M/s Aroma Chemicals, Moradabad v. ACIT, Moradabad

ITA 1020/DEL/2011 | 2007-2008
Pronouncement Date: 30-11-2011 | Result: Allowed

Appeal Details

RSA Number 102020114 RSA 2011
Assessee PAN AAFFA2222F
Bench Delhi
Appeal Number ITA 1020/DEL/2011
Duration Of Justice 9 month(s) 4 day(s)
Appellant M/s Aroma Chemicals, Moradabad
Respondent ACIT, Moradabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-11-2011
Date Of Final Hearing 24-11-2011
Next Hearing Date 24-11-2011
Assessment Year 2007-2008
Appeal Filed On 24-02-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI A BENC H BEFORE SHRI RAJPAL YADAV JM & SHRI A.N. PAHUJA AM ITA NO. 1020/DEL/ 2011 ASSESSMENT YEAR:2007-08 M/S. AROMA CHEMICALS TIRAHA TUBEWELL COLONY C I V I L L I N E S MORADABAD. V/S . ASSISTANT. COMMISSIONER OF INCOME-TAX C I R C L E- II MORADABAD. [PAN : AAFFA2222F ] ] APPELLANT (RESPONDENT) ASSESSEE BY SHRI PIYUSH KAUSHIK AR REVENUE BY MRS. ANUSHA KHURANA DR DATE OF HEARING 24-11-2011 DATE OF PRONOUNCEMENT 30-11-2011 O R D E R. A.N.PAHUJA :- THIS APPEAL FILED ON 24 TH FEBRUARY 2011 BY THE ASSESSEE AGAINST AN ORDER DATED 12 TH NOVEMBER 2010 OF THE LD. CIT (APPEALS)-BAREILLY RAISES THE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN THE LAW THE CIT (APPEALS) HAS GROSSLY ERRED IN DENYING DED UCTION UNDER SECTION 80-IB ON CENVAT AVAILED; 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW THE CIT (APPEALS) HAS GROSSLY ERRED IN NOT APPRECIA TING THE CLEAR FACT THAT CENVAT DOES NOT ARISE OUT OF ANY INCENTIVE SCHEME; CENVAT IS NOT REALIZED IN CASH AND THAT THE SAME ARISES ONLY BY WAY OF BO OK ENTRY THE NET IMPACT OF WHICH IS NIL IN THE PROFIT AND LOSS ACCOUNT; 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW THE CIT (APPEALS) HAS GROSSLY ERRED IN NOT APPRECIA TING THAT THE ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80-IB O N CENVAT AVAILED IS COVERED BY THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. DHARAM PAL PREM CHAND LTD. [2009] 317 ITR 353 BEING SUBSEQ UENTLY APPROVED BY THE APEX COURT. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR A MEND MODIFY OR WITHDRAW THE GROUNDS OUTLINES ABOVE BEFORE OR AT TH E TIME OF HEARING OF THE APPEAL. 2 I TA NO. 1020 (DEL) OF 2011. 2. FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT E-RETURN DECLARING INCOME OF RS.6 86 420/- FILED ON 13 TH OCTOBER 2007 BY THE ASSESSEE MANUFACTURING MENTH A PRODUCTS AFTER BEING PROCESSED U/S 143(1) OF THE I NCOME TAX ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT] WAS SELECTED FOR SCRUTINY W ITH THE SERVICE OF A NOTICE UNDER SECTION 143(2) OF THE ACT ISSUED ON 25 TH SEPTEMBER 2008. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER [AO I N SHORT] NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80-IB OF THE ACT. TO A QUERY BY THE AO THE ASSESSEE REPLIED THAT THE UNIT IS ELIGIBLE FOR DEDUCTION UND ER SECTION 80-IB(3)(II) OF THE ACT SINCE IT FULFILLED ALL THE STIPULATED CONDITIONS AND A SIMIL AR CLAIM HAVING BEEN ALLOWED IN ASSESSMENT YEARS 2001-02 AND 2003-04. TO A FURTHER QUERY BY THE AO SEEKING TO DISALLOW DEDUCTION U/S 80IB ON CENVAT THE ASSESSEE REPLIED THAT THE CENVAT CREDIT WAS MERELY