Notification 45/2005- Cus and SEZ clearances
Notification no. 45/2005- Cus. Dated 16.05.2005 exempts all goods produced or manufactured in a SEZ and brought to any other place in India, from the whole of the additional duty of customs leviable thereon under sub-section (5) of section 3 of the Customs Tariff Act, 1975 (51 of 1975).
The proviso to the notification mentions that the exemption shall not be applicable if such goods, when sold in domestic tariff area, are exempted by the State Government from payment of sales tax or value added tax.
We received the following queries from a netizen in this regard suggesting that we carry it in DDT and elicit response from the readers.
1. As per a Memorandum of Understanding signed between the Tamil Nadu State government and the SEZ, payment of Sales tax/VAT has been deferred for a period of 10 years. Will this deferred payment be considered as an exemption necessitating payment of Additional duty of Customs by denying exemption under notification 45/2005- Cus?
2. In the above scenario, can this exemption be also extended in case Central Sales Tax is paid when sales are made in the Domestic Tariff Area? Admittedly, CST is an Inter State Sales Tax.
Another SEZ issue in the making?
DDT sent this to a couple of our experts and they opined-
1. The deferment scheme is not an exemption. The manufacturers collect the Sales Tax, but only deposit with the State Govt after a certain period of time. So there is no problem in claiming the exemption under Notn 45/2005 Cus . In case of inter-state sales also, the exemption can be claimed as inter-state sales are treated as zero rated sales as per AP VAT Act Sec 2 (47) (but not exempted sales)
(47) 'Zero rated sales' for the purpose of the Act, means a sale of goods in the course of inter-State trade or commerce, exports to outside the territory of India including sales in the course of export and sale of goods to any unit located in Special Economic Zone as may be notified.
But, in the TN VAT Act there is a little difference. The relevant Section reads as:
18. (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:-
(i) A sale as specified under sub-section (1) or (3) of section 5 of the Central Sales Tax Act, 1956;
Sub section (1) and (3) of the CST deals with only export of goods.
Hence the inter - state sales are not defined as zero rate sales in TN VAT Act. At the same time the inter-state sales are also not exempted. As per the definition given under Section 2(20),
(20) "exempted goods" means the goods falling under the Fourth Schedule and goods exempted by the Government, by notification, from time to time.
So, the inter-state sales are neither Zero rate goods nor exempted goods under TN Vat Act.
2. Deferred payment of Sales Tax/VAT being only a concession offered by the State Government for a fixed period of time, it cannot be regarded as an exemption from levy of Sales Tax/VAT to come under the purview of the proviso to Notification 45/2005- Cus as amended. Therefore, in my view, in such instances of deferred payment of Sales Tax/VAT offered by the State Government, SEZ units can avail the benefit of this exemption notification.
Though, CST is a central levy, administration, collection and levy (including providing exemptions) is with the State Governments. So payment of CST for inter-state movement of goods from an SEZ unit to a customer located in another State in DTA is good enough to claim the benefit of this exemption notification. But, when a State Government offers exemption from VAT then it also naturally exempts them from paying CST or even offers deferred payment of CST along with VAT.
Certainly, our men in white uniform manning the SEZs (if at all they are wearing any uniform), will raise an issue once this gets publicized through our DDT. I am not sure if it is already an issue, but it sure will get publicity. Good for the consultant fraternity. Big bucks.