Commissionerate of CT and GST, Odisha (At Cuttack)

(Finance Department, Government of Odisha)

To

Head of CT & GST Territorial Range (All Ranges)

Head of CT & GST Circle (All Circles)

Sub: Applicability of zero rate of tax (VAT) on sale of goods to a dealer having business under a SEZ, STP, EHTP or to an EOU

Madam/Sir,

A representation has been received from a manufacturing unit operating in an SEZ seeking clarification on the applicability of zero rate of tax on purchase of HSD from the oil companies within the State. It is reported that IOCL is denying sale of VAT - exempted HSD to the said SEZ unit after implementation of GST w.e.f. 01.07.2017. On receipt of the said representation, the matter was examined and is now clarified as below.

In the OVAT (Amendment) Act, 2017, Section 18 of the said Act has not been amended. Consequently, subject to the conditions prescribed in the Explanation to Section 18, zero rate of tax prescribed under the said Section on sale of goods to a dealer having business under a SEZ, STP, EHTP or to an EOU is still applicable. In other words, the aforesaid classes of dealers can purchase any of the six goods as defined in Section 2(21) without payment of VAT only if such goods are purchased for use in manufacturing.

The oil companies are possibly denying sale of HSD at zero rate of tax on plain reading of the Explanation to Section 18 of the Act. The said Explanation reads as follows:-

"Explanation:-

For the purpose of this section, the sale of goods to a dealer referred to in clause (c) or an EOU referred to in clause (d) shall mean and always be deemed to have meant the sale of such goods intended to be used as capital goods referred to in clause (8) of Section 2 or used for manufacturing of goods by such dealer or EOU."

The Explanation puts a condition that for entitlement to zero rate of tax, the goods purchased by a dealer specified in clause (c) or (d) of Section 18 must be intended for use as capital goods or for use in manufacturing of 'goods'. The word 'goods' as appearing in the Explanation is causing the confusion. On plain reading of the Explanation, a dealer will be entitled for zero rate of tax only if the goods so purchased are for use in manufacturing any of 'goods' now defined in Section 2 (21) of the Act (In the OVAT Amendment Act, 2017). In the case under consideration the petitioner is not manufacturing any of the goods as defined in Section 2 (21), but rather some other goods.

Such narrow reading of the Explanation and more particularly the meaning of 'goods' as appearing in the Explanation is defeating the substantive provision of Section 18, which grants the concession of zero rate of tax on sale of goods to SEZ, STP, EHTP or an EOU. This will also be against the SEZ policy of the State which provides for sale to units operating in an SEZ free from any State Tax including tax on sale of goods.

Similar view has also been taken by the Hon'ble High Court of Odisha and some other High Courts in interpreting Section 8 (3) (b) of CST Act for determining the applicability of the rate of tax prescribed u/s 8 (1) of the said Act. The wordings in the Explanation of Section 18 of the OVAT Act are similar to the wordings in Section 8 (3) (b) of the CST Act. Therefore, Explanation of Section 18 of the OVAT Act can be interpreted in the manner the provision of Section 8(3) (b) of the CST Act has been interpreted by the High Courts including the Hon'ble High Court of Odisha.

In view of a clear SEZ policy mandating sale of goods to an SEZ unit free of any State levy including the tax on sale, the substantive provision of Section 18 of the OVAT Act providing for sale of any of the six goods as defined in Section 2 (21) of the OVAT Act at zero rate of tax when the goods so purchased are for use in manufacturing of any goods and the liberal interpretation 8(3) (b) of the CST Act by the Hon'ble High Court of Odisha and some other High Courts, the Explanation to Section 18 needs to be also interpreted in the same manner. Accordingly, the meaning of the word 'goods' as appearing in the Explanation should mean any goods and not just the 'six goods' as defined in Section 2 (21) of the OVAT Act and sale of any of those six goods to the class of dealers as mentioned above for use in manufacturing of any goods in the SEZ will qualify for zero rate of tax.

Yours faithfully,

Commissioner of CT & GST

Odisha, Cuttack