Amendments to S 80 HHC
Amendments in respect of Export Profits u/s 80HHC
Dr. Tejinder Singh Rawal
Chartered Accountant
tsrawal@tsrawal.com
Introduction: The Amendment in respect of exports profits comes on the basis of the recommendations of the Economic Advisory Council to the Prime Minister which has Dr.C.Rangarajan, (former Chairman, 12th Finance Commission) as Chairman, and prominent economics such as Dr.Suresh Tendulkar (former Director, Delhi School of Economics), Dr.G.K.Chadda, (Vice-Chancellor, Jawaharlal Nehru University), Dr.Govinda Rao (Director-General, National Institute of Public Finance & Policy) and Dr.Saumitra Choudhuri, (Economic Adviser, ICRA) as members.
Apart from advice on policy matters referred to the Council by the PM from time to time, the EAC prepares a monthly report on economic developments at home and abroad for the Prime Minister. It also monitors economic trends on a regular basis and brings to the PM’s attention important developments at home and abroad and suggest suitable policy response.
Exporters were expecting that the Government would not go entirely by the recommendations of the Prime Minister's Economic Advisory Council on this issue. Faced with equally convincing but opposing arguments from the exporting community and the Revenue Department on the issue of taxation of income arising from sale of DEPB licences, the Prime Minister, Dr Manmohan Singh, had in early April referred the issue to his Economic Advisory Council. He had asked the council to look into all legal aspects relating to the taxation of profits arising from transfer of DEPB licences.
While concurring with the contention of the Revenue Department, the Prime Minister's Economic Advisory Council had suggested that the pain of taxation should be reduced for small exporters by specifying a threshold (Rs 10 crores) below which recovery proceedings are not to be initiated by the Tax Department.
The Existing Section:
The existing section is explained below, and the amendment has been explained below it. Kindly note that no deduction under section 80HHC is available from the assessment year 2005-06.
Deduction in respect of export profits (Section 80HHC)
(b) export must be of any goods or merchandise other than (i) Mineral oil and (ii) mineral and ores (other than processed minerals and ores specified in the Twelfth Schedule) of the Income-tax Act.
(c) the sale proceeds of the goods or merchandise exported should have been received in or brought into India by the exporter in convertible foreign exchange.
(d) The sale proceeds should have been received in or brought into India within a period of six months from the end of the financial year in which the export was made or within such further period as the competent authority may allow in this behalf. For this purpose the competent authority means the RBI or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange.
(e) The assessee should furnish a report in the prescribed form (Form No. 10CCAC) from a Chartered Accountant, certifying that the deduction has been correctly claimed. The report must be attached along with the return of income. Category of assessees: For the purpose of deduction under this section, assessees have been divided into two categories:
(I) Direct exporter: A Direct exporter can be of three types:
(a) Manufacturer exporter i.e. an exporter who exports the goods/merchandise manufactured or processed by him.
(b) Trading exporter Le. an exporter who exports the goods/merchandise manufactured or processed by others.
(c) Manufacturer as well as trading exporter Le. an exporter who exports goods manufactured or processed by him as well as goods manufactured or processed by others.
(II) Supporting manufacturer: Supporting manufacturer is a person who manufactures or processes goods/merchandise, but does not export such goods/ merchandise himself and sells them to any person who is holding Export house certificate or Trading house certificate and such Export house or Trading house has issued a certificate to the supporting manufacturer to enable him to claim a deduction under this section.
The amendment:
The Taxation Laws (Second Amendment) Act, 2005 has amended S. 80-HHC as under:
In section 80-HHC of the Income-tax Act, -
(i) in sub-section (3) -
(A) after the proviso, the following provisions shall be inserted and shall be deemed to have been inserted, with effect from the 1st day of April, 1998, namely : -
'Provided further that in the case of an assessee having export turnover not exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee :
provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiid) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, -
(a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being Duty Remission Scheme; and
(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being Duty Remission Scheme :
Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiie) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, -
(a) he had an option to choose either the duty drawback or the Duty Free Replenishment Certificate, being Duty Remission Scheme; and
(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowance under the duty Free Replenishment Certificate, being Duty Remission Scheme.
