Bejoy Cyriac and Jossy Cyriac v. State of Kerala and The Commercial Tax Officer, Ist Circle, Thripunithura

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** ## **WEDNESDAY, THE 4TH DAY OF JULY 2012/13TH ASHADHA 1934** ## **WP(C).No. 15521 of 2009 (I)** ## **---------------------------** ## **PETITIONER(S):** **------------------------** **1. BEJOY CYRIAC, PROPRIETOR, M/S.COCHIN CARTONS MANUFACTURES, REFINERY ROAD IRIMPANAM-682 309, ERNAKULAM.** **2. JOSSY CYRIAC, PROPRIETOR, M/S.COCHIN CARTONS, REFINERY ROAD, IRIMPANAM-682 301 ERNAKULAM.** ## **BY ADV. SRI.RAJU JOSEPH** ## **RESPONDENT(S): --------------------------** **1. STATE OF KERALA, REPRESENTED BY CHIEF SECRETARY,** **THIRUVANANTHAPURAM.** **2. THE COMMERCIAL TAX OFFICER, OFFICE OF THE COMMERCIAL TAX OFFICER, IST CIRCLE THRIPUNITHURA.** **R1 & R2 BY SPL. GOVT. PLEADER SRI. SOJAN JAMES** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 28/03/2012, ALONG WITH WPC. NO. 31565/2010 & WPC NO. 10353/2011, THE COURT ON 04/07/2012, DELIVERED THE FOLLOWING:** **Mn** **...2/-** ## **WP(C).No. 15521 of 2009 (I)** ## **APPENDIX** ## **PETITIONER'S EXHIBITS :** **EXT.P1 : COPY OF THE NOTICE SERVED ON THE 1ST PETITIONER FOR THE YEAR 2005-06 DATED 15.04.2006. EXT.P2 : COPY OF THE NOTICE FOR THE YEAR 2006-07 SERVED ON THE 1ST PETITIONER DATED 15.04.2009. EXT.P3 : COPY OF THE NOTICE FOR THE YEAR 2005-06. EXT.P4 COPY OF THE NOTICE FOR THE YEAR 2006-07. EXT.P5 COPY OF THE OBJECTION FILED BY THE 1ST PETITIONER DATED 29.05.2009. EXT.P6 COPY OF THE RELEVANT PORTION OF THE GOVERNMENT ORDER DATED 17.6.2003.** **RESPONDENT'S EXHIBITS : NIL** **//TRUE COPY//** **P.S. TO JUDGE** **Mn** ## ---------------------------------------- W.P.(C) Nos. 15521 of 2009, 31565 of 2010 and 10353 of 2011 --------------------------------------------------Dated this the 4[th] day of July, 2012 **J U D G M E N T** The questions that arise for consideration in the above writ petitions being common the same are disposed by a common judgment. The first petitioner in W.P.(C) No.15521/09 is the second petitioner in W.P.(C) No.10353/2011. The first petitioner in W.P.(C)No.10353/2011 is the petitioner in W.P.(C) No.31565/2010. The issue that arises in these cases relates to the proposal made by the Commercial Tax Officer denying exemption to the petitioners from payment of value added tax under the provisions of Kerala Value Added Tax Act, 2003 (hereinafter referred to as the 'KVAT Act') in respect of sale of cartons to Special Economic zone (hereinafter after referred to as SEZ). 2. Petitioners are manufacturers of cartons. All their supplies are made to manufacturers within SEZ, who used the cartons for packing their materials for the purpose of export. W.P.(C) Nos. 15521 of 2009, 31565 of 2010 and 10353 of 2011 2 3. It is the case of the petitioners that the SEZ's are considered to be a foreign territory for the purpose of tax and allied purposes and therefore sale to a buyer in the SEZ is an export as defined under the Special Economic Zones Act, 2005. Any statute imposing tax in respect of turnover of sale to SEZ is in violation of Article 286 of the Constitution of India as it is not within the power of the State Government to legislate on any law imposing tax in respect of goods exported to a foreign territory. 4. It was their further case that, in pursuance of the above policy declared under Article 286 of the Constitution of India, a specific exemption is also provided under Section 6(7)(b) of the KVAT Act and going by Rule 12(c)(2) which is framed in accordance with the provisions of aforesaid section, there cannot be any levy of tax. 5. It is therefore contended that though in the returns filed by the petitioners for different periods they claimed exemption, rejecting the said request, notice under S.25 of the KVAT Act was issued proposing to levy the tax on the said “export” for different periods and calling upon the petitioners to W.P.(C) Nos. 15521 of 2009, 31565 of 2010 and 10353 of 2011 3 file objections. Though the petitioners have filed objections challenging the very proposal, apprehending further proceedings the writ petitions are filed. In W.P.