A BOOK ENTRY AND DID NOT COMPRISE ANY REAL I NCOME AS SUCH. THE UNIT RECEIVED CENVAT ON EXCISE DUTY PAID ON PURCHASE OF RAW MATER IAL AND ACCORDINGLY EXCISE DUTY ON THE PURCHASES IS DEBITED IN THE CENVAT ADJUSTMEN T (RECOVERABLE AMOUNT). THE EXCISE DUTY PAYABLE ON SALE OF GOODS IS ADJUSTED A GAINST THIS ACCOUNT ALONE. HOWEVER DURING THE YEAR UNDER CONSIDERATION THEY HAD SHOWN THE PURCHASES IN PROFIT AND LOSS ACCOUNT INCLUDING EXCISE DUTY INSTEAD OF DIRECTLY DEBITING THE DUTY IN CENVAT ADJUSTMENT ACCOUNT AND CENVAT AVAILED ON RAW MATERIAL CONSUME D HAS BEEN CREDITED IN THE PROFIT AND LOSS ACCOUNT AS CENVAT AVAILED AND DEBITED IN T HE CENVAT ADJUSTMENT RECOVERABLE ACCOUNT. SINCE NOTHING HAS BEEN RECEIVED BY THE AS SESSEE AS INCENTIVE FROM THE GOVT. OR FROM ANY OTHER AGENCY VALUE OF CLOSING STOCK OF RAW MATERIAL INCLUSIVE OF EXCISE DUTY PAID ON PURCHASES REMAINS THE SAME. THE CENVAT AVAI LED IS NOTHING BUT MERELY A PRESENTATION OF CENVAT OF EXCISE DUTY THROUGH PROFI T AND LOSS ACCOUNT. THEREFORE DEDUCTION UNDER SECTION 80-IB OF THE ACT IS ALLOWAB LE THE ASSESSEE SUBMITTED. INTER ALIA THE ASSESSEE ENCLOSED CALCULATION OF CENVAT AVAILED . HOWEVER THE AO DID NOT ACCEPT THESE SUBMISSIONS AND DISALLOWED THE CLAIM FOR DEDU CTION UNDER SECTION 80-IB OF THE ACT ON THE GROUND THAT CENVAT IS NOTHING BUT LIKE A SC HEME OF DUTY DRAWBACK WHILE FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA 317ITR 218 (SC). 3 I TA NO. 1020 (DEL) OF 2011. 3. ON APPEAL THE LD. CIT(APPEALS) WHILE REFERRING TO THE DECISION IN LIBERTY INDIA(SUPRA) UPHELD THE FINDINGS OF THE AO IN THE F OLLOWING TERMS :- IN THIS CASE THE MAIN ISSUE BEFORE THE APEX COUR T WAS REGARDING TREATMENT OF INCENTIVE RECEIVED FROM THE GOVERNMENT IN THE FORM OF DEPB OR DUTY DRAWBACK. THIS BENEFIT INCREASED THE PROFI T OF THE OWNER OF THE ENTERPRISE AND NOT OF THE INDUSTRIAL UNDERTAKING. THE FOCUS IN THE SAID DECISION WAS TO LAY DOWN THE RATIO THAT TRADE DISCO UNTS REBATE DUTY DRAWBACK AND SUCH SIMILAR ITEMS ARE DEDUCTED IN DE TERMINING THE COSTS OF PURCHASE. THEREFORE THEY SHOULD NOT BE TREATED AS ADJUSTMENT (CREDITED) TO COST OF PURCHASE OR MANUFACTURE OF GOODS. THEY SHOULD BE TREATED AS SEPARATE ITEMS OF REVENUE OR INCOME AND ACCOUNTED F OR ACCORDINGLY. IT WAS THEREFORE HELD THAT FOR THE PURPOSES OF AS-2 CENVAT CREDITS SHOULD NOT BE INCLUDED IN THE COST OF PURCHASE OF INVENTOR IES OF RAW MATERIAL CONSUMED. THIS DECISION WAS PASSED AFTER THE DECIS ION IN THE CASE OF DHARAM PAL PREM CHAND LTD. [2009] 317 ITR 353 (DEL) REVERSING THE RATIO LAID DOWN BY THE DELHI HIGH COURT REGARDING TREATME NT OF EXEMPTION OF EXCISE DUTY BY MEANS OF CENVAT ADJUSTMENT ACCOUNT. THE HONBLE APEX COURT HAS HELD THAT ANY INCENTIVE OR REBATE INCLUDI NG REIMBURSEMENT AMOUNTS TO SEPARATE ITEMS OF INCOME OR REVENUE TO B E ACCOUNTED FOR IN THE PROFIT AND LOSS ACCOUNT ACCORDINGLY. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDING OF THE LD. CIT (APPEALS). AT THE OUTSET THE LD. AR ON BEHALF OF THE ASSESSEE WHILE RELYING UPON DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DHARAM PAL PREM CHAND LTD. [2009] 317 ITR 353 (DEL.); DECISION DATED 29 TH APRIL 2011OF THE ITAT IN THE CASE OF J.K. ALUMINIUM CO. VS. ITO IN I.TA NO. 3303 (DEL) O F 2010; DECISION DATED 4.11.2011 OF THE ITAT MUMBAI BENCH IN ADDL. CIT VS. TOTAL PACKA GING SERVICES IN ITA NO. 5364 (MUM.) OF 2009 FOLLOWING THE DECISION OF HONBLE G AUHATI HIGH COURT IN THE CASE OF CIT VS. MEGHALAYA STEELS LTD. 332 ITR 91 (GAUHATI) CON TENDED THAT CENVAT SCHEME IS ONLY A MECHANISM TO COMPUTE FINAL EXCISE DUTY ON SALES BASED ON THE VALUE ADDITION UNDERTAKEN BY THE SELLER AND DOES NOT REPRESENT INC OME LIABLE TO BE TAXED. WHILE EXPLAINING THE NATURE OF ENTRIES MADE IN THE BOOKS OF ACCOUNTS AND REFERRING TO PAGE NOS. 3 AND 4 OF THE PAPER-BOOK AND THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. INDO NIPPON CHEMICAL CO. LTD. [2003] 261 IT R 275 (SC) THE LD. AR CONTENDED THAT CENVAT SCHEME IS TOTALLY DISTINGUISHABLE AND D ISTINCT FROM DEPB AND THE DECISION OF HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA (SU PRA) RELIED UPON BY THE AO AND THE LD. CIT (APPEALS) IS NOT APPLICABLE TO THE FACTS AND CI RCUMSTANCES IN THE CASE UNDER 4 I TA NO. 1020 (DEL) OF 2011. CONSIDERATION. ON THE OTHER HAND THE LD. DR SUPP ORTED THE FINDINGS OF THE LD. CIT (APPEALS) WHILE CONTENDING THAT CENVAT SCHEME IS A KIN TO DEPB AND THUS DECISION OF HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA (SUPRA) WAS SQUARELY APPLICABLE. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORE-CITED DECISIONS RELIED UPON BY BOTH THE PARTIES. THOUGH THE AO/LD. CIT(A) AND THE LD. DR POINTED OUT THAT CENVAT SCHEME IS SIMILA R TO DEPB SCHEME THEY DID NOT ANALYSE THE TERMS AND CONDITIONS OF THE TWO SCHEMES IN ORDER TO ESTABLISH THEIR SIMILARITY. AS OBSERVED BY THE HONBLE APEX COURT I N THEIR DECISION DATED 31.8.2009 IN LIBERTY INDIA(SUPRA) DEPB IS AN INCENTIVE. IT IS GIVEN UNDER THE DUTY EX EMPTION REMISSION SCHEME. ESSENTIALLY IT IS AN EXPORT IN CENTIVE. NO DOUBT THE OBJECT BEHIND DEPB IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF EXPORT PRODUCT. THIS NEUTRALIZATION IS PROVIDED FOR BY CREDIT TO CUSTOMS DUTY AGAINST EXPORT PRODUCT. UNDER DEPB AN EXPORTER MAY APPLY FOR CREDIT AS A PERCENTAGE OF THE FOB VALUE OF EXPORTS MADE IN FREELY CONVERTIBLE CUR RENCY. CREDIT IS AVAILABLE ONLY AGAINST THE EXPORT PRODUCT AND AT RATES SPECIFIED BY THE DGFT FOR IMPORT OF RAW MATERIALS COMPONENTS ETC. DEPB CREDIT UNDER TH E SCHEME HAS TO BE CALCULATED BY TAKING INTO ACCOUNT THE DEEMED IMPORT CONTENT OF THE EXPORT PRODUCT AS PER BASIC CUSTOMS DUTY AND SPECIAL ADDITIONAL DUTY PAYABLE ON SUCH DEEMED IMPORTS. AFTER ANALYZING THE DEPB SCHEME HONBLE APEX COURT CONCL UDED THAT DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT 1962 AND HENCE IN CENTIVES PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80-IB OF THE ACT. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. HONBLE APEX COURT OBSERVED. 