ADDL CIT 15(1), MUMBAI v. TOTAL PACKAGING SERVICES, MUMBAI

ITA 5364/MUM/2009 | 2006-2007
Pronouncement Date: 04-11-2011 | Result: Dismissed

Appeal Details

RSA Number 536419914 RSA 2009
Assessee PAN AADFT0749C
Bench Mumbai
Appeal Number ITA 5364/MUM/2009
Duration Of Justice 2 year(s) 1 month(s) 11 day(s)
Appellant ADDL CIT 15(1), MUMBAI
Respondent TOTAL PACKAGING SERVICES, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 04-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 04-11-2011
Date Of Final Hearing 01-11-2011
Next Hearing Date 01-11-2011
Assessment Year 2006-2007
Appeal Filed On 23-09-2009
Judgment Text
1 THE TOTAL PACKAGING SERVICES IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI BENCHES MUMBAI BEFORE SHRI B RAMAKOTAIAH AM & SHRI VIJAY PAL RAO JM ITA NO. 5364/MUM/2009 (ASST YEAR 2006-07) THE ADDL. COMMR OF INCOME TAX 15(1) MUMBAI VS THE TOTAL PACKAGING SERVICES SHAH BLDG NO.3 2 ND FLOOR FLAT NO.11 GHAGAT GALLY MATUNGA ROAD (W) MUMBAI 16 (APPELLANT) (RESPONDENT) PAN NO. AADFT0749C ASSESSEE BY SHRI SATISH R MODY REVENUE BY SHRI G P TRIVEDI DT.OF HEARING 1 ST NOV 2011 DT OF PRONOUNCEMENT 4 TH NOV 2011 PER VIJAY PAL RAO JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 16.7.2009 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2006-07. 2. THE ONLY EFFECTIVE RAISED BY THE REVENUE IN THIS APPEAL IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD CIT(A) ERRED IN LAW TO HOLD THAT INCOME FROM MODVAT CREDIT IS DERIVED FROM I NDUSTRIAL UNDERTAKING AS CONTEMPLATED IN SEC. 80IB(1) IGNORING THE VITAL FACT THAT THE VERY SOURCE OF SUCH INCOME WAS GOVERNMENT POLICY IMPOSING EXCISE DUTY AT DIFFERENTIAL RATE SAY 16% ON THE PURCHASES O F RAW MATERIALS FOR THE EARLIER ASSESSMENT YEAR AND 8% ON FINISHED GOODS SO LD DURING THE CURRENT FINANCIAL YEAR WHICH CAN BE ATTRIBUTED TO INDUST RIAL UNDERTAKING BUT NOT DERIVED FROM INDUSTRIAL UNDERTAKING. 3 THE ASSESSEE AVAILED/SET OFF MODVAT CREDIT OF EXC ISE DUTY OF EARLIER YEARS AMOUNTING TO RS. 1.93 CRORES. THE ASSESSING OFFICE R QUESTIONED THE ALLOWABILITY OF DEDUCTION CLAIMED U/S 80IB ON MODVAT CREDIT. THE A SSESSEE HAS SUBMITTED BEFORE 2 THE TOTAL PACKAGING SERVICES THE ASSESSING OFFICER THAT THE ASSESSEE COULD NOT S ET OFF/AVAILED THE MODVAT CREDIT OF THE EARLIER YEARS BECAUSE OF EXCISE DUTY ON THE PURCHASE OF RAW MATERIAL WAS 16% WHEREAS ON SALE IT WAS 8%. HENCE THE SAME WAS THO UGH AVAILABLE TO THE ASSESSEE; BUT COULD NOT BE UTILIZED BECAUSE OF THE DIFFERENTI AL RATES OF EXCISE DUTY ON PURCHASE OF RAW MATERIAL AND SALE OF GOODS. THE ASSESSING O FFICER DISALLOWED THE CLAIM OF THE ASSESSEE AND HELD THAT THE INCOME HAS ARISEN BECAUS E OF DIFFERENTIAL RATES OF EXCISE DUTY ON PURCHASE AND SALE; THEREFORE CANNOT BE CAL LED AS ARISING OUT OF MANUFACTURING ACTIVITY OF THE UNDERTAKING. 3.1 ON APPEAL THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE VIDE THE IMPUGNED ORDER. 4 BEFORE US THE LD DR HAS MAINLY CONTENDED THAT SI NCE THE MODVAT CREDIT WAS AVAILABLE WITH THE ASSESSEE DURING T HE EARLIER YEA RS; THEREFORE THIS BENEFIT HAS NOT ARISEN DURING THE YEAR UNDER CONSIDERATION AND THUS IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB FOR THE YEAR UNDER CONSIDERATION. 