(C) No. 15521 of 2009, petitioners challenge Exts.P1 to P4 notices, in W.P.(C) No.31565 of 2010 Ext.P1 is under challenge and in W.P.(C) No. 10353 of 2011 the challenge is against Exts. P3 and P4. Declaration is also sought in all cases seeking benefit of exemption and the vires of the demand. 6. The first respondent has filed a counter affidavit in W.P.(C) No.15521/09 and 2[nd] respondent has filed a counter affidavit in W.P.(C) No. 31565/10. The common contention raised by the respondents in these writ petitions are that as per S.6(7) (b) of the KVAT Act, the sale of packing materials to the SEZ are not eligible for exemption. It is their contention that the exemption is applicable only on the sale of any building materials, industrial inputs, plant and machinery including the components, spares, tools and consumable in relation to any industrial units situated in any SEZ in the State for setting up the unit or for use of manufacture of other goods which W.P.(C) Nos. 15521 of 2009, 31565 of 2010 and 10353 of 2011 4 according to them does not include sale of packing materials. 7. Heard the learned senior Counsel Sri.Raju Joseph and the Special Government Pleader. While referring to the various provisions of the KVAT Act and also Special Economic Zones Act, 2005 it was inter alia contended by the learned Senior Counsel that the sale of packing materials to the manufacturers of goods in SEZ also amount to export and in that view of the matter the State Government has no power to legislate on such matters. It is contended that there cannot be any levy of tax under the KVAT Act when the goods are sold in the course of export. The learned counsel also relied upon the judgment of the Supreme Court in **Indian Tourist Development Corporation Limited v. Asst. Commissioner of Commercial Taxes and another** **[(2012) 3 SCC 204]** in support thereof. It is held in the said judgment that in respect of sales that takes place in duty free shop there is no import of goods into the territory of India till the goods or documents of title to the goods are brought into India. In the said case the appellant who was conducting duty free shop 5 W.P.(C) Nos. 15521 of 2009, 31565 of 2010 and 10353 of 2011 in Bungaluru International Airport sought exemption from payment of Central Sales Tax in respect of goods sold at the duty free shop directly to passengers. Though the assessing officer imposed tax on such sales and the demand was confirmed through out it is held by the Supreme Court in paragraph 18 as follows: “In view of the aforestated factual position and in the light of the legal position stated hereinabove it is very clear that no tax on the sale or purchase of goods can be imposed by any State when the transaction of sale or purchase takes place in the course of import of the goods into or export of the goods out of the territory of India. Thus, if any transaction of sale or purchase takes place when the goods are being imported in India or they are being exported from India, no State can impose any tax thereon”. Still further it is held in paragraph 21 as follows: “If this is the factual and legal position, in our opinion, looking to the provisions of Article 286 of the Constitution, the State of W.P.(C) Nos. 15521 of 2009, 31565 of 2010 and 10353 of 2011 6 Karnataka has no right to tax any such transaction which takes place at the dutyfree shops owned by the appellant which are not within the customs frontiers of India.” 8. It is an undisputed fact that the materials for which the petitioners seek exemption have been utilized for the purpose of sale to a SEZ. The Special Economic Zone Act defines export under S.2(m) as follows: ”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 - (iii) supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone”. From the definition it is clear that supplying of goods or providing services from the domestic tariff area to a unit or developer amounts to export. W.P.