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IN THE HIGH COURT OF KERALA AT ERNAKULAM
S.V.BHATTI, BASANT BALAJI, JJ.
Government Of Kerala, Taxes – Appellant
Versus
Waves Electronics (P) Ltd. – Respondent
WA NO. 1476 OF 2019
Decided on : 04-07-2022
Kerala General Sales Tax Act 1963 - Section 10 – Constitution of India, 1950 - Article 226 – VAT, 2005 - Section 6(7)(b) – Kerala Value Added Tax Act, 2003 - Section 32 (1) - Company - Exemption from Levy of Sales Tax - Whether units in SEZs registered under Sales Tax /VAT, sales tax be levied and demanded on deemed export to DTA - Whether petitioner is entitled to exemption from levy of sales tax because of policy decision of State Government declared for units established in SEZs in State – The findings recorded by the learned Single Judge in paragraph 16 (excerpted supra) are untenable because such a conclusion extended the benefit of tax incentives without valid and legal grounds. Hence, the grant of declaratory relief as prayed will be contrary to the State Policy and Statute and would go against the competence of the State Legislature. (Para 11)
Finding of the court: Logic appears to be simple from present mechanism, namely, to enable an SEZ located in State to purchase raw materials etc., without incidence of sales tax for achieving competitive prices for products manufactured in SEZ established in State - Declaration sought in writ petition, in Court considered view, particularly by keeping in perspective ratio referred to in judgments noted, Court is of view that declaratory relief as prayed for, on Principle of Promissory Estoppel, is not made out or available to petitioner - Benefit of Policy has been extended to petitioner during currency of said Policy documents - A declaration is sought to extend benefit contrary to Statute (i.e., KVAT), and declaration could be over and above what is accepted as a Policy by State Legislature in Section 6(7)(b) read with Section 32(1) - Declaration could be a singular instance under Act despite attracting incidence of liability for sales made to DTA, still, petitioner could be allowed to have exemption from payment of - With respect, Court notice that findings recorded by learned Single Judge in paragraph 16 are untenable because such a conclusion extended benefit of tax incentives without valid and legal grounds - Hence, grant of declaratory relief as prayed will be contrary to State Policy and Statute and would go against competence of State Legislature
Result: Appeal allowed.
JUDGMENT :
S.V.Bhatti, J.
We have heard the learned Special Government Pleader, Mr Mohammad Rafiq and the learned Senior Counsel, Mr Abraham Joseph Markos, for the appellants and the respondents, respectively.
2. The respondents in W.P.(C) No.16431/2013 are the appellants, and the respondents herein are the petitioners in W.P.(C) No.16431/2013. The parties are referred to as arrayed in the Writ Petition.
Averments in W.P.(C) No.16431/2013
3. The 1st petitioner/Company is engaged in the manufacture and sale of electrical control systems. The manufacturing unit of the 1st petitioner is located within the Cochin Special Economic Zone (CSEZ), Kakkanad. The 1st petitioner, because of its location in a Special Economic Zone (SEZ), claims statutory/other benefits given to units located in an SEZ. As part of its turnover, the 1st petitioner claims to have two portfolios: viz. exports outside the country and deemed exports in the permitted Domestic Tariff Area (for short ‘DTA’). The petitioner, for availing the benefits, is subjected to the condition of obtaining positive foreign exchange earnings. In December 2002, the 1st petitioner commenced its operations from CSEZ.
3.1 The 1st petitioner in this writ petition raises a fundamental issue viz. whether the units in SEZs registered under the Kerala General Sales Tax Act 1963 (for short ‘Sales Tax Act’)/VAT, the sales tax be levied and demanded on deemed export to DTA; and alternatively, whether the petitioner is entitled to exemption from levy of sales tax because of the policy decision of the State Government declared for units established in SEZs in the State of Kerala. The Kerala Special Economic Zone Policy dated 17.06.2003 of the State Government holds out an incentive from levy of sales tax, duties, local taxes, and levies on the sales attracting tax liability including Sales Tax Act. The Government, in the exercise of its power under Section 10 of the Sales Tax Act, incorporated Sl. No.68 to the First Schedule of notification no. GO (P) No.179/99/TD dated 31.12.1999 and granted total sales tax exemption on the sales from units located in SEZs. The KVAT Act 2003, which came into force with effect from 01.04.2005, did not contain a similar exemption from payment of Value Added Tax. The petitioner, under a bona fide belief, believed that the replacement of the Sales Tax Act by the KVAT did not affect the policy dated 17.06.2003 (Ext.P2) extending tax incentives. On the returns filed by the 1st petitioner under the KVAT Act for the year 2008-09, assessment order dated 25.02.2011 was made, which has been the subject matter of appeal, revision etc. before the authorities under the KVAT Act. The 1st petitioner was assessed by the Department under the KVAT Act for the Assessment Years 2009-10 and 2010-11 by turning down the claim of the 1st petitioner for exemption from payment of sales tax/value-added tax.
3.2 While matters stood thus on 06.10.2008 (Ext.P9), the State Government released the amended SEZ Policy on incentives to different categories of industries located in SEZs. Paragraph 6 of the SEZ Policy holds out that industrial enterprises in the SEZs alone are exempted from the tax being collected under the Sales Tax Act (including VAT) for ten years from the date on which it starts functioning. The concluding portion of the said Policy document states that based on this Policy, changes will be made to the existing notification, and a new notification will be issued. It is admitted that no such notification was issued by the Government extending tax incentives. The assessment and the levy of sales tax on permissible DTA sales by the 1st petitioner on the ground that the Sales Tax has been substituted with VAT are illegal. Under the Sales Tax, the qualifying circumstance was the establishment of the unit in an SEZ. The stand of respondent nos. 3 and 4 that in the absence of a specific provision under the VAT Act, or permissible exemption notification thereunder the sales of 1st petitione
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