Can double benefits u/s 10B and Sec 80HHC be allowed on exports of same goods? – Can Revenue deny Sec 80HHC benefits if exports are made from third country? – Tribunal says YES in first case and NO in second.

CAN double benefits under Sec 10B and also under Section 80HHC be availed on export of the same goods? Should Income Tax allow Sec 80HHC benefits if an exporter procures orders and closes the transaction by procuring goods from a third country and shipping the same straight to the buyer country, without physically bringing the goods to India? These two remarkable questions came up before the Jaipur Bench of Tribunal recently. And the ITAT has held that the double benefits can be allowed as the benefit u/s 10B for the Eous are on the income whereas the Sec 80HHC benefits to the merchant exporter were for the act of exports and bringing the exports proceeds in the required foreign exchange.

Even on the question of third country exports, the Tribunal noted that the term ‘export’ means sending goods to another country, and not out of one country to another. Since the objective of the exports benefits scheme is to encourage exporters to bring foreign exchange for the country, it does not matter how and from where the goods are procured and supplied to the buyer country as long as the exports proceeds are brought into the country.

Brief facts of the first case :

The assessee is trading in chemicals. During the years under consideration, the assessee had also exported granite blocks. It claimed deduction under s. 80HHC which was denied by the AO on the basis that both, the manufacturer and the assessee could not have claimed deduction/exemption for the export of the same goods. In view of the AO, the assessee was only a facilitator to the export while the actual exporter was the manufacturer. The explanation of the assessee in this regard remained that the assessee company was a registered merchant exporter and procures orders from its foreign buyers directly. To comply with the export obligations, it makes purchases from various manufacturers/suppliers within the country, some of which also include EOUs. For the years under consideration, the assessee had procured orders directly from its foreign buyers. It thereupon exported the goods by procuring them from various manufacturers including two EOUs. These two EOUs were entitled for deduction under s. 10B and were also entitled to export benefits such as REP license, special import license, etc.

The assessee upon receiving the export orders from its foreign buyers places the order on its suppliers, including the EoUs with the condition to the effect that they would supply the goods directly from its supply to the inland container depot on behalf of the assessee ex-factory in packed conditions for the purposes of export. The assessee explained further that in terms of the prescribed procedure for the purposes of claiming export benefits under the scheme of third party export provided in EXIM Policy, 1997-2002, the said manufacturers raised their invoices on the assessee specifying the name of the importer i.e. the foreign buyer, discussing the name of the assessee company as the third party exporter. The assessee company had also given disclaimer certificate under the provisions of EXIM Policy to the effect that the suppliers shall not be claiming any export benefit, namely, export performance certificate, export/trading/star license, special import license, duty drawback under customs and excise, etc. available to the EoUs and they have surrendered all such benefits in favour of the EOUs.

The issue went to the CIT(A) who allowed the deduction under s. 80HHC even on sales for which the purchases were made from EOUs.

This is how the matter landed before the Tribunal which observed that

++ the EOUs can claim exemption under s. 10B and other export benefits on the profits they earned on the goods exported. Similarly, the assessee is entitled to claim deduction under s. 80HHC on the income it earned on the goods exported;

++ There is no dispute that orders for export of the goods were procured by the assessee and the proceeds against those goods are realized in convertible foreign exchange in the account of the assessee only, which are the two important requirements for claiming deduction under s. 80HHC. There is also no dispute that goods purchased from the manufacturers were exported;

++ The whole confusion has arisen since claim of the assessee regarding deduction under s. 80HHC and that of the manufacturer EOUs regarding deduction under s. 10B and other benefits are being seen in terms of same goods which were exported. The AO has denied the claimed deduction by the assessee mainly on this basis only that exemption cannot be allowed twice on the same export of goods;

++ it is not the case because the manufacturer EOUs had claimed deduction under s. 10B and other export benefits on the income they earned while selling the goods to the assessee meant for export procured by the assessee, whereas the assessee had claimed deduction under s. 80HHC on the income it had earned on the export of the same goods. Thus, the income of the assessee would be calculated as the amount realised in consideration against the selling of goods in export minus the cost in purchasing of the goods from the manufacturer and other miscellaneous expenses involved in its transportation, etc. The income in the hands of the manufacturers on the said goods would be the price, it received minus the cost incurred on the manufacturing of the goods. Thus, for these two concerns, there may be same goods which were exported but incomes earned on the transactions of those goods by the two said concerns are not the same.

In the second appeal the assessee has questioned the CIT(A) order denying the Sec 80HHC benefits in respect of export turnover of the goods purchased from overseas market transshipped directly from a third country to the buyer against which convertible foreign exchange was received in India.

The AO denied the claim on the basis that these goods were not exported out of India. Before the learned CIT(A), the counsel for the assessee submitted that there is no such condition that the goods purchased for the purpose of export out of India should be physically brought to India. The counsel tried to make a distinction between the word “out of India” and “from India”. The CIT(A) did not agree with these submissions of the assessee and in this regard he referred definition of s. 2(18) of the Customs Act, 1962, as per which export means taking out of India to a place outside India.

Having heard the arguments the Tribunal observed that

++ the literary meaning of the term “export”, means sending goods to another country, it did not mean only sending goods out of one’s country to another;

++ the export of the goods was made from an Indian concern under its control and amount in consideration was received in its account in India. It does not matter as to how and from where the assessee managed and sent the goods in compliance of the export order. The aim and object of the legislature behind granting deduction under s. 80HHC is to encourage the export so that foreign currency can be earned, which has been fully fulfilled by the assessee in the present case;

++ In fact, Expln. (aa) to s. 80HHC which defines ‘export out of India’ does not provide that export should be from India. As against this, s. 80HHE, which deals with export of computer software, specifically provides in Expln. (b) that the export should be from India to a place outside India. Similar Explanations are there in ss. 10A and 10B of the Act. Thus, when in other sections the language is specific that export should be from India to a place outside India, these words cannot be imported in s. 80HHC to mean that export should be from India.

Thus the Tribunal allowed the benefits to the assessee.

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March 2021