COGNIZANT TECHNOLOGY SOLUTIONS INDIA PRIVATE LIMITED Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) THESE thirty -one (31) appeals are filed under Section 63 of the Karnataka Value Added Tax Act, 2003 (for short 'the Act'). The same are directed against the appeal orders passed by the Joint Commissioner of Commercial Taxes (Appeals -3), Bangalore (for short as 'FAA') in case Nos. VAT:AP:1138 to 1156/11 -12 and VAT:AP:1367 to 1378/11 -12, dated 16th February, 2012, wherein the FAA has allowed the appeals in part and has issued directions to the jurisdictional Local VAT Office to process the claims of refund as per rules. The said appeals are decided by the FAA with respect to the reassessment orders passed under Section 39(1) of the Act, dated 9th August, 2011 for the nineteen tax periods of September 2007 to March 2009 and for the twelve tax periods of April 2009 to March 2010, dated 23rd September, 2011 and the said reassessment orders are concluded by the Deputy Commissioner of Commercial Taxes (Audit -33), DVO -3, Bangalore (for short as 'AA'). Brief facts of the case. - -The appellant is a Private Limited Company registered under the Companies Act, 1956 engaged in the business inter alia in Software Development and Information Technology Enabled Services (for short as 'ITES') having operational units at various places within the country and one such branch or profit center is located in Bangalore and the same has come before us as the appellant. The appellant's unit is located in Manyata Embassy Business Park, Special Economic Zone (SEZ), Rachenahalli, Near Nagavara Junction, Bangalore, Karnataka. The company has branches throughout India and the unit situated in SEZ at Bangalore is one of the profit centers or branches of the company. The appellant -unit has been recognized as SEZ Unit by the Development Commissioner, Manyata EBP, Special Economic Zone, Ministry of Commerce and Industry, Government of India by the letter of approval i.e., certificate dated 1st May, 2007. The unit has commenced its business activity from September 2007 as evident from the reassessment orders of the AA for the tax periods of September 2007 to March 2010. The appellant has been subjected to visit audit followed by the reassessment orders under Section 39(1) of the Act. In the said reassessment orders, the AA has disallowed the claims of refund made by the appellant -company on the inputs purchased by paying VAT. This denial of refund is done on the ground that the input tax credit refund claimed relates to the goods which are enumerated in the V Schedule of the Act and such restrictions imposed by the AA has affected the refund claims of the appellant. Being unsuccessful before the AA, carried the matter before the FAA wherein also the appellant failed to get relief as sought for. Hence the present appeals are before us.

(2.) GROUNDS of appeal in gist. - -The appellant submits that it is duly approved and operating as a SEZ Unit in the State of Karnataka and is consequently entitled for various benefits as a SEZ Unit as provided under Special Economic Zones Act, 2005 (for short 'SEZ Act') read with other legislations. In accordance with the SEZ Act, the SEZ Unit has to be treated as a territory outside the country for all trade purposes and such SEZ Units are entitled to tax free procurement of various commodities for the purpose of carrying on the 'Authorised Operations' of the SEZ Unit. Accordingly various states have formulated schemes for providing the benefits envisaged in the SEZ Act such as granting of exemption from VAT on purchases by SEZ Units. In this regard, the appellant highlights the policies of the States of Tamil Nadu and Kerala and submits that the Authorized Operations are regarded as exports and have accorded zero rating or tax exemption. Apart from the same, the appellant by memo of additional submissions has submitted the policy documents of the Government of Karnataka's policies on SEZ vide Government Orders vide G.O. No. CI 282 SPI 2001, dated 25th February, 2002 and G.O. No. CI 114 SPI 2007, dated 28th February, 2009 which clearly indicates the State Policy for Special Economic Zone and such policy orders are issued for the development, operation and management of Special Economic Zones and the SEZ Units to be established therein. The appellant highlights the tax exemption accorded to all purchases excluding purchase of petroleum products by the SEZ Units located in the processing areas from domestic tariff area or SEZ area for its set up, operation or maintenance or for use in manufacture, trading, production, processing, assembling, repairing, reconditioning, re -engineering or packing with the exception that when the SEZ Units sell the goods in the DTA with or without value addition and when sold so applicable state taxes are applicable. Similarly, the State of Karnataka has carved out specific provisions under the KVAT Act, itself namely sub -section (2) of Section 20 of the Act which provides for complete exemption by way of refund to all purchases of inputs by a SEZ Unit in the State of Karnataka for its Authorized Operations. The appellant also highlights the clarification issued by the Commissioner of Commercial Taxes when sub -section (2) of Section 20 is inserted under the Act and emphasizes that the intention of the Government is to grant relief to SEZ Units by allowing refund of VAT paid by the SEZ Units on the purchase of inputs. In this regard, the appellant points out the mechanism and regulations governing the scheme of refund prescribed under Rule 130 -A of Karnataka Value Added Tax Rules, 2005. Hence, the appellant submits that as per the said rule, the SEZ Unit is entitled for the refund of tax paid on inputs. The second ground is that the FAA has misunderstood the difference between refund of input tax credit v refund of tax paid on purchase of inputs. The appellant assails the orders of the FAA in this regard and submits that the impugned order is erroneous since it is based on the presumption that the main issue for determination is the correctness of input tax credit. The appellant submits that the claim preferred by it is not in essence a claim of input tax credit or a refund of input tax credit but rather the refund of taxes paid on purchases of inputs made by it for the authorized operations which is contemplated under Section 20(2) of the Act. In addition to this, the reliance is also placed on Rule 130 -A of KVAT Rules. The third ground raised is that input tax restrictions as per Section 11 of the Act is not applicable to the facts of the case and the question of V Schedule goods is of no relevance. The fourth ground is that the inputs purchased by the appellant need not necessarily be used directly in manufacture. The fifth ground is with respect to the invoking of reassessment proceedings under Section 39(1) of the Act and as per the appellant as there is no understatement of correct tax liability, the question of reassessment does not arise at all and that too restricting the refund claim when the claim is hit by limitation of right of refund as envisaged under the relevant rules. Lastly, the appellant also submits that in view of the above facts, the penalty levied is also unwarranted and incorrect when the reassessment proceedings are itself void inasmuch as there is not even an allegation of understatement of tax liability during the impugned tax periods. On the above grounds, the prayer is made to set aside the orders issued under Section 62(6) of the Act dated 16th February, 2012 of the FAA and direct to grant of refund of tax paid on purchase of inputs to the tune of Rs. 1,14,95,045/ -. In addition to this, the prayer is made to set aside the additional demand, interest and penalty also.

(3.) THE common question of law and facts are involved in all these thirty -one appeals and hence the same are clubbed together and disposed of by this common judgment.