6.1 AS REGARDS DUTY DRAWBACK IT WAS OBSERVED IN LIBERTY INDIA(SUPRA) THAT SECTION 75 OF THE CUSTOMS ACT 1962 AND SECTION 37 OF THE CEN TRAL EXCISE ACT 1944 EMPOWER THE GOVERNMENT OF INDIA TO PROVIDE FOR REPAYMENT OF CUSTOMS DUTY AND EXCISE DUTY PAID BY AN ASSESSEE. THE REFUND IS OF THE AVERAGE A MOUNT OF DUTY PAID ON MATERIALS OF ANY PARTICULAR CLASS OR DESCRIPTION OF GOODS USED IN THE MANUFACTURE OF EXPORT GOODS OF SPECIFIED CLASS. THE RULES DO NOT ENVISAGE A REFU ND OF AN AMOUNT ARITHMETICALLY EQUAL TO CUSTOMS DUTY OR CENTRAL EXCISE DUTY ACTUALLY P AID BY AN INDIVIDUAL IMPORTER-CUM- 5 I TA NO. 1020 (DEL) OF 2011. MANUFACTURER. SUB-SECTION (2) OF SECTION 75 OF THE CUSTOMS ACT REQUIRES THE AMOUNT OF DRAWBACK TO BE DETERMINED ON A CONSIDERATION OF ALL THE CIRCUMSTANCES PREVALENT IN A PARTICULAR TRADE AND ALSO BASED ON THE FACTS SITUAT ION RELEVANT IN RESPECT OF EACH OF VARIOUS CLASSES OF GOODS IMPORTED. BASICALLY THE S OURCE OF THE DUTY DRAWBACK RECEIPT LIES IN SECTION 75 OF THE CUSTOMS ACT AND SECTION 3 7 OF THE CENTRAL EXCISE ACT.AFTER ANALYSING THE CONCEPT OF REMISSION OF DUTY DRAWBACK AND DEPB THE HONBLE APEX COURT HELD THAT THE REMISSION OF DUTY IS ON ACCOUNT OF THE STATUTORY/POLICY PROVISIONS IN THE CUSTOMS ACT/SCHEME(S) FRAMED BY THE GOVERNMENT OF INDIA AND THEREFORE THE PROFITS DERIVED BY WAY OF SUCH INCENTIVES DO NOT FALL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING IN SECTION 80-IB OF THE ACT. 6.2 NOW AS REGARDS CENVAT IT IS AN ACRONYM FOR CENTRAL VALUE ADDED TAX . THE SCHEME WAS ORIGINALLY CALLED MODVAT ( MODIFIED VAT ) AND THE PURPOSE OF THIS WAS TO ALLOW THE MANUFACTURER TO TAKE CREDIT OF EXCISE DUT Y PAID ON RAW MATERIALS THAT THEY USE TO MAKE THEIR PRODUCTS. THE MODVAT SCHEME WAS LATER RENAMED CENVAT ; IT ALSO CHANGED SLIGHTLY BECAUSE CENVAT HAD LESS RESTRICTIO NS THAN MODVAT. IN TERMS OF CENVAT CREDIT RULES 2004[COPY PLACED IN PB ON PG.5-9] A M ANUFACTURER OR PRODUCER OF FINAL PRODUCTS AND A PROVIDER OF OUTPUT SERVICE IS ALLOWE D TO TAKE CREDIT (KNOWN AS CENVAT CREDIT) OF THE DUTY OF EXCISE AS MENTIONED IN THE RULES PAID ON SPECIFIED INPUTS AND CAPITAL GOODS USED IN OR IN RELATION TO THE MANUFAC TURE OF SPECIFIED FINAL PRODUCTS. THE CENVAT CREDIT SO ALLOWED CAN BE UTILIZED FOR PAYMEN T OF :- (I) ANY DUTY OF EXCISE ON ANY FINAL PRODUCT; OR (II) AN AMOUNT EQUAL TO CENVAT CR EDIT TAKEN ON INPUTS IF SUCH INPUTS ARE REMOVED AS SUCH OR AFTER BEING PARTIALLY PROCES SED; OR (III) AN AMOUNT EQUAL TO THE CENVAT CREDIT TAKEN ON CAPITAL GOODS IF SUCH CAPIT AL GOODS ARE REMOVED AS SUCH; OR (IV) SERVICE TAX ON ANY OUTPUT SERVICE AS PER THE CONDITIONS LAID DOWN IN THE RULES. 6.3 IN THE INSTANT CASE BEFORE US NOT ONLY THAT THE LD. DR DID NOT DEMONSTRATE BEFORE US AS TO HOW THE SCHEMES RELATING TO DEPB AND DUTY DRAW BACK ON ONE HAND AND CENVAT ON THE OTHER ARE SIMILAR AS OBSERVED BY AO /CIT(A) SHE DID NOT EVEN DISPUTE THE FACTS THAT NET IMPACT OF ENTRIES MADE BY THE A SSESSEE IN THE PROFIT AND LOSS ACCOUNT IS NIL AND THAT THE ASSESSEE DID NOT RECEIVE ANY IN CENTIVE ON THIS ACCOUNT FROM THE 6 I TA NO. 1020 (DEL) OF 2011. GOVERNMENT AS REVEALED FROM COMPUTATION ON PAGE 3 & 4 OF THE PAPER BOOK FILED BY THE ASSESSEE. 