FLOWMORE LIMITED Vs. DEPUTY COMMERCIAL TAX OFFICER

JUDGEMENT

(1.) A short but interesting question would arise in this writ petition as to whether a seller of goods to any unit located in a Special Economic Zone (SEZ) should be a registered dealer to be entitled to the benefit under section 7 of the Andhra Pradesh Value Added Tax Act, 2005 ("the VAT Act") read with Schedule I, item 59 thereof. This issue would arise in the background facts as noticed hereinbelow. The first petitioner is a company registered in Gurgaon in the State of Haryana having marking offices at Chennai and Bengaluru. They are engaged in the manufacture of pumps for various segments such as power, water supply, generation, etc. The second petitioner also is a company engaged in the business of manufacture and export of aluminium. They set up a co-generating power plant at SEZ, Visakhapatnam. The second petitioner placed a purchase order on July 21, 2010 on the first petitioner for design, manufacture, supply and erection of pumping equipment on turnkey basis valued at Rs. 5,42,50,000 at their facility in the SEZ. So as to execute the contract on turnkey, the first petitioner placed an order for manufacture and supply of specified and specially designed embedded parts on M/s. Triveni Engineering and Industries Limited (TEIL), Faridabad. As instructed by the first petitioner, TEIL dispatched the goods directly by lorry No. HR-74-7304 from Faridabad, Haryana, to Visakhapatnam, Andhra Pradesh.

(2.) The sole respondent (Deputy Commercial Tax Officer, Kovvur (DCTO)) checked the vehicle on October 15, 2011 at 9 a.m. The driver of the vehicle produced the tax invoice dated September 30, 2011 of TEIL issued in favour of the first petitioner and advance way-bill in Form 600 of the second petitioner along with LR No. 291 dated September 30, 2011 of HBR Logistics, Faridabad. On the premise that the first petitioner, which is an unregistered dealer, effected sale of embedded parts to a dealer at Visakhapatnam without payment of tax, the DCTO detained the vehicle and the six embedded parts, duly advising the driver to furnish security for an amount of Rs. 4,21,080, which is equal to two times the tax due, by way of demand draft/bank guarantee in favour of the Commercial Tax Officer, Nidadavolu. Accordingly, the DCTO issued notice of detaining goods at check-post in form 610 in accordance with rule 56(1) (a) of the Andhra Pradesh Value Added Tax Rules, 2005 ("the VAT Rules").

(3.) In this writ petition filed assailing the notice of detention of goods, the petitioners would contend that the first petitioner effected sale to the second petitioner, which is a dealer in a SEZ and therefore, the goods stand exempted from payment of value added tax (VAT) under section 7 read with Schedule I, item 59 of the VAT Act. It is their further contention that when six number of embedded parts dispatched for use in the project of the second petitioner are exempted from VAT, the detention of goods is illegal and is not permissible under section 45(3) of the VAT Act.