Case Law Details
Supreme Court has reversed the High Court Judgment and held that Deduction u/s. 80-IA is not allowable on duty drawback amount. The issue involved is squarely covered by the decision of this Court in Liberty India v. CIT [2009] 317 ITR 218. Accordingly, the civil appeals filed by the department stand allowed with no order as to costs.
SUPREME COURT OF INDIA
Commissioner of Income-tax-III, Rajkot
v.
Orchev Pharma (P.) Ltd.
S.L.P. (C) No. 9261 of 2009
Civil Appeal Nos. 5995 & 5996 of 2012
August 23, 2012
ORDER
1. Heard learned counsel on both sides.
2. Delay condoned.
3. Leave granted.
4. The issue involved is squarely covered by the decision of this Court in Liberty India v. CIT [2009] 317 ITR 218. Accordingly, the civil appeals filed by the department stand allowed with no order as to costs.
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TEXT OF THE HIGH COURT JUDGMENT IN RESPECT OF ABOVE IS AS FOLLOWS :-
HIGH COURT OF GUJARAT
Commissioner of Income-tax
v.
Orchev Pharma (P.) Ltd.
Y.R. MEENA, CJ. AND A.S. DAVE, J.
TAX APPEAL NO. 1308 OF 2006
JUNE 14, 2007
ORDER
1. Heard learned counsel for the appellant.
2. The following substantial question of law is proposed for admission of this appeal.
“Whether on facts and circumstances of the case the Income Tax Appellate Tribunal was right in allowing the deduction u/s 80IA of the Income Tax Act, 1961 by including the amount of duty draw back?”
3. The Tribunal has considered the issue raised in the question as under :
“5. We have considered the rival contentions. This issue is squarely covered by the decision of Hon’ble Gujarat High Court in the case of CIT v. India Gelatin & Chemicals Ltd. [2005] 275 ITR 284 wherein it has been held that “Duty draw back being integral part of pricing of goods is part of the cost of production of the industrial undertaking hence, derived from” industrial undertaking and eligible for deduction u/s. 80J.”
6. In view of the settle legal position, which is duly authenticate by verdict of Hon’ble Jurisdictional High Court as discussed above, we do not find any reason to interfere in the order of the CIT(A) for allowing assessee’s claim on duty draw back. In its order, the Hon’ble Jurisdictional High Court held that duty drawback is derived from industrial undertaking, after having the following observation :
“The object of the duty drawback scheme is to reimburse exporters for tariffs paid on the imported raw materials and intermediates and Central Excuse Duties paid on domestically produced inputs which enter into export production. Customs duties and excise duties on inputs raise the cost of production in industries and thereby affect the competitiveness of exports. Therefore, exporters need to be assisted for neutralizing the escalation in their costs, attributable to such customs and excise duties. Duty drawback is, therefore, intended to reduce the cost of production. Hence, duty draw back is a integral part of the pricing of the goods and therefore, part of the cost of production of the industrial undertaking and, therefore, duty drawback has to be treated as “derived from” the industrial undertaking. If the incentives are like CCS and import entitlement they are in the nature of general incentives though for determining the quantum of such incentives, the Government may take into consideration the export turnover of the industry. Hence, they are not derived from the industrial undertaking, but merely attributable to it. But when it comes to duty drawback, it is specifically to reduce the cost of manufacturing the goods. The very scheme of duty drawback is framed and embodied in the statutory provisions in order to relieve the goods to be exported of the burden of customs duties and excise duties. The objection of the duty drawback is to reimburse custom duties and excise duties paid by the assessee. As customs duties and excise duties are admittedly an integral part of the cost of production, and therefore, any receipts by way of reimbursement of such duties is inextricably linked with the cost of production which has to be reflected in P & L A/c of the assessee and, therefore, the Revenue’s argument cannot be accepted. Duty drawback is “derived from” the industrial undertaking and, therefore, eligible for relief u/s.80J.”
It is true that the case law referred by the Tribunal was pertaining to Section-80J, but the basic principle which is settled that whether the duty drawback is an integral part of the pricing of goods and part of the cost of production of the industrial undertaking. There answer was given by this Court in favour of the assessee. Considering the reported decision of this Court referred by the Tribunal, we see no infirmity in the order of Tribunal.
The appeal stands dismissed.