6.4 EVEN OTHERWISE AS IS APPARENT FROM THE FA CTS OF THE CASE THE ASSESSEE RECEIVED CENVAT ON EXCISE DUTY PAID ON PURCHASES OF RAW MATERIAL AND DEBITED IN THE CENVAT ADJUSTMENT RECOVERABLE ACCOUNT. THE EXCISE DUTY PA YABLE ON SALES WAS ALSO ADJUSTED AGAINST THE SAID CENVAT ADJUSTMENT RECOVERABLE AC COUNT. THE ASSESSEE REFLECTED PURCHASES IN THE PROFIT AND LOSS ACCOUNT INCLUSIVE OF EXCISE DUTY AND CONSEQUENTLY CENVAT AVAILED DURING THE YEAR HAS BEEN CREDITED IN THE PROFIT AND LOSS ACCOUNT. AS IS APPARENT FROM UNDISPUTED CALCULATIONS DETAILED ON P AGE 4 & 5 OF THE PAPER BOOK IMPACT OF CENVAT IS NIL ON THE PROFITS FOR THE PURPOSE OF DEDUCTION U/S 80IB OF THE ACT. . . 6.5 HONBLE JURISDICTIONAL HIGH COURT WHILE ADJUDICATING A CLAIM FOR DEDUCTION U/S 80IB OF THE ACT ON ACCOUNT OF RECEIPTS RELATING TO DUTY DRAWBACK EXPLAINED THE DIFFERENCE BETWEEN THE LANGUAGE USED IN SEC 80HH & 80I OF THE ACT ON T HE ONE HAND AND SEC. 80IB OF THE ACT ON THE OTHER IN THE FOLLOWING TERMS: A PERUSAL OF THE ABOVE WOULD SHOW THAT THERE IS A MATERIAL DIFFERENCE BETWEEN THE LANGUAGE USED IN S. 80HH OF THE ACT AND S. 80-IB OF THE ACT. WHILE S. 80HH REQUIRES THAT THE PROFITS AND GAINS SHOULD BE DERIVED FROM THE IN DUSTRIAL UNDERTAKING S. 80-IB OF THE ACT REQUIRES THAT THE PROFITS AND GAINS SHOULD BE D ERIVED FROM ANY BUSINESS OF THE INDUSTRIAL UNDERTAKING. IN OTHER WORDS THERE NEED NOT NECESSARILY BE A DIRECT NEXUS BETWEEN THE ACTIVITY OF AN INDUSTRIAL UNDERTAKING A ND THE PROFITS AND GAINS. 6.6 FOLLOWING THE VIEW TAKEN IN THE AFORESAID D ECISION HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. DHARAM PAL PREM CHAND LTD.(SUPRA) IN THE CONTEXT OF DEDUCTION UNDER SECTION 80-IB OF THE ACT ON THE AMOUNT OF EXCISE DUTY REFUND CONCLUDED ON PAGE NO. 362 AS UNDER :- 4.9 IN THESE CIRCUMSTANCES THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE REVENUE IS THAT THERE IS NO DIRECT NEXUS BE TWEEN REFUND OF EXCISE DUTY PAID OR THAT THE REFUND OF EXCISE DUTY PAID WAS DEPENDENT ON THE SAID NOTIFICATIONS IS TO SAY THE LEAST COMPLETEL Y UNTENABLE. AS A MATTER OF FACT AS FOUND BY THE TRIBUNAL AS WELL AS THE CIT (APPEALS) IN THE INSTANT CASE THE ASSESSEE HAS ADOPTED AN INCORRECT ACCOUNT ING METHODOLOGY. THE ASSESSEE AS FOUND BY THE AUTHORITIES BELOW HAD ON THE PAYMENT OF EXCISE DUTY DEBITED THE PROFIT AND LOSS ACCOUNT AND UPON RECEIPT OF REFUND CREDITED THE PROFIT AND LOSS ACCOUNT. THE NET EFFE CT ON THE PROFIT AND LOSS 7 I TA NO. 1020 (DEL) OF 2011. WAS NIL ON ACCOUNT OF THE METHODOLOGY FOLLOWED BY THE ASSESSEE. THERE WAS THUS ACCORDING TO US NO REASON TO EXCLUDE THE AMOUNT OF REFUND OF EXCISE DUTY IN ARRIVING AT PROFIT DERIVED FOR THE PURPOSES OF CLAIMING DEDUCTION U/S 80-IB OF THE ACT. 6.61 THE COURT FURTHER AT PAGE 364 HELD :- 4.14 THE FOURTH CASE CITED BY THE LEARNED COUNS EL FOR THE REVENUE WAS CIT VS. RITESH INDUSTRIES LTD. (2005) 274 ITR 324. A DIVISION BENCH OF THIS COURT WAS CALLED UPON TO CONSTRUE THE PROVISIO NS OF SECTION 80.I OF THE ACT IN THE CONTEXT OF THE CLAIM OF THE ASSESSEE FOR INCLUSION OF AMOUNTS RECEIVED AS DUTY DRAWBACK FOR THE PURPOSES OF ASC ERTAINMENT OF PROFITS OR GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING WI THIN THE MEANING OF PROVISION OF SECTION 80I OF THE ACT. THE DIVISION BENCH OF THIS COURT APPLYING THE RATIO OF THE JUDGMENTS OF THE SUPREME COURT IN THE CASE OF STERLING FOODS (SUPRA) CAMBAY ELECTRIC SUPPLY (SUP RA) AS ALSO THE JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF CIT VS . VISHWANATHAN & CO. [2003 261 ITR 737 CAME TO THE CONCLUSION THAT DUTY DRAWBACK COULD NOT BE REGARDED AS PROFIT OR GAIN DERIVED FRO M AN INDUSTRIAL UNDERTAKING AS THE IMMEDIATE AND PROXIMATE SOURCE W AS NOT THE INDUSTRIAL UNDERTAKING BUT THE CLAIM FOR DUTY DRAW BACK. THE VIEW OF THE DIVISION BENCH OF THIS COURT TO WHICH ONE OF US (I.E. BADAR DURRE AHMED J.) WAS A PARTY WAS BASED IN THE CONTEXT OF THE FACTS OBTAINING IN THE SAID CASE. IN THE INSTANT CASE THE PROXIMITY WITH INDUSTRIAL ACTIVITY IS CLEAR AND THERE IS NO SCOPE FOR HOLDING OTHERWISE. 6.62 AT PAGE 366 THE JURISDICTIONAL HIGH COURT H ELD :- 5.1 AN IMPORTANT ASPECT OF THE MATTER WHIC H CLEARLY DISTINGUISHES THE INSTANT CASE FROM THE FACTS OF THE OTHER CASES CITED BEFORE US I S THAT THE NET EFFECT OF THE ACCOUNTING METHODOLOGY EMPLOYED BY THE ASSESSEE WAS THAT IT DI D NOT IN SUM AND SUBSTANCE IMPACT THE DERIVATION OF PROFITS AND GAINS ASCERTAI NABLE FOR THE PURPOSES OF DEDUCTION UNDER S. 80-IB OF THE ACT. 5.2 AS NOTED BY THE DIVISION BENCH OF THIS COURT IN ELTEK SGS (P) LTD. THE LANGUAGE OF S. 80-IB IS MATERIALLY DIFFERENT FROM THOSE OBTAINI NG IN THE CASES CITED BY THE COUNSEL FOR THE REVENUE IN STERLING FOODS CAMBAY ELECTRIC SUPP LY J.B. EXPORTS VISHWANATHAN & CO. AS WELL AS RITESH INDUSTRIES. THE LANGUAGE WI TH RESPECT TO THE PROVISIONS REFERRED TO IN SUCH CASES EXCEPT CAMBAY ELECTRIC SUPPLY REA D AS 'PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING' AS AGAINST THE LANGUAGE APPEARING IN S. 80-IB OF THE ACT WHICH IS 'PROFIT AND GAINS DERIVED FROM ANY BUSINESS'. WE RESPECTFULLY AGREE WITH THE VIEW OF 8 I TA NO. 1020 (DEL) OF 2011. THE DIVISION BENCH IN ELTEK SGS WHICH HAS HELD THAT THE TEST OF PROXIMITY I.E. DIRECT NEXUS WITH THE INDUSTRIAL ACTIVITY IS NOT NECESSARY WHILE CLAIMING DEDUCTION UNDER S. 80- IB OF THE ACT. 6.7 FOLLOWING THE AFORESAID DECISION OF HONBLE JU RISDICTIONAL HIGH COURT IN DHARAM PAL PREM CHAND LTD.(SUPRA) AGAINST WHICH SLP IS STATED TO HAVE BEEN DISMISSED A CO-ORDINATE BENCH IN THEIR DECISION DATED 29 TH APRIL 2011IN JK ALUMINIUM CO. VS. ITO IN ITA NO. 3303/DEL./2010 CONCLUDED IN THE CONTEXT OF CLAIM FOR DEDUCTION U/S 80IB IN RELATION TO REFUND OF EXCISE DUTY AS UNDER :- 6.5 AS WE HAVE OBSERVED FROM THE PAPERS IN THE PAPER BOOK THE EXEMPT AMOUNT HAS BEEN PAID AS IS EVIDENT FROM THE ORDERS GRANTING THE REFUND WHICH ARE PLACED. THE SUPREME COURT AFTER EX AMINING THE AFFIDAVITS PASSED ON 11.01.2010 IN THE CASE OF CIT VS. DHARAM PAL PREM CHAND LTD. AND AFTER HEARING BOTH THE PARTIES EVENTUALLY DISM ISSED THE APPEAL OF THE DEPARTMENT AGAINST ORDER OF DELHI HIGH COURT ON 22. 02.2010. AS IS CLEAR THE NOTIFICATION DATED 14.11.2002 EXEMPTS THE AMOUN T OF EXCISE DUTY PAID BY THE ASSESSEE AS SUCH EXCISE DUTY PER SE IS NOT L EVIABLE. IN ORDER TO ENSURE PROPER CONTROL OVER THE TRANSACTIONS THE NO TIFICATION ONLY REQUIRES THE MANUFACTURERS TO FIRST DEPOSIT THE EXCISE DUTY AND THEN CLAIM THE REFUND OF THE SAME NEXT MONTH. THUS THE REFUND IS A SSESSEES OWN MONEY ITSELF IN A WAY SECURITY DEPOSIT WHICH IS BEING REF UNDED ON SUBMISSION OF THE EVIDENCE DEPOSITING THE SAME. THEREFORE IN OUR VIEW THIS IS NOT AN INCOME AT ALL. THEREFORE THE A.O IN OUR VIEW WAS NOT JUSTIFIED IN MAKING A SEPARATE ADDITION OF INCOME AND THEREBY DENYING THE RELIEF ELIGIBLE U/S 80.IB OF THE ACT ON THAT AMOUNT. 