter referred to as the 'CST Act'), is an exporter of articles like pre Indian Sandalwood chips and chips powder. These items are procured from the Domestic Tariff Area (hereinafter referred to as the 'DTA') and then exported to various countries against export orders placed by foreign buyers.

2. Against Exts.P2 to P4 purchase orders obtained by the petitioner, she wanted to purchase sandalwood from the respondents and she, accordingly, participated in the e-auction held by the respondents pursuant to Ext.P5 auction notice. The State Government through Ext.P6 Government Order dated 18.03.2014 notified the terms of the e-auction of sandalwood at Marayoor.

3. At the auction so held, the petitioner's bid was found to be the highest in respect of three lots viz. Lot No.76/2015, 101/2015 and 106/2015 and she was given a letter of acceptance of her bid in respect of the said three lots. Later, the bids were formally confirmed in favour of the petitioner, as evidenced by Exts.P7 to P10 and she was asked to pay the value of the goods as also the applicable tax under the KVAT Act in respect of the goods. This was paid by the petitioner and she took delivery of the goods.

4. Thereafter, the petitioner filed W.P.(C)No.9096/2015 praying for a declaration that no tax under the KVAT Act would be payable in respect of the purchases effected by her. By Ext.P17 interim order in the said writ petition, the petitioner was permitted to approach the 2nd respondent with an application for exemption from tax on the sales effected to her. She accordingly preferred Ext.P18 representation before the 2nd respondent.

5. The said representation was, however, rejected by Ext.P19 communication informing the petitioner that no exemption was available. The petitioner, therefore, withdrew W.P.(C).No.9096/2015 without prejudice to her right to file a fresh writ petition challenging the order denying exemption.

6. This writ petition was then filed challenging Exts.P9, P10, P14, P16 and P19 to the extent they contemplate a payment of tax under the KVAT Act on the sale value of goods sold to the petitioner, and seeking, inter alia, a declaration to the effect that a sale effected to a unit in the Special Economic Zone established under the Special Economic Zone Act, 2005, by any dealer in the DTA, is an export sale and no value added tax can be levied or collected by the respondents in respect of such a sale.

7. A statement has been filed on behalf of the 1st respondent wherein the respondent would maintain that the sales effected to the petitioner were concluded in the State of Kerala and hence, the petitioner is liable to pay tax under the KVAT Act on the sale value of the goods sold to her.

On appeal HC held as under,

8. It will be seen from a reading of Section 53 of the SEZ Act that an SEZ is deemed to be a territory outside the customs territory of India only for the purposes of undertaking authorised operations.

9. The term "authorised operations" is defined in Section 2(c) of the Act as meaning operations which may be authorised under Section 4(2) and Section 15(9) of the Act. Section 4(2) and Section 15(9) speak of such operations, which are authorised by the Central Government, and in respect of which the Developer of a unit has the authorisation of the Board of Approval. Further, an overview of the provisions of the SEZ Act indicates that it is a special law enacted with the specific object of providing an internationally competitive environment for exports and there are specific provisions therein that are tailored to provide tax exemptions and other benefits to the units situated in the SEZ's.

10. The overriding effect given to provisions of the Act is only with a view to further the objects of the Act and cannot confer on the units in the SEZ a status other than what is contemplated for the purposes of their functioning under the Act.

11. It is against this schematic backdrop that one has to consider whether a sale from a unit in the DTA to a unit in the SEZ can be treated as an export for all purposes, including for the purposes of the CST Act. As already noted, the words "export" and "import" have a different connotation under the SEZ Act, when compared with the definition of the same words under the Customs Act. While "export" is defined as including a supply from a unit in the DTA to a unit in the SEZ, the word also includes the activity of taking goods or providing services out of India from a unit in the SEZ. Similarly, the word "import" does not include the bringing of goods into a unit in the SEZ, from the DTA.

12. It is also relevant to note that Section 7 of the SEZ Act that deals with exemption from taxes, duties and cesses does not specifically grant an exemption from Customs duties or CST or State VAT levies. The exemption from State VAT levies is separately contemplated under Section 50 of the SEZ Act and is left to the discretion of the State Legislatures.

13. It is apparent, therefore, that while enacting the SEZ Act, the Parliament did not intend to treat a supply from the DTA to a unit in the SEZ as an export for the purposes of the CST Act or Article 286 of the Constitution. Had the Parliament any such intention, then it would not have been necessary to provide for an exemption from State taxes, levies and duties, at the discretion of State Legislatures for, any sale of goods to an SEZ unit, would have qualified as an export sale for the purpose of the CST Act, and there would have been no necessity for an exemption provision.

