TIOL-DDT 9
13 12 2004
Monday

UNDER Section 80HHC of the Income Tax Act, an exporter is allowed a deduction of profits derived from export of goods. There was recently this tricky question before the Madras High Court whether in calculating the turnover, excise duty is includible.

The Bombay High Court had earlier held that:-

Such profits cannot be reduced artificially by including statutory levies in the denominator, namely, total turnover. Therefore, the turnover should be restricted to such receipts which have an element of profit in it. It is only the actual sale price which is relevant. Anything charged by the assessee by way of excise duty and sales tax cannot be taken into account as they do not have any element of profit. Even, according to accounting principles, such levies do not form part of the profit and loss account. In fact, they are shown as liability in the balance sheet.

The Madras High Court itself had in an earlier order had held that:-

the amount received by the way of Modvat credits could not have been received by the assessee, had the assessee not purchased the raw materials for running its industry of manufacturing forgings. So the amount received by the assessee under Modvat credits were eligible for deduction under section 80HH of the Act.

The High Court observed that:-

It is a settled law that though the "total turnover" may include the receipts of excise duty and sales tax, etc., in its general parlance and under specific statutes, because of its wider coverage in the definitions given thereunder, it has to be given a restrictive meaning while computing the "export profit" for the purposes of section 80HHC, namely, only that part of the receipt for sale consideration is to be taken as part of the total turnover which has an element of profit therein, and, accordingly, the receipts of excise duty and sales tax which do not include an element of profit should be excluded from the "total turnover".

So the High Court was of the firm opinion that excise duty does not form part of the total turnover for the purpose of calculation of deduction under section 80HHC of the Act.

Please see the full text of the High Court order in 2004-TIOL-37-HC-MAD-IT

It appears that the fact that there is really no excise duty on exports was not brought to the notice of the High Court, not that it would have made any difference.

It would be nice if we could all pay our taxes with a smile, but normally cash is required.

Embarrassment is when a big van comes to pick up your luggage and all that you have is a small suitcase. This happened to President APJ Abdul Kalam, when he moved into the sprawling  Rashtrapati Bhavan.

Until Tomorrow with more of DDT

Have a Nice Day