7. BEFORE WE PART WITH THE MATTER WE THINK IT FIT TO DEAL WITH THE CONTENTION OF THE REVENUE THAT THE DECISION OF THE APEX COURT IN LIBERTY INDIA (SUPRA) CONCLUDES THE ISSUE IN FAVOUR OF THE REVENUE. WE MAY SAY THE JUDGMENT IN THE CASE OF LIBERTY INDIA WAS ON THE ISSUE OF DEPB / DUTY DRAW BACK WHICH WAS AN INCENTIVE AND WAS NOT CONCERNED WITH THE REFUND OF THE AMOUNT PAID. THE COURT IN THAT CASE HAS NEGATED THE CONTENTION OF THE ASSESSEE AT PAGE 234 BY OBSERVIN G AS UNDER :- THE RULES DO NOT ENVISAGE A REFUND OF AN AMOUNT A RITHMETICALLY EQUAL TO CUSTOMS DUTY OR CENTRAL EXCISE DUTY ACTUALLY PAI D BY AN INDIVIDUAL IMPORTER-CUM-MANUFACTURER. SUB-SECTION (2) OF SECTI ON 75 OF THE CUSTOMS ACT REQUIRES THE AMOUNT OF DRAWBACK TO BE DETERMINE D ON A CONSIDERATION 9 I TA NO. 1020 (DEL) OF 2011. OF ALL THE CIRCUMSTANCES PREVALENT IN A PARTICULAR TRADE AND ALSO BASED ON THE FACTS SITUATION RELEVANT IN RESPECT OF EACH OF VARIOUS CLASSES OF GOODS IMPORTED. 7.1 THE CASE OF THE ASSESSEE BEFORE US IS CO NCERNED WITH THE REFUND OF EXCISE DUTY AND CONSIDERATION OF THE SAME FOR DE DUCTION U/S 80IB OF THE ACT. THE SCHEME AS WELL AS THE METHODOLOGY OF THE OPERATIONS ARE ALL DISCUSSED SO AS TO HIGHLIGHT THE DISTINCTION OF THI S CASE FROM THE DECISION OF LIBERTY INDIA. IN ANY CASE THE DECISION OF DHARAM PAL PREM CHAND LTD. OF DELHI HIGH COURT HAS BEEN AFFIRMED BY THE SUPREM E COURT WHICH FACT ITSELF CANNOT BE IGNORED AS THE CASE OF DHARAMPAL PREMCHAND LTD. WAS CONCERNED WITH THE ISSUE RELATING TO CTION 80-IB OF THE ACT. 6.8 WE FURTHER FIND THAT WHILE EXAMINING THE ISSUE OF DEDUCTION 80IB IN RELATION TO THE AMOUNT OF MODVAT CREDIT THE ITAT IN THE CASE OF AD DL. CIT VS. THE TOTAL PACKAGING SERVICES WHILE REFERRING TO THE DECISION OF HONB LE GAUHATI HIGH COURT IN CIT VS. MEGHALAYA STEELS LTD. 332 ITR 91 CONCLUDED IN THEI R ORDER DATED 4 TH NOVEMBER 2011 IN ITA NO.5364/MUM./2009 AS UNDER :- 6.1 ON THE ISSUE WHETHER THIS BENEFIT OF MODVA T CREDIT IS THE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING OR NOT THE HON BLE GUWAHATI HIGH COURT IN THE CASE OF MEGHALAYA STEELS LTD. (SUPRA) HAS HELD AS UNDER :- IN SO FAR AS THE SECOND QUESTION IS CONCERNED THE CENTRAL EXCISE DUTY REFUND CLAIMED BY THE ASSESSEE IS ON THE BASIS OF AN EXEMP TION NOTIFICATIONS ISSUED BY THE MINISTRY OF FINANCE (DEPARTMENT OF REVENUE) BEI NG NOTIFICATION NO. 32 OF 1999 AND NOTIFICATION NO. 33 OF 1999 BOTH DATED JUL Y 8 1999. IN TERMS OF THESE NOTIFICATIONS A MANUFACTURER IS REQUIRED TO FIRST PAY THE CENTRAL EXCISE DUTY AND THEREAFTER CLAIMED A REFUND ON FULFILLMENT OF CERTA IN CONDITIONS. IN THE NEXT MONTH AFTER THE CLAIM THE CENTRAL EXCISE DUTY SO DEPOSITED IS REFUNDED TO THE ASSESSEE IF THE CONDITIONS LAID DOWN IN THE NOTIFIC ATIONS ARE FULFILLED. IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE ASSESSEE WAS ENTITLED TO THE CENTRAL EXCISE DUTY REFUND. THE CENTRAL BOARD OF EXCISE AND CUSTOMS IN ITS CIRC ULAR DATED