(C) Nos. 15521 of 2009, 31565 of 2010 and 10353 of 2011 7 9. Domestic tariff area is defined under S.2(i) meaning the whole of India and excluding SEZ. Unit is defined under S.2 (zc) as meaning a unit set up by an entrepreneur in a SEZ and includes an existing unit. Therefore, supply of goods or providing services from any part of India to a SEZ is also coming within the definition of export as defined under the Special Economic Zones Act, 2005. 10. It is in the background of the definition of export as defined under the Special Economic Zones Act that the effect of section 6(7)(b) of KVAT Act is to be considered which reads as under: Notwithstanding anything contained in sub-section(1) (a) ................ (b). sale of any building materials, industrial inputs, plant and machinery including components, spares, tools and consumables in relation thereto to any developer or industrial unit or establishments situated in any Special Economic Zone in the State for setting up the unit or use in the manufacture of other goods shall, subject to such conditions or restrictions, as may be prescribed, be exempted from W.P.(C) Nos. 15521 of 2009, 31565 of 2010 and 10353 of 2011 8 tax”. 11. Going by the above section itself it is clear that any material used by a developer or unit situated in the SEZ for setting up the unit or “use in the manufacture of other goods” is exempted from from payment of value added tax. The question to be considered is whether use in the manufacture of other goods includes cartons or packing materials. It is not the case of the department that these cartons or packing materials are not used for the purpose of export. Use in the manufacture of goods apparently includes the cartons or packing materials also in view of the fact that goods can be treated to be in a saleable form and will be available for export only if it is packed in the respective cartons. Therefore, it leaves no doubt that the cartons or packing materials supplied to a unit in the SEZ is sale exempted under section 6(7)(b) of the KVAT Act. When the statute itself exempts such materials being taxed the approach taken by the Department is wrong and for that reason the proposal now made for denying exemption to the petitioners are liable to be set aside. W.P.(C) Nos. 15521 of 2009, 31565 of 2010 and 10353 of 2011 **==> picture [7 x 9] intentionally omitted <==** 12. Apart from that as held by the Supreme Court in **Indian Tourist Development Corporation Limited** case (supra), it is not within the legislative competence of the State of Kerala to impose tax in respect of a transaction which take place in the course of export in view of Article 286 of the Constitution of India as SEZ does not come within the customs frontiers of India. 13. It is also contended by the Special Government Pleader that writ petitioners has an appellate remedy in so far as the proposal had not been finalised and therefore there is no necessity to invoke the jurisdiction of this Court. It is the case of the petitioners that proposals are without jurisdiction. When the dispute involved is only in respect of a legal question which has no relationship to a finding of fact, it is open for this Court to consider the said legal issue and arrive at a finding despite availability of alternate remedy. In this case the only question to be decided is whether the petitioners are entitled for exemption on the basis of admitted facts. There is no controversy on any question of fact and as such I do not think that the writ W.P.(C) Nos. 15521 of 2009, 31565 of 2010 and 10353 of 2011 10 petitions are to be rejected relegating the petitioners to approach the authorities under the KVAT Act. 14. In the light of the above discussion all the above writ petitions are allowed as follows: - i) In W.P.(C)No. 15521/2009, Exts.P1 to P4 are quashed. - ii) In W.P.(C) No.31565/2010, Exts.P1 is quashed. - iii) In W.P.(C) No.10353/2011, Exts.P3 and P5 are quashed. - iv) It is declared that the cartons supplied by the petitioners to the Special Economic Zones are exempted from the purview of value added tax as per Section 6(7)(b) of the Kerala Value Added Tax Act. ## **A.M.SHAFFIQUE, JUDGE.** rka