Explanation - For the purposes of this clause, "rate of credit allowable" means the rate of credit allowable under the Duty Free replenishment Certificate, being Duty Remission Scheme calculated in the manner as may be notified by the Central Government.':
(B) after the fourth proviso as so inserted, the following proviso shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1992, namely : -
"Provided also that in case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent. of -
(a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or
(b) any sum referred to in clause (iiid) or clause (iiie) as the case may be, of section 28, as applicable in the case of an assessee referred to in the second or the third proviso or the forth, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.";
(ii) in the Explanation occurring at the end, with effect from the 1st day of April 1998,-
(I) in the proviso to clause (ba), for the word, brackets, figures and letter "and (iiic)", the brackets, figures, letter and word "(iiic), (iiid) and (iiie)" shall be substituted and shall be deemed to have been substituted;
(II) in clause (baa), in sub-clause (I), for the word, brackets, figures and letter "and (iiic)", the brackets, figures, letter and word "(iiic), (iiid) and (iiie)" shall be substituted and shall be deemed to have been substituted.
Analysis:
As per the amendment, an explanation has been introduced below the proviso to Section 80HHC(3) to allow the deduction even in case of loss. As per this proviso, in case there is a loss under clause (a), (b) or (c) of sub-section 3 of Section 80HHC, such loss shall be set off against 90% of the export incentive, meaning thereby that in case of negative profit, 80HHC deduction will be allowed. Ostensibly the amendment has been brought to over-rule judgement of Bombay High Court in the case of ‘Rohan Dyes & Intermediates P.Ltd’, (2004) 270 ITR 350 (Bom)and Kerala High Court in Commissioner of Income Tax v. A. M. Moosa, Bharath Sea Foods’, [2005] 272 ITR 29 (Ker)
Further any profit on transfer of Duty Entitlement Passbook Scheme (DEPB) and any profit on transfer of Duty Free Replenishment Certificate shall also be considered as export incentive eligible for deduction under Section 80HHC in case of those exporters whose export turnover does not exceed Rs.10 crores during the previous year.
However, in the case of exporters whose turnover exceeds Rs.10 crores the benefit of DEPB and Duty Free Replenishment Certificate shall be allowed only when the exporter as per the scheme had an option to choose either the duty drawback or DEPB and the rate of the drawback credit attributable to Customs duty was higher than the rate of credit allowable under the DEPB.
Thus, full benefit of 80HHC deduction will be available to those exporters with turnover not exceeding Rs.10 crores whereas those exporters with turnover exceeding Rs.10 crores will not be able to claim benefit of DEPB in case they fail to fulfil the above two conditions.
The amendments have been made retrospective, with effect from April 1, 1998.
The original Section allows an exporter, while computing total income, a deduction to the extent of profits derived from such exports. "Export turnover," as per 80 HHC, means sale proceeds received in or brought into India by an assessee in convertible foreign exchange in accordance with Clause (a) of Sub-section (2) of any goods or merchandise to which the section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the Customs station as defined in the Customs Act, 1962.
No penalty/interest in respect of the fresh demand:
Circular No.02 /2006, DATED 17-1-2006 has been issued to provide that no penalty shall be levied or interest shall be charged in respect of any fresh demand raised consequent to the enactment of Taxation Laws (Amendment) Act, 2005, on account of variation in the returned/assessed income attributable to profits on sale of DEPB credits or DFRC. The Circular reads as under:
“Section 80-HHC read with section 28 of the Income-tax Act, 1961 has been amended by the Taxation Laws (Amendment) Act, 2005. The section 80-HHC so amended, inter-alia, provides that
Profits on sale of Duty Entitlement Pass Book Scheme (DEPB) credits or Duty Free Replenishment Certificate (DFRC) will be treated at par with duty drawback for the purposes of proportionate increase of profits derived from exports computed under clause (a) or clause (b) or clause (c) of sub-section (3) of section 80-HHC in the case of,-
(i) an exporter having export turnover not exceeding Rs.10 crores;
(ii) in the case of an exporter having export turnover exceeding Rs.10 crores if-
(a) he had an option to choose either duty drawback or duty entitlement pass book scheme; and
(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under duty entitlement pass book scheme.
