Exemption on purchase & Sale transaction of SEZ unit

Transcription

1 Exemption on purchase & Sale transaction of SEZ unit The Government of India has developed Special Economic Zone (SEZ) to promote export and to achieve the target of economic growth at desired level. It has been observed that reason for economic progress of china was due to growth in export. China has developed SEZ in huge area where raw material and capital goods can be imported without payment of any duty or taxes. The concept of SEZ has been first introduced in EXIM policy (now termed as foreign Trade Policy) announced on 31 st March 2000 by Government of India. The parliament has passed Special Economic Zone Act 2005 in May Basic purpose of the Act is to provide facility of single window clearance for setting up unit in SEZ. SEZ Rules have been notified from 10/2/06. Major provisions of the Act have been made effective w.e.f The Madhya Pradesh State legislature has passed The Indore Special Economic Zone(Special provisions) Act It has received assent of the Governor on the 21 st April 2003 and published in official Gazette on 3 rd may (2003) 31 TLD 7 (journal). Recently the state Government has amended the provisions of Indore Special Economic Zone Act, which has been published in Gazette on 12 th August Accordingly the Indore Special Economic Zone Act 2003 has now become Madhya Pradesh Special Economic Zone Act. The Indore Special Economic Zone will now be called only Special Economic Zone. The words export and import as defined in Special Economic Zone Act 2005 has now been added in explanation of Sec 13 of the Madhya Pradesh Special Economic Zone Act as they are not defined in Madhya Pradesh Special Economic Zone Act. There was no specific provision in MPCT Act for granting exemption on sale to a unit located in SEZ Indore...But under the MP VAT Act the exemption has been specifically provided by amending Sec. 36 of MP VAT Act. New clause (IV) has been inserted in Sec. 36 by MP VAT Act 2006 which reads as under:- (iv) where such sale is made to a unit located in Special Economic Zone notified by the central Government under the provision of the Special Economic Zones Act 2005 (Central Act No28 of 2005). Accordingly sales effected to a SEZ unit are export sales and such sales are not liable to tax under MPVAT Act. But still no declaration has been prescribed under the MP VAT Act.The dealer selling goods to SEZ Unit is compulsorily required to give list of such sale with the returns as it is a part of the return.

2 The central Sales Tax Act has been amended by inserting sub Sec. (6),(7),(8) of Sec 8 from for providing exemption on sale effected in the course of interstate to a unit located in SEZ. It has been provided that no tax under this Act shall be payable on sale of any goods effected in the course of interstate to the registered dealer for the purpose of setting up, operation, maintenance, manufacture, trading, production, processing, assembling, repairing reconditioning reengineering packaging or for use as packing material or packing accessories. The goods must be specified in the central Certificate of registration of the purchasing registered dealer having unit in Special Economic Zone. The selling dealer is required to submit declaration in Form I before the prescribed authority for claiming exemption on such interstate sales. As per SEZ scheme, the SEZ area is deemed to be a foreign territory for the purposes of trade operations and levy of various taxes and duties. As per the provisions of Sec 53 of the Special Economic Zone Act 2005 SEZ area is deemed to be foreign Territory. The relevant provision reads as under (1) A Special Economic Zone shall, on and from the appointed day, be deemed to be territory outside the customs territory of India for the purpose of undertaking the authorized 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 under section 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. Domestic Tariff Area has been defined in sec 2(j) of the SEZ Act 2005 which means the whole of India but does not include the areas of the SEZ. The term export has been defined in sec 2(m) of the SEZ Act 2005, Export means (i) Taking goods, or providing services, out of India from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise ;or (ii) Supplying goods, or providing services, from the Domestic tariff Area to a Unit or Developer; or