4.1 ON THE OTHER HAND THE LD AR HAS SUBMITTED THAT THE AMOUNT OF INCOME HAS ARISEN BECAUSE OF THE DIFFERENTIAL RATES OF EXCISE DUTY ON PURCHASE AND SALE AND SINCE THE EXCISE DUTY ON SALE WAS 8%; THEREFORE TH E ASSESSEE WAS NOT ABLE TO RECOVER THE FULL EXCISE DUTY PAID ON PURCHASES. V IDE FINANCE ACT 2006 THE GOVERNMENT HAS AMENDED THE STRUCTURE OF EXCISE DUTY AND REDUCED THE EXCISE DUTY FROM 16% TO 8% ON RAW MATERIAL USED BY THE ASSESSEE . DUE TO THE CHANGE IN THE RATE OF EXCISE DUTY VIDE FINANCE ACT 2006; THE ASSESSEE WAS ABLE TO RECOVER THE EXCISE DUTY PAID IN THE EARLIER YEARS BY SETTING OFF OF TH E EXCISE DUTY PAID ON THE PURCHASES IN THE EARLIER YEARS AGAINST THE EXCISE DUTY PAYABL E ON SALE DURING THE YEAR. THUS THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE IN COME IN FACT ARISEN ONLY DURING THE YEAR UNDER CONSIDERATION WHEN THE ASSESSEE AVAI LED THE SETTING OFF OF CREDIT OF 3 THE TOTAL PACKAGING SERVICES THE EXCISE DUTY. HE HAS FURTHER SUBMITTED THAT THE ISSUE ON MERIT IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE GU WAHATI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. MEGHALAYA STEELS LTD. REPORTED IN 332 ITR 91 AS WELL AS THE ORDER DATED 29 TH APRIL 2001 OF THE DELHI BENCH OF THE TRIBUNAL IN I TA NO. 3303/DEL/2010. 5 WE HAVE HEARD THE RIVAL CONTENTION AND CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. UNDISPUTEDLY THE MODVAT CREDI T EARNED BY THE ASSESSEE DURING THE EARLIER YEARS COULD NOT BE AVAILED AND SET OFF BECAUSE OF THE HUGE DIFFERENCE OF EXCISE DUTY RATES ON PURCHASE OF RAW MATERIAL AND S ALE OF GOODS. UPTO 31 ST MARCH 2005 THE EXCISE DUTY ON RAW MATERIAL WAS 16% WHICH THE ASSESSEE USED TO PAY WHEREAS THE EXCISE DUTY ON MANUFACTURED GOODS COLLE CTED BY THE ASSESSEE WAS 8%. THEREFORE IT WAS NOT POSSIBLE TO RECOVER THE FULL EXCISE DUTY PAID ON PURCHASES FROM THE EXCISE DUTY COLLECTED ON THE FINISHED GOODS. VIDE FINANCE ACT 2006 THE GOVERNMENT HAS AMENDED THE RATES OF EXCISE DUTY AND CONSEQUENTLY THE EXCISE DUTY ON PURCHASES OF RAW MATERIAL BY THE ASSESSEE W AS REDUCED FROM 16% TO 8%. THUS ONLY AFTER THE AMENDMENT VIDE THE FINANCE AC T 2006 THE ASSESSEE WAS ABLE NOT ONLY TO RECOVER THE FULL EXCISE DUTY PAYABLE B UT ALSO SET OFF THE MODVAT CREDIT EARNED IN THE EARLIER YEARS. 5.1 IT IS NOT THE CASE OF THE REFUND OF EXCISE DUTY IN CASH; BUT ONLY A BENEFIT OF MODVAT CREDIT WAS AVAILABLE TO THE ASSESSEE WHICH COULD BE SET OFF AND UTILISED AGAINST THE COLLECTION OF THE EXCISE DUTY ON SALE O F GOODS W.E.F ASSESSMENT YEAR 2006-07. THEREFORE THIS AMOUNT HAS BEEN RIGHTLY TA KEN INTO ACCOUNT AS INCOME FOR THE YEAR UNDER CONSIDERATION. EVEN OTHERWISE THE A SSESSING OFFICER HAS NOT TREATED THIS AMOUNT AS THE INCOME OF THE EARLIER YEARS BUT DENIED THE DEDUCTION ON THE GROUND THAT THIS IS NOT THE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING. 4 THE TOTAL PACKAGING SERVICES 6 IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIND A NY MERIT OR