OR
(c) he had an option to choose either duty drawback or duty free replenishment certificate; and
(d) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under duty free replenishment certificate.
2. The amendments relating to Duty Entitlement Pass Book Scheme and Duty Replenishment Certificate have been brought into the statute with retrospective effect. Therefore, it has been decided that no penalty shall be levied or interest shall be charged in respect of any fresh demand raised consequent to the enactment of Taxation Laws (Amendment) Act, 2005, on account of variation in the returned/assessed income attributable to profits on sale of DEPB credits or DFRC. Further, in such cases where assessments have already been completed and,-
(i) interest has been charged, the Chief Commissioner of Income-tax shall waive the interest relating to claim of profit on sale of DEPB credits or DFRC for deduction u/s 80-HHC;
(ii) penalty has been levied, the Chief Commissioner of Income-tax shall waive the penalty relating to claim of profit on sale of DEPB credits or DFRC for deduction u/s 80-HHC; or
(iii) penalty relating to claim of profit on sale of DEPB credits or DFRC for deduction u/s 80-HHC, has been initiated but not levied, the penalty proceedings shall be dropped.
3. Further, it is also directed that such demand shall be recovered over a period of 5 years. For this purpose, every Assessing Officer raising such a demand will maintain the details of such demand in a separate register so that the information can be furnished to the Board as and when required. These registers shall be kept in the custody of the Assessing Officers who will hand it over to their successors at the time of their transfer.”
Discriminatory: The amendment to levy tax on exporters who have exported goods over Rs 10 crores is discriminatory, particularly the decision to tax only those who had opted for DEPB/DFRC route of incentives and exempting others who had opted for drawback facility. It is a sound principle of law that a retrospective amendment which is detrimental to the interest of the assessee, should not be made. Had the exporters been aware that their opting for the DEPB scheme would negate the exemption under Section 80 HHC, they would have taken a conscious decision to opt out of the alternative scheme available at that time.
The Amendment brings legal validity to the Income-Tax Department's efforts to recover income-tax on retrospective basis on the profits earned by exporters from transfer of DEPB licences from 1997.
The Amendment has made it clear that profits earned on the transfer of DEPB licences should be treated as business income.
Exporters with annual export turnover of Rs 10 crore or less would not be required to fork out any tax on such profits, as they would be entitled for the Section 80HHC benefits without having to meet any conditions.
For exporters with annual export turnover exceeding Rs 10 crore, the Section 80HHC deduction would be available so long as the exporter conforms to two specific conditions:
a) he had an option to choose the duty drawback or DEPB scheme for his export item and
(b) the rate of drawback credit attributable to the customs duty was higher than the DEPB credit allowed for the exported product or item.
Conclusion: The article can be summed up in the words of a Rajya Sabha member C. Ramachandraiah who raised the issue in a debate in Rajya Sabha on 20th Dec 2005, “ This section of 80HHC deduction would be available so long as exporter conforms to these two conditions. One is that he has an option to choose the duty drawback of DEPP schemes for his export. Second, the rate of drawback attributed to the customs duty, which is higher than the DEPP rate, for the items exported. Sir, in my opinion, more than 90 per cent of the exporters having turnover of Rs.10 crores would not be able to comply with these two conditions. They would, therefore, be required to pay tax on profits on transfer of DEPP licences. Moreover, the limit of Rs. 10 crores would affect a large number of small and medium industries.”
