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Whether Refund is eligible to a dealer who makes sales to 100% EOU treating it as Export sales?

Introduction: In the recent judgment of Madras High Court in the case of Emerald Stone Export, Pudukottai Vs The Assistant Commissioner (CT), Pudukottai, while disposing the writ petitions No.W.P.(MD) No.5358 of 2011, W.P.(MD) No.5359 of 2011 and M.P (MD) Nos.1 and 1 of 2011, it has been held that sales made to 100% EOU is a sale in the course of export and therefore, the sale would fall under Section 5(3) of the Central Sales Tax Act, 1956 and is entitled to Input tax credit or refund on the amount of tax paid on the purchase of goods specified in the First Schedule including the capital goods under the category of zero rate sale as defined in Section 18 of the TNVAT Act, 2006.

Relevant legal provisions: Section 18 of TNVAT Act, 2006, provides for the above stated benefits and it reads as follows:

"Section 18. Zero-rating.- (1) The following shall be zero rate sale for the purpose of this Act, and shall be eligible for input tax credit or refund of the amount of the tax paid on the purchase of goods specified in the First Schedule including capital goods, by a registered dealer in the State, subject to such restrictions and conditions as may be prescribed:- Section.18(1)(i). A sale as specified under sub-section (1) or (3) of section 5 of the Central Sales Tax Act, 1956; (Central Act 74 of 1956)."

Section 5(1) and (3) of the CST Act, 1956 reads as follows:

"5. When is a sale or purchase of goods said to take place in the course of import or export.-

(1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the Territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the Customs Frontiers of India.

* * * * * 

(3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the Territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export." Issue involved: The issue involved is relating to refund of input tax credit in both the writ petitions and are relatable to the period 2006-2007 and 2007-2008.

The question before the court is whether the dealer is eligible to claim (in form W) the Input tax credit availed on his purchases meant for sales made to 100% Export Unit. Brief facts of the case: Emarald Stone Export is a Registered Dealer on the files of the Assistant Commissioner, CT, Pudukottai under the Tamil Nadu Value Added Tax Act, 2006 and is engaged in the business of buying and selling granites. During the material period, the petitioner purchased raw granite from the Registered Dealers in the State of Tamil Nadu and the same was sold to the Exporter namely M/s.Tab India Granite (P) Ltd., Hosur, an 100% Export Oriented Unit who in turn exported the goods.

The petitioner made an application for refund of the input tax credit for the year 2006-2007 and 2007-2008 and the reason for seeking refund of tax paid on purchase of goods was that the goods were sold to 100% Export Oriented Unit in a sale in the course of export and therefore, the sale would fall under Section 5(3) of the Central Sales Tax Act, 1956 and the petitioner is entitled to the benefit of input tax credit or refund on the amount of tax paid on the purchase of goods specified in the First Schedule including the capital goods under the category of zero rate sale as defined in Section 18 of the TNVAT Act, 2006.

The claim of the petitioner for refund of tax was considered by the Assistant Commissioner (CT), Pudukkottai and in proceedings in TIN.33184103917/2006-2007 dated 10.09.2008, the refund application was considered in the light of the G.O.Ms.No.39/Commercial Taxes & Registration (A) Dept., dated 05.02.2007 and VAT Circular No.71/2006 dated 18.12.2006 and 18/2007 dated 06.09.2007 and the Commissioner of Commercial Taxes, Chennai, Ref. VAT Cell/37009/2007 (VCC No.1086) dated 21.08.2007. Taking note of the Zero rate sale, the Refund Application in Form - W filed claiming refund of tax paid on goods purchased which were exported through 100% EOU and treating it as sales in terms of sub-rule (2) of rule 11 read with Section 18 of the TNVAT Act, 2006, the competent authority granted the refund in both the cases.

A similar order was passed on 05.11.2008 in TIN/33184103917/07- 08 and the refund has been made. Thereafter, the Department issued a notice on 13.01.2011 in respect of both the assessment period stating as follows: In this connection it is informed that you had effected sales of Rough Granite to Tvl.TAB INDIA GRANITE PVT. LTD., HOSUR a 100% E.O.U holders. The sales made to 100% E.O.U holders could not be termed as "Zero rated Sales" as they would not fall under the category of Zero rate sales as per Sec.18(1) of the TNVAT Act, 2006. Hence the entire refund of Rs.29,83,263/- and Rs.59,35,755/- claimed and made is not in order for the year 2006-07 and 2007-08 respectively."

Assessee's Defence: The notice was issued under Section 19(16) of the TNVAT Act, 2006. The petitioner submitted a detailed reply on 24.03.2011 refuting the claim of the Department inter alia contending that the sale to 100% E.O.U is covered by Section 5(3) of the CST Act, 1956 and it is Zero rate sale in terms of Section 18(1) of the TNVAT Act, 2006. The specific point raised by the petitioner in the reply is set out as hereunder:

"It is a penultimate sale to an exporter which comes under Section 5(3) of the CST Act, 1956 by way of repetition we submit that we have effected a sale to an exporter who has exported the same and therefore our sales to the exporter is protected and coming under the provisions of Section 5(3) of the CST Act, 1956 which is protected under Article 286 of the Constitution of India. Already we have filed particulars relating to the export and we have also provided the export documents along with the purchase order etc.

Therefore, according to us even though we have effected a sale to 100% EOU, it is covered under Section 5(3) of the CST Act, 1956 and such sales falls under Zero rate sales as per Section 18(1) of the VAT Act, 2006. This must be appreciated before proceeding further in the above matter."

Conclusion:- The short question that arises for consideration in this case is as to whether the sales made to the 100% EOU will fall under the definition of Zero rated sales in terms of Section 18 of the TNVAT Act, 2006. The fact is that the petitioner is entitled to take input tax credit or refund of tax amount paid in a purchase of the goods specified in the First Schedule treating it as a Zero rated sale if it is a sale specified under sub- sections (1) and (3) of Section 5 of the CSTs Act, 1956.

Therefore, the primary issue that has to be considered, is whether Section 5(1) and (3) of the CST Act, 1956, is attracted to the facts of the present case. In this case, the petitioner has sold the goods to Tab India Pvt. Ltd., a 100% EOU and the documents submitted by the petitioner to the competent Refund Authority clearly satisfied the requirements that the sale was for the purpose of export of goods outside the territory of India by the EOU and it is in the course of export. Section 18(1) of TNVAT Act, 2006 and Section 5(3) of CST Act, 1956, clearly apply to the facts of the petitioner's case.

The sale in this case falls under Section 5(3) of CST Act, 1956, and then Section 18(1) of TNVAT Act, gets attracted. In such view of the matter, by virtue of Section 18(i) of the TNVAT Act, 2006 the petitioner is entitled to Input Tax Credit or refund of tax if it is a sale specified under sub-section (1) and (3) of Section 5 of CST Act, 1956, by treating it as Zero rated sale. The Assessee will therefore be entitled to the refund in this case. The Assessee is justified in seeking refund of the tax treating the sale as Zero rated sale.

R.K Rengaraj, advocate

The Author can be reached at renga42002@yahoo.co.in

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