In Pursuit of Knowledge

Returns under the Andhra Pradesh
Value Added Tax Act, 2005

P.V. Subba Rao, B.A., B.L.,
Advocate & Tax Consultant

As per section 8(c) of the Andhra Pradesh VAT Act, 2005 (for short, Act) subject to the conditions in sections 9 and 13 of the Act, sale of goods to any unit located in Special Economic Zone is ‘zero rated’. Section 2 (47) defines ‘zero rated sales’ to mean 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 SEZ as may be notified. Schedule II to the Act enumerates transactions zero rated and eligible for Input Tax Credit (for short ITC). Entry 3 therein is sales of goods to any unit located in SEZ. Entry 3A in the said Schedule has been inserted with effect from 23-2-2008 by G.O.Ms. No. 227 Revenue dated 23-2-2008, which reads as follows:-

“3A—All goods sold to units, operator, developer, co-developer and contractors engaged by them for use in processing area of the respective SEZ except the goods listed in rule 20(2)(a) of the APVat Rules, 2005.”

Though there is no direct provision in the Act to say that the sales made to an unit/developer etc., in SEZ in A.P. are exempt, the Department has interpreted that the applicable rate of tax is ‘zero’ and hence no tax is payable on such sales in the State. (It may be noted that under the APGST Act, 1957, a notification under section 9(1) of the Act has been issued exempting sales made to the units in SEZs in AP).

There is no definition of ‘unit in SEZ’ in the Act. SEZ unit is altogether different and distinct from a Developer, etc., of SEZ. In fact the Special Economic Zones Act, 2005 refers to both the categories. A developer cannot be equated with a unit in SEZ. For this reason, perhaps entry 3A abovementioned has been inserted.

Section 8 of the Act reads as follows:

“8. Zero rated sales

Subject to the conditions in sections 9 and 13 of the Act, the following shall be zero-rated sales for the purpose of the Act and shall be eligible for input tax credit:

(a) Sale of taxable goods in the course of inter-state trade and commerce falling within the scope of section 3 of the Central Sales Tax Act, 1956;

(b) Sale of goods falling within the scope of sub- sections (1) and (3) of section 5 of the Central Sales Tax Act, 1956;

(c) Sale of goods to any unit located in Special Economic Zone”.

Schedule II to the Act also is to the above effect with the addition of sales made to Developer, etc., of SEZ.

Section 2(47) defines ‘zero rated sale’ as follows:-

“(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.”

The above provisions show that further amendments are very much required in the Act, to provide real exemption from payment of tax in respect of sales made to units in SEZ and developers etc., of SEZs. It is time for the Department to clarify the position through a circular as regards the transactions made with SEZ units and SEZ developers in the State of A.P., pending amendments to the statute. There is at the moment ambiguity in the provisions.

Rule 35 of APVAT Rules, 2005, dealing with the procedure for refunds, is to the following effect in respect of inter state sales made to SEZ units

“35(6) (c) In the case of sales falling within the scope of sub-section (6) of section 8 of Central Sales Tax Act, 1956, the Value Added Tax dealer shall be in possession of the following documents;

(i) Declaration in Form I

(ii) Authorisation Certificate from Development Commissioner.”

However, no specific proforma has been prescribed for proving such sales to SEZ unit or developer etc., of SEZ within the State. In any case, burden lies on the seller in the State to prove that his purchaser is a unit in SEZ or a developer of SEZ etc., and for this purpose the seller must collect necessary documentary evidence showing that the purchaser is a unit or a developer etc., and that the goods purchased are for use in processing area of the respective SEZ. The certificate of Development Commissioner of SEZ certifying the unit as SEZ unit is also required.

It may be noted that sales of goods mentioned in the ineligible list at Rule 20(2) (a) of APVAT Rules, 2005 are not exempt when sold to units in SEZ, developer etc., of SEZ as specified in entry 3A in the II Schedule to the Act. The said clause reads as follows:-

“2) The following shall be the items not eligible for input tax credit as specified in sub-section (4) of section 13 –

a) all automobiles including commercial vehicles / two wheelers / three wheelers required to be registered under the Motor Vehicles Act, 1988 and including tyres and tubes, spare parts and accessories for the repair and maintenance thereof; unless the dealer is in the business of dealing in these goods.”

Section 26(1) (g) of the SEZ Act, 2005 enacted by Parliament provides for exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the CST Act, 1956, if such goods are meant to carry on the authorized operations by the Developer or entrepreneur, subject to the conditions, as may be prescribed by the Central Government.