SUBSTANCE IN THE CONTENTION OF THE LD DR. 6.1 ON THE ISSUE WHETHER THIS BENEFIT OF MODVAT CRE DIT IS THE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING OR NOT THE HONBLE GUWA HATI HIGH COURT IN THE CASE OF MEGHALAYA STEELS LTD. (SUPRA) HAS HELD AS UNDER: IN SO FAR AS THE SECOND QUESTION IS CONCERNED THE CE NTRAL EXCISE DUTY REFUND CLAIMED BY THE ASSESSEE IS ON THE BASIS OF AN EXEMPTION NOTIFICATIONS ISSUED BY THE MINISTRY OF FINANCE (DEPARTMENT OF RE VENUE) BEING NOTIFICATION NO. 32 OF 1999 AND NOTIFICATION NO. 33 OF 1999 BOTH DATED JULY 8 1999. IN TERMS OF THESE NOTIFICATIONS A MANUFACTURE R IS REQUIRED TO FIRST PAY THE CENTRAL EXCISE DUTY AND THEREAFTER CLAIMED A REFUN D ON FULFILMENT OF CERTAIN CONDITIONS. IN THE NEXT MONTH AFTER VERIFIC ATION OF THE CLAIM THE CENTRAL EXCISE DUTY SO DEPOSITED IS REFUNDED TO THE ASSESSEE IF THE CONDITIONS LAID DOWN IN THE NOTIFICATIONS ARE FULFIL LED. IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE ASSESSEE WAS ENTITLED TO T HE CENTRAL EXCISE DUTY REFUND. THE CENTRAL BOARD OF EXCISE AND CUSTOMS IN ITS CIRCUL AR DATED DECEMBER 19 2002 CLARIFIED THAT THE REFUND IS NOT ON ACCOUNT OF EXCESS PAYMENT OF EXCISE DUTY BUT IS BASICALLY DESIGNED TO GIVE EFFECT TO TH E EXEMPTION AND TO OPERATIONALISE THE EXEMPTION GIVEN BY THE NOTIFICAT IONS. IN THAT SENSE THE CENTRAL EXCISE DUTY REFUND DOES NOT APPEAR TO BEAR THE CHARACTER OF INCOME SINCE WHAT IS REFUNDED TO THE ASSESSEE IS THE AMOUN T PAID UNDER THE MODALITIES PROVIDED BY THE DEPARTMENT OF REVENUE FOR GIVING EFFECT TO THE EXEMPTION NOTIFICATIONS. THERE IS ALSO NOTHING TO SU GGEST THAT THE ASSESSEE HAS RECOVERED OR PASSED ON THE EXCISE DUTY ELEMENT T O ITS CUSTOMERS. EVEN ASSUMING THE REFUND DOES AMOUNT TO INCOME IN T HE HANDS OF THE ASSESSEE IT IS A PROFIT OR GAIN DIRECTLY DERIVED BY THE ASSESSEE FROM ITS INDUSTRIAL ACTIVITY. THE PAYMENT OF CENTRAL EXCISE DU TY HAS A DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY AND SIMILARLY THE REFUND OF THE CENTRAL EXCISE DUTY ALSO HAS A DIRECT NEXUS WITH THE MANUFACTURING ACTIVI TY. THE ISSUE OF PAYMENT OF CENTRAL EXCISE DUTY WOULD NOT ARISE IN THE ABSENC E OF ANY INDUSTRIAL ACTIVITY. THERE IS THEREFORE AN INEXTRICABLE LINK BETWEEN THE MANUFACTURING ACTIVITY THE PAYMENT OF CENTRAL EXCISE DUTY AND ITS REFUND. IN THE CIRCUMSTANCES WE ARE OF THE OPINION THAT QUESTION NO. 2 MUST BE ANSW ERED IN THE AFFIRMATIVE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 6.2 THE HONBLE HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AFTER CONSIDERING THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF LIBERTY INDIA VS CIT REPORTED IN 317 ITR 218. ACCORDINGLY FOLLOW ING THE DECISION OF THE HONBLE GAWAHATI HIGH COURT IN THE CASE OF MEGHALAYA STEELS LTD (SUPRA) WE DEICIDE THIS ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSE SSEE. 5 THE TOTAL PACKAGING SERVICES 7 IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 4 TH DAY OF NOV 2011. SD/ SD/- ( B RAMAKOTAIAH ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 4 TH NOV 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI