Introduction
An interesting issue lingers on — Whether sale to a unit in Special Economic Zone (SEZ) by a Domestic Tariff Area (DTA) unit or by SEZ unit to DTA unit amounts to sale/purchase in the course of export/ import? The issue arises because SEZs have been given special status by Special Economic Zones Act, 2005 (SEZ Act, 2005).
Sale in course of Export/Import under Sales Tax Laws
As per Article 286 of Constitution of India, no tax can be levied on sale/purchase taking place in the course of export and import. Section 5(1) and 5(2) of CST Act, 1956 defines when a sale/purchase is said to take place in the course of export/import. The said definitions are reproduced below for ready reference:
“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 export of the goods out of the territory of India only if the sale or purchase either occasions such export or is affected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.
(2) A sale or purchase of goods shall be deemed to take place in the course of import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.”
The accepted meaning of the above section is that the goods should be going out of Indian territory or should be coming from outside Indian territory. Unless this fact is present, the argument of sale in the course of export/import is almost not tenable. In relation to SEZ, there is special enactment i.e., SEZ Act, 2005. In the said Act, SEZ is given a special status as foreign territory for various purposes. The transactions with SEZ unit by a DTA unit (either sale or purchase) are to be routed through import/ export formalities like, filing of bill of entry, etc. Therefore, a debate arises as to whether it can be said to be sale in the course of export/import for the purposes of the Sales Tax Acts.
Analysis of legal position
In light of the above definition of sale in course of export/import in section 5(1) and 5(2), reproduced above, it can very well be stated that there is no possibility to consider sale/purchase transactions with SEZ as in course of export/import. This view has now been approved by the Allahabad High Court. Reference can be made to judgment in the case of M/s. India Exports v. State of U.P. & Others, (Civil Misc. W.P. No. 1488 of 2009, decided on 11- 2-2011 (All.).
In this case the facts were that the petitioner was a unit in SEZ. It cleared its manufactured goods i.e., furniture for sale to a DTA unit. The petitioner claimed this sale to the DTA unit as its export or in other words sale in the course of import and not liable to sales tax. The Sales Tax authorities levied CST as applicable to normal sale and hence this writ petition before the High Court. Before the High Court section 53(1) of the SEZ Act was relied upon. The said section is reproduced below for ready reference:
“The Special Economic Zones Act, 2005
“53. Special Economic Zones to be ports, airports, inland container depots, land stations, etc., in certain cases. A Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorised operations.
(2) A Special Economic Zone shall, with effect from such date as the Central Government may notify, be deemed to be a port, airport, inland container depot, land station and land customs stations, as the case may be, u/s.7 of the Customs Act, 1962 (52 of 1962): Provided that for the purposes of this section, the Central Government may notify different dates for different Special Economic Zones.”
Important arguments
Some of the important arguments of the petitioner were as under:
(i) Sale from SEZ to DTA are sales in the course of import on which Central Sales Tax is not leviable under Article 286 and section 5(2) of the Central Sales Tax Act and for which no exemption notification is required.
(ii) Rule 47(1) of the SEZ Rules requires the buyer of DTA to submit import licence and Rule 47(4) provides for valuation and assessment of goods cleared for DTA to be made in accordance with the Customs Act and Rules; Rule 48 (1) requires the buyer of DTA to file a bill of entry for home consumption applicable to goods imported into India and Rule 48(2) provides for valuation of goods for customs duty in accordance with the provisions of the Customs Act. The territory of SEZ under these Rules shall be deemed to be territory outside the territory of India and thus any goods removed from SEZ to DTA are deemed to be goods imported from outside the territory of India. Section 5(2) of the Central Sales Tax Act deems sale and purchase of goods in the course of import only if the sale and purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. The customs frontiers of India u/s.2(ab) of the Central Sales Tax Act means crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance. There is no liability for payment of Central Sales Tax in respect of the sale and purchase of the goods in the course of import into the territory of India.
(iii) The customs duty is levied only on the goods imported into India, from territory outside India. Section 12 of the Customs Act, 1962 read vide Entry 83 of List-1 of 7th Schedule of the Constitution of India, and, section 53(1) and section 53(2) of the SEZ Act, the authorised operations in SEZ are deemed to be imports to SEZ as custom station, which covers port, air port, etc. The importer from SEZ to DTA is required to have import licence and to file a bill of entry. The deeming fiction in SEZ Act and Rules read with the Customs Act and Central Sales Tax Act makes the special transaction as import, exempt from Central Sales Tax.
(iv) The SEZ are deemed to be territory outside customs territory of India and thus they cannot be treated as part and parcel of any particular State in India. In the transaction of sale from SEZ to DTA there is no movement of goods from one State to another, calling for imposition of Central Sales Tax.
(v) The deeming fiction has to be given full play and affect and regulations assuming all facts on which fiction can operate.
Observations of High Court
The Allahabad High Court has held that the sale is taxable as any other sale within India. After referring to statement of objects and reasons for SEZ Act, 2005, the High Court observed as under:
20. We do not find any substance in the argument of Shri Bharatji Agrawal that the Central Sales Tax cannot be levied on the sales made by the petitioner from SEZ unit to a unit in DTA. The SEZ Unit under the SEZ Act, 2005 is deemed to be territory outside the territory of India u/s.51, 53(1) for a limited purpose; Ss.(2) provides that SEZ shall with effect from the date of Notification by the Central Government be deemed to be a port, airport, inland container port, land station and land customs station u/s.7 of the Customs Act.
21. The SEZ Act, 2005 has taken into consideration and has provided for amendment of the various taxing statutes, or modified them, for fulfilling the object and purpose of the Act. Section 7 provides for exemption from tax, duties or cess on any goods or services exported out of or imported into or produce from DTA by unit in SEZ or a developer subject to terms and conditions as may be prescribed and be exempt from the payment of tax, duties or cess under all enactment specified in the First Schedule. Section 27 of the SEZ Act, 2005 applies to the Income-tax Act with certain modifications in relation to developers and entrepreneurs who carry out authorised operations in SEZ and modifications are specified in Second Schedule. Section 57 amends the enactment specified in the Third Schedule, which are amended by SEZ Act, 2005. The Central Sales Tax is not included in any of these Schedules.
The High Court also observed that a deeming clause in one statute cannot apply to other unless so specified in the said statute or can be inferred. That being not the position in the above facts and circumstances of the case, the High Court held that the claim of sale in course of export/import is not tenable and confirmed levy of tax.
Conclusion:
This clarifies the position that unless there is specific scheme under the relevant sales tax laws, for sales tax purposes, the trade with or trade by SEZ will remain at par with DTA units.