Dr. Tejinder Singh Rawal
Chartered Accountant
tsrawal@tsrawal.com
Introduction: The Amendment in respect of exports profits comes on the basis of the recommendations of the Economic Advisory Council to the Prime Minister which has Dr.C.Rangarajan, (former Chairman, 12th Finance Commission) as Chairman, and prominent economics such as Dr.Suresh Tendulkar (former Director, Delhi School of Economics), Dr.G.K.Chadda, (Vice-Chancellor, Jawaharlal Nehru University), Dr.Govinda Rao (Director-General, National Institute of Public Finance & Policy) and Dr.Saumitra Choudhuri, (Economic Adviser, ICRA) as members.
Apart from advice on policy matters referred to the Council by the PM from time to time, the EAC prepares a monthly report on economic developments at home and abroad for the Prime Minister. It also monitors economic trends on a regular basis and brings to the PM’s attention important developments at home and abroad and suggest suitable policy response.
Exporters were expecting that the Government would not go entirely by the recommendations of the Prime Minister's Economic Advisory Council on this issue. Faced with equally convincing but opposing arguments from the exporting community and the Revenue Department on the issue of taxation of income arising from sale of DEPB licences, the Prime Minister, Dr Manmohan Singh, had in early April referred the issue to his Economic Advisory Council. He had asked the council to look into all legal aspects relating to the taxation of profits arising from transfer of DEPB licences.
While concurring with the contention of the Revenue Department, the Prime Minister's Economic Advisory Council had suggested that the pain of taxation should be reduced for small exporters by specifying a threshold (Rs 10 crores) below which recovery proceedings are not to be initiated by the Tax Department.
The Existing Section:
The existing section is explained below, and the amendment has been explained below it. Kindly note that no deduction under section 80HHC is available from the assessment year 2005-06.
Deduction in respect of export profits (Section 80HHC)
- The deduction under this section is available to an Indian company or to a person other than company, who is resident in India;
- While computing the total income of above assessee a deduction of the profits derived by the assessee from the business of exports of goods or merchandise, shall be allowed if certain conditions are satisfied. Essential conditions for claiming deductions u/s 80HHC
(b) export must be of any goods or merchandise other than (i) Mineral oil and (ii) mineral and ores (other than processed minerals and ores specified in the Twelfth Schedule) of the Income-tax Act.
(c) the sale proceeds of the goods or merchandise exported should have been received in or brought into India by the exporter in convertible foreign exchange.
(d) The sale proceeds should have been received in or brought into India within a period of six months from the end of the financial year in which the export was made or within such further period as the competent authority may allow in this behalf. For this purpose the competent authority means the RBI or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange.
(e) The assessee should furnish a report in the prescribed form (Form No. 10CCAC) from a Chartered Accountant, certifying that the deduction has been correctly claimed. The report must be attached along with the return of income. Category of assessees: For the purpose of deduction under this section, assessees have been divided into two categories:
(I) Direct exporter: A Direct exporter can be of three types:
(a) Manufacturer exporter i.e. an exporter who exports the goods/merchandise manufactured or processed by him.
(b) Trading exporter Le. an exporter who exports the goods/merchandise manufactured or processed by others.
(c) Manufacturer as well as trading exporter Le. an exporter who exports goods manufactured or processed by him as well as goods manufactured or processed by others.
(II) Supporting manufacturer: Supporting manufacturer is a person who manufactures or processes goods/merchandise, but does not export such goods/ merchandise himself and sells them to any person who is holding Export house certificate or Trading house certificate and such Export house or Trading house has issued a certificate to the supporting manufacturer to enable him to claim a deduction under this section.
The amendment:
The Taxation Laws (Second Amendment) Act, 2005 has amended S. 80-HHC as under:
In section 80-HHC of the Income-tax Act, -
(i) in sub-section (3) -
(A) after the proviso, the following provisions shall be inserted and shall be deemed to have been inserted, with effect from the 1st day of April, 1998, namely : -
'Provided further that in the case of an assessee having export turnover not exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee :
provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiid) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, -
(a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being Duty Remission Scheme; and
(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being Duty Remission Scheme :
Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiie) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, -
(a) he had an option to choose either the duty drawback or the Duty Free Replenishment Certificate, being Duty Remission Scheme; and
(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowance under the duty Free Replenishment Certificate, being Duty Remission Scheme.
Explanation - For the purposes of this clause, "rate of credit allowable" means the rate of credit allowable under the Duty Free replenishment Certificate, being Duty Remission Scheme calculated in the manner as may be notified by the Central Government.':
(B) after the fourth proviso as so inserted, the following proviso shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1992, namely : -
"Provided also that in case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent. of -
(a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or
(b) any sum referred to in clause (iiid) or clause (iiie) as the case may be, of section 28, as applicable in the case of an assessee referred to in the second or the third proviso or the forth, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.";
(ii) in the Explanation occurring at the end, with effect from the 1st day of April 1998,-
(I) in the proviso to clause (ba), for the word, brackets, figures and letter "and (iiic)", the brackets, figures, letter and word "(iiic), (iiid) and (iiie)" shall be substituted and shall be deemed to have been substituted;
(II) in clause (baa), in sub-clause (I), for the word, brackets, figures and letter "and (iiic)", the brackets, figures, letter and word "(iiic), (iiid) and (iiie)" shall be substituted and shall be deemed to have been substituted.
Analysis:
As per the amendment, an explanation has been introduced below the proviso to Section 80HHC(3) to allow the deduction even in case of loss. As per this proviso, in case there is a loss under clause (a), (b) or (c) of sub-section 3 of Section 80HHC, such loss shall be set off against 90% of the export incentive, meaning thereby that in case of negative profit, 80HHC deduction will be allowed. Ostensibly the amendment has been brought to over-rule judgement of Bombay High Court in the case of ‘Rohan Dyes & Intermediates P.Ltd’, (2004) 270 ITR 350 (Bom)and Kerala High Court in Commissioner of Income Tax v. A. M. Moosa, Bharath Sea Foods’, [2005] 272 ITR 29 (Ker)
Further any profit on transfer of Duty Entitlement Passbook Scheme (DEPB) and any profit on transfer of Duty Free Replenishment Certificate shall also be considered as export incentive eligible for deduction under Section 80HHC in case of those exporters whose export turnover does not exceed Rs.10 crores during the previous year.
However, in the case of exporters whose turnover exceeds Rs.10 crores the benefit of DEPB and Duty Free Replenishment Certificate shall be allowed only when the exporter as per the scheme had an option to choose either the duty drawback or DEPB and the rate of the drawback credit attributable to Customs duty was higher than the rate of credit allowable under the DEPB.
Thus, full benefit of 80HHC deduction will be available to those exporters with turnover not exceeding Rs.10 crores whereas those exporters with turnover exceeding Rs.10 crores will not be able to claim benefit of DEPB in case they fail to fulfil the above two conditions.
The amendments have been made retrospective, with effect from April 1, 1998.
The original Section allows an exporter, while computing total income, a deduction to the extent of profits derived from such exports. "Export turnover," as per 80 HHC, means sale proceeds received in or brought into India by an assessee in convertible foreign exchange in accordance with Clause (a) of Sub-section (2) of any goods or merchandise to which the section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the Customs station as defined in the Customs Act, 1962.
No penalty/interest in respect of the fresh demand:
Circular No.02 /2006, DATED 17-1-2006 has been issued to provide that no penalty shall be levied or interest shall be charged in respect of any fresh demand raised consequent to the enactment of Taxation Laws (Amendment) Act, 2005, on account of variation in the returned/assessed income attributable to profits on sale of DEPB credits or DFRC. The Circular reads as under:
“Section 80-HHC read with section 28 of the Income-tax Act, 1961 has been amended by the Taxation Laws (Amendment) Act, 2005. The section 80-HHC so amended, inter-alia, provides that
Profits on sale of Duty Entitlement Pass Book Scheme (DEPB) credits or Duty Free Replenishment Certificate (DFRC) will be treated at par with duty drawback for the purposes of proportionate increase of profits derived from exports computed under clause (a) or clause (b) or clause (c) of sub-section (3) of section 80-HHC in the case of,-
(i) an exporter having export turnover not exceeding Rs.10 crores;
(ii) in the case of an exporter having export turnover exceeding Rs.10 crores if-
(a) he had an option to choose either duty drawback or duty entitlement pass book scheme; and
(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under duty entitlement pass book scheme.
OR
(c) he had an option to choose either duty drawback or duty free replenishment certificate; and
(d) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under duty free replenishment certificate.
2. The amendments relating to Duty Entitlement Pass Book Scheme and Duty Replenishment Certificate have been brought into the statute with retrospective effect. Therefore, it has been decided that no penalty shall be levied or interest shall be charged in respect of any fresh demand raised consequent to the enactment of Taxation Laws (Amendment) Act, 2005, on account of variation in the returned/assessed income attributable to profits on sale of DEPB credits or DFRC. Further, in such cases where assessments have already been completed and,-
(i) interest has been charged, the Chief Commissioner of Income-tax shall waive the interest relating to claim of profit on sale of DEPB credits or DFRC for deduction u/s 80-HHC;
(ii) penalty has been levied, the Chief Commissioner of Income-tax shall waive the penalty relating to claim of profit on sale of DEPB credits or DFRC for deduction u/s 80-HHC; or
(iii) penalty relating to claim of profit on sale of DEPB credits or DFRC for deduction u/s 80-HHC, has been initiated but not levied, the penalty proceedings shall be dropped.
3. Further, it is also directed that such demand shall be recovered over a period of 5 years. For this purpose, every Assessing Officer raising such a demand will maintain the details of such demand in a separate register so that the information can be furnished to the Board as and when required. These registers shall be kept in the custody of the Assessing Officers who will hand it over to their successors at the time of their transfer.”
Discriminatory: The amendment to levy tax on exporters who have exported goods over Rs 10 crores is discriminatory, particularly the decision to tax only those who had opted for DEPB/DFRC route of incentives and exempting others who had opted for drawback facility. It is a sound principle of law that a retrospective amendment which is detrimental to the interest of the assessee, should not be made. Had the exporters been aware that their opting for the DEPB scheme would negate the exemption under Section 80 HHC, they would have taken a conscious decision to opt out of the alternative scheme available at that time.
The Amendment brings legal validity to the Income-Tax Department's efforts to recover income-tax on retrospective basis on the profits earned by exporters from transfer of DEPB licences from 1997.
The Amendment has made it clear that profits earned on the transfer of DEPB licences should be treated as business income.
Exporters with annual export turnover of Rs 10 crore or less would not be required to fork out any tax on such profits, as they would be entitled for the Section 80HHC benefits without having to meet any conditions.
For exporters with annual export turnover exceeding Rs 10 crore, the Section 80HHC deduction would be available so long as the exporter conforms to two specific conditions:
a) he had an option to choose the duty drawback or DEPB scheme for his export item and
(b) the rate of drawback credit attributable to the customs duty was higher than the DEPB credit allowed for the exported product or item.
Conclusion: The article can be summed up in the words of a Rajya Sabha member C. Ramachandraiah who raised the issue in a debate in Rajya Sabha on 20th Dec 2005, “ This section of 80HHC deduction would be available so long as exporter conforms to these two conditions. One is that he has an option to choose the duty drawback of DEPP schemes for his export. Second, the rate of drawback attributed to the customs duty, which is higher than the DEPP rate, for the items exported. Sir, in my opinion, more than 90 per cent of the exporters having turnover of Rs.10 crores would not be able to comply with these two conditions. They would, therefore, be required to pay tax on profits on transfer of DEPP licences. Moreover, the limit of Rs. 10 crores would affect a large number of small and medium industries.”
posted by Dr. Tejinder Singh Rawal at 4:43 am
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