3 (iii) Supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone, The term import has been defined in Sec 2(o) of the SEZ Act which reads as under Import means (i) bringing goods or receiving services, in a Special Economic Zone, by a Unit or Developer from a place outside India by land, sea or air or by any other mode, whether physical or otherwise ; or (ii) receiving goods, or services by a Unit or Developer from another Unit or Developer of the same Special Economic Zone or a different Special Economic Zone. The supply of goods by the dealer of Domestic tariff area to SEZ unit is treated as export of the dealer and import of the SEZ unit vice versa the sale of goods by SEZ unit to a dealer of Domestic tariff area will be import of the dealer and export of the SEZ unit. Thus all sales effected by SEZ unit to a dealer situated anywhere in India is export sales of SEZ unit because SEZ territory is deemed to be a foreign territory. As per the provision of Sec 13 of the Indore SEZ Act any purchase and sale transactions from and to out of Zone shall be exempt from payment of all taxes. The situation is not changed even after insertion of explanation in the section. Because definition of export and import given under the SEZ Act 2005 was already applicable to the Madhya Pradesh SEZ Act Sec 13 of the Madhya Pradesh SEZ Act reads as under:-

4 Exemption from State taxes, duties and cess (i). The following shall be exempt from payment of any tax, duty, fees, cess or any other levies under any State law namely:- (i) (ii) any goods exported out of or imported into the Zone, inter Unit transactions of goods within the Zone, (iii) goods from the Zone sent for value addition to the Domestic tariff area and returned to the Zone thereafter, and (iv) services that provide value addition to a product within the Zone. (2). All transactions and transfers of immovable property or documents related there to within the Zone shall be exempt from stamp duty. Explaination (which has now been inserted w.e.f ) (1) goods exported shall mean- (i) goods taken out from any zone by land, sea or air and exported out of India : or (ii) goods supplied from Domestic, Tariff Area to any unit in the Zone: or (iii) goods supplied by a unit in a zone to another unit of the same zone or any other zone.

5 (2) goods imported shall mean: (i) Goods brought from out of India by a unit in a zone by land, sea or air; or (ii) Goods brought by a unit in a zone from another unit in the same or any other zone. the provision of Sec 14 of the Indore SEZ Act has overriding effect over the provisions of the MP Commercial Tax Act/ MP Vat Act which reads as under: the provision of this Act shall have effect notwithstanding anything contrary contained in any other state law for the time being in force. Sec 30 (a) of the SEZ Act 2005 also provides specifically that any goods removed from a SEZ area to Domestic Tariff area shall be liable for import duty as is leviable on import of such goods as per the provision of Custom Tariff Act. The relevant provision of Sec 30 of the SEZ Act reads as under:- Subject to the conditions specified in the rules made by the Central Government in this behalf - (i) any goods removed from a Special Economic Zone to the Domestic Tariff Area shall be chargeable to duties of customs including anti- dumping countervailing and safeguard duties under the Customs Tariff Act, 1975 (51 of 1975) where applicable, as leviable on such goods when imported and

6 (ii) the rate of duty and tariff valuation, if any, applicable to goods removed from a Special Economic Zone shall be the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty. As per the provisions of Sec 26 (1)(g) of the SEZ Act 2005 interstate sale effected by SEZ unit is exempted from payment of Central Sales Tax Act. The relevant provision reads as under:- exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956(74 of 1956) if such goods are meant to carry on the authorized operations by the Developer or entrepreneur. Entry tax is also not payable by the SEZ unit as there is no entry of goods in to local area.the state Government has also issued notification No A V(75) dated 02/11/2006 exempting goods purchased by a SEZ unit or goods entered into local area by any other registered dealer for sale to SEZ unit against declaration for manufacture of other goods for sale in the course of export. Now the question is whether raw material consumed or used in manufacturing of goods sold by SEZ unit to DTA dealer will be exempted or not? Since all sales effected by SEZ are export sales therefore the same should also be exempted. The sale by SEZ unit to a DTA dealers in the course of interstate sales is exempted as per the provisions of Sec 26(1)(g) of the SEZ Act 2005 though there is no specific provision for exemption on sales effected within the state. Since it is an export sales of SEZ unit therefore it is also exempted from tax. For the purchasing dealer it is an import because custom duty has been paid by him and he will not be eligible to claim ITR on such purchases. Therefore specific exemption should be provided under the MPVAT Act on sales by SEZ unit to any other dealer of DTA. If state Government wants to levy tax then clear provision should be made.