14. As a matter of fact, even under the CST Act, through an amendment that was brought in with effect from 10.09.2004, Section 8(6) of the Act was amended to provide an exemption from CST in cases where there is an inter-state sale effected to registered dealers who are permitted to set up units in SEZ's. The said provision reads as follows:

15. 8. Rates of tax on sales in the course of inter state trade or commerce:- [(1) (6) Notwithstanding anything contained in this Section, no tax under this Act shall be payable by any dealer in respect of sale of any goods made by such dealer, in the course of inter-State trade or commerce to a registered dealer for the purpose of setting up, operation, maintenance, manufacture, trading production, processing, assembling, repairing, reconditioning, re-engineering, packaging or for use as packing material or packing accessories in a unit located in any special economic zone or for development, operation and maintenance of special economic zone by the developer of the special economic Zone, if such registered dealer has been authorised to establish such unit or to develop, operate and maintain such special economic Zone by the authority specified by the Central Government in this behalf.]

16. Similarly, under the KVAT Act, there is a provision that grants exemption in respect of sale of goods to units in a SEZ, under certain circumstances. Section 6(7)(b) of the KVAT Act reads as follows:

Levy of tax on sale or purchase of goods:-

(7) Notwithstanding anything contained in sub- section (1), - (b) sale of any building materials, industrial inputs, plant and machinery including components, spares, tools and consumables in relation thereto to any developer or industrial unit or establishments situated in any Special Economic Zone in the State for setting up the unit or use in the manufacture of other goods shall, subject to such conditions or restrictions, as may be prescribed, be exempted from tax.

The aforesaid provisions seem to suggest that the legislative intention under the SEZ Act was to treat sales to units in the SEZ as taxable sales, subject to specific exemptions that were provided for, either under the CST Act or under the respective State legislations. In the absence of any exemption, therefore, such sales effected from the DTA to a unit in the SEZ would not qualify to be export sales for the purposes of S. 5 (1) of the CST Act or for the purposes of Art. 286 of the Constitution of India. I, therefore, find against the petitioner on this issue.

Issue No.2:

17. It is the contention of the learned Senior Counsel for the petitioner that the sale effected by the respondents to the petitioner, and the movement of the goods to her unit in the Madras EPZ, are so integrally connected that it could be said that the sale occasioned the movement of the goods to the unit in the EPZ. It is pointed out that the integral nature of the transaction could be gathered from the fact that the petitioner had introduced herself as having a unit in the SEZ before submitting its bids, she had participated in the e-tender from the unit in the SEZ, the acceptance of her bid was intimated to her at the same address, the sale consideration was paid from the said address and the petitioner does not have any place of business in Kerala.

18. It is the petitioner's contention that the attendant circumstances clearly indicated that the goods were to move to her unit in the Madras EPZ pursuant to the sale that the said movement could be seen as an implied term of the contract of sale between the State of Kerala and the petitioner.

19. While the material produced in this writ petition is insufficient to hold that there was any understanding between the petitioner and the respondents, either express or implied, that the goods would move from Kerala to the petitioner's unit in the Madras SEZ as a direct consequence of, or incidental to, the sale transaction between them, I am of the view that I need not deliberate upon this issue since I have already found that a movement of the goods from Kerala to the unit of the petitioner in the SEZ would not qualify as an export for the purposes of Section 5(1) of the CST Act or for the purposes of Article 286 of the Constitution.

20. It is also relevant to note that the express terms of Ext.P6 - "Special Terms and Conditions of thee-auction of sandalwood at Marayoor Sandal Depot of Kerala Forest department", and in particular clauses 11 and 14(v) thereof, clearly contemplated that prevalent rates of KVAT would be applicable to all successful bidders irrespective of destination of transportation of materials and purpose.

21. Learned Senior Counsel for the petitioner would contend that, even if the sale to the petitioner does not qualify as an export sale for the purposes of Section 5(1) of the CST Act, the sale could be viewed as a penultimate sale prior to export for the purposes of Section 5(3) of the CST Act or even qualify for an exemption in terms of Section 8(6) of the CST Act.

22. I find, however, that there is no material produced in the writ petition to substantiate the arguments advanced by the learned Senior Counsel and hence, I am of the view that the said contentions would have to be raised in separate proceedings, with reference to supporting documents that would establish that the statutory criteria for getting the benefits envisaged under the CST Act are fulfilled. I therefore leave the said issues open to be decided in appropriate proceedings.

23. The writ petition is thus dismissed but, with no order as to costs. 

Case Reference - Lalitha Muralidharan vs The Commissioner Of Commercial.