DECEMBER 19 2002 CLARIFIED THAT THE REFUND IS NOT ON ACCOUNT OF EXCE SS PAYMENT OF EXCISE DUTY BUT IS BASICALLY DESIGNED TO GIVE EFFECT TO THE EXEMPTI ON AND TO OPERATIONALISE THE EXEMPTION GIVEN BY THE NOTIFICATIONS. IN THAT SENSE THE CENTRAL EXCISE DUTY REFUND DOES NOT APPEAR TO BEAR THE CHARACTER OF INCOME SIN CE WHAT IS REFUNDED TO THE 10 I TA NO. 1020 (DEL) OF 2011. ASSESSEE IS THE AMOUNT PAID UNDER THE MODALITIES PR OVIDED BY THE DEPARTMENT OF REVENUE FOR GIVING EFFECT TO THE EXEMPTION NOTIFICA TIONS. THERE IS ALSO NOTHING TO SUGGEST THAT THE ASSESSEE HAS RECOVERED OR PASSE D ON THE EXCISE DUTY ELEMENT TO ITS CUSTOMERS. EVEN ASSUMING THE REFUND DOES AMOUNT TO INCOME IN T HE HANDS OF THE ASSESSEE S A PROFIT OR GAIN DIRECTLY DERIVED BY THE ASSESSEE F ROM ITS INDUSTRIAL ACTIVITY. THE PAYMENT OF CENTRAL EXCISE DUTY HAS A DIRECT NEXUS W ITH THE MANUFACTURING ACTIVITY AND SIMILARLY THE REFUND OF THE CENTRAL EXCISE DUT Y ALSO HAS A DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY. THE ISSUE OF PAYMENT OF CENTRAL EXCISE DUTY WOULD NOT ARISE IN THE ABSENCE OF ANY INDUSTRIAL ACTIVITY. TH ERE IS THEREFORE AN INEXTRICABLE LINK BETWEEN THE MANUFACTURING ACTIVITY THE PAYMEN T OF CENTRAL EXCISE DUTY AND ITS REFUND. IN THE CIRCUMSTANCES WE ARE OF THE OPI NION THAT QUESTION NO. 2 MUST BE ANSWERED IN THE AFFIRMATIVE IN FAVOUR OF THE ASS ESSEE AND AGAINST THE REVENUE. 6.2 THE HONBLE HIGH COURT HAS DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE AFTER CONSIDERING THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF LIBERTY INDIA VS. CIT REPORTED IN 317 ITR 218. ACCO RDINGLY FOLLOWING THE DECISION OF THE HONBLE GAWAHATI HIGH COURT IN THE CASE OF MEGHALAYA STEELS LTD (SUPRA) WE DECIDE THIS ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 7. IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DEC ISIONS ESPECIALLY WHEN THE NET EFFECT OF THE ACCOUNTING METHODOLOGY EMPLOYED BY TH E ASSESSEE AS REVEALED FROM CALCULATIONS ON PAGE 3 & 4 OF THE PAPER BOOK IS TH AT IT DID NOT IN SUM AND SUBSTANCE IMPACT THE DERIVATION OF PROFITS AND GAINS ASCERTAI NABLE FOR THE PURPOSES OF DEDUCTION UNDER S. 80-IB OF THE ACT WHILE THE REVENUE HAVE NO T DEMONSTRATED BEFORE US AS TO HOW THE CENVAT SCHEME IS PARALLEL TO THE SCHEME OF DEPB OR DUTY DRAW BACK WE HAVE NO HESITATION IN HOLDING THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF DEDUCTION U/S 80IB OF THE ACT MADE BY THE AO IN RELATION TO THE CENVAT CREDIT OF EXCISE DUTY .IN VIEW THEREOF GROUND NOS. 1 TO 3 IN THE APPEAL ARE ALLOWED. 8. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO. IN THE APPEAL ACCORDINGLY THIS GROUND IS DISM ISSED. 11 I TA NO. 1020 (DEL) OF 2011. 9. NO OTHER ARGUMENT OR PLEA WAS MADE BEFORE US. 10. IN THE RESULT APPEAL IS ALLOWED. ORDER PRONOUNCED I N THE OPEN COURT SD/- SD/- (RAJPAL YADAV)] (A.N.PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1 .M/S. AROMA CHEMICALS TIRAHA TUBEWELL CO LONY C I V I L L I N E S MORADABAD 2. ASSISTANT. COMMISSIONER OF INCOME-TAX C I R C L E- II MORADABAD. 3. CIT CONCERNED 4. CIT (APPEALS)- BAREILLY 5. DR ITAT A BENCH NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT.