DCIT, CIRCLE- 6(2), NEW DELHI V. CONTAINER CORPORATION OF INDIA LTD., NEW DELHI

ITA 4199/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1317 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 07-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Services rendered outside India; TDS

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’, NEW DELHI Before Dr. B. R. R. Kumar, Accountant Member Sh. Yogesh Kumar US, Judicial Member ITA No. 4320/Del/2019 : Asstt. Year : 2015-16 Container Corporation of India Ltd., C-3, Mathura Road, Opp. Apollo Hospital, Sarita Vihar, New Delhi-110076 Vs DCIT, Circle-6(2), New Delhi (APPELLANT) (RESPONDENT) PAN No. AAACC1205A ITA No. 4199/Del/2019 : Asstt. Year : 2015-16 DCIT, Circle-6(2), New Delhi Vs Container Corporation of India Ltd., C-3, Mathura Road, Opp. Apollo Hospital, Sarita Vihar, New Delhi-110076 (APPELLANT) (RESPONDENT) PAN No. AAACC1205A Assessee by : Sh. S. Krishnan, Adv. & Sh. V. Rajakumar, Adv. Revenue by : None Date of Hearing: 26.05.2022 Date of Pronouncement: 30.06.2022 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeals have been filed by the assessee as well as the Revenue against the order of the ld. CIT(A)-2, New Delhi dated 31.12.2018. 2. In ITA No. 4320/Del/2019, following grounds have been raised by the assessee: ITA No. 4199 & 4320/Del/2019 Container Corporation of India Ltd. 2 “i. In a sum of Rs.10.80 Cr. on account of ‘Served from India Scheme Scrips” treating the same as revenue income; ii. In a sum of Rs.32,184/- on account of interest paid on late deposit of TDS.” 3. In ITA No. 4199/Del/2019, following grounds have been raised by the Revenue: “1. Whether on the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition on account of revenue receipt i.e. SFIS scrips of Rs.118.44 [i.e. Rs.129.24 Cr. – Rs.10.80 Cr. (utilized scrips)] ignoring the facts that SFIS scrips were received in the form of subsidy.” 4. The subject cross appeals involve primarily one issue, i.e. the reckoning of credit under the “Served From India Scheme” (SFIS) for the purposes of the Act, i.e. as to whether such credit is ‘Income’ within the meaning of the Act. 5. What is SFIS? a. Incentivizing the predominance of the service sector in India’s GDP contribution, SFIS was notified by the Govt. of India with the following objective: Objective: Objective is to accelerate growth in export of services so as to create a powerful and unique ‘Served Prom India’ brand, instantly recognized and respected world over. b. SFIS provides duty credit scrips equivalent to 10% of foreign exchange earned during a year. ITA No. 4199 & 4320/Del/2019 Container Corporation of India Ltd. 3 Entitlement: All Service Providers shall be entitled to Duty Credit Scrip equivalent to 10% of free foreign exchange earned during current financial year. c. The Duty Credit Scrips can be used for offsetting tax liability while importing capital goods used for the purpose of business. Imports Allowed: Duty Credit scrip may be used for import of any capital goods including spares, office equipment and professional equipment, office furniture and consumables; that are otherwise freely importable and / or restricted under ITC (HS). Imports shall relate to any service sector business of applicant Non Transferability: Entitlement / goods (imported / procured) shall be non transferable (except within group company and managed hotels) and be subject to Actual User condition. d. In terms of Clause 3.12.8 of the SFIS, Duty Credit Scrips can also be used for payment of excise duty when purchases are made domestically. 6. Central Excise Tariff Notification No. 34/2006 dated 14.06.2006 was issued to provide for the credit. In terms of Clause (ii) thereof the Notification only capital goods could be reckoned for excise credit against SFIS certificates. It was reiterated that the credit shall be permitted on actual user ITA No. 4199 & 4320/Del/2019 Container Corporation of India Ltd. 4 condition, and was not transferable. ‘Capital Goods’ were assigned the meaning as in the Trade Policy. 7. The authorities below have wrongly held SFIS credit to be a revenue receipt. a. The Assessing Officer held that the eligible credit of Rs. 129.24 crores to be a receipt in the Assessee’s hands and added the entire credit under SFIS. b. The ld. CIT(A) noted that out of the total eligible credit, the Assessee had utilized sums of Rs. 4.36 crores and Rs. 6.44 crores respectively against excise duty and customs duty liabilities and restricted the addition to the sum utilized, i.e. Rs. 10.80 crores. 8. The Assessee is in appeal against the disallowance of Rs. 10.80 crores as sustained, while the Revenue’s appeal pays for the entire eligible duty credit to be held as taxable income. 9. The revenue held that SFIS is only entitlement for Customs duty & Excise Duty on purchases. The fact is that purchases are not on revenue account in the case of entities such as the Assessee, and cannot be on revenue account in cases of eligible purchases under SFIS, since credit against Excise duty & Customs duty is only available under SFIS when capital goods are purchased. The Revenue erroneously held that the credit is not given for setting up of business or acquiring any capital assets. The Revenue authorities have erroneously assumed that only an entity setting up business needs to acquire capital assets. Given that SFIS gives a credit corresponding to 10% of ITA No. 4199 & 4320/Del/2019 Container Corporation of India Ltd. 5 foreign exchange reserves earned by a service business during the year which can only be availed by existing businesses. 10. The Revenue held that SFIS nowhere requires purchase of capital goods as mandatory requirement whereas the clause 3.12.6 of the SFIS specifically restricts duty credit scrips to usage for import of “'any capital goods including spared. Additional requirements at clause 3.12.7 as to non- transferability and actual user condition precludes purchases for trading purposes. The Central Excise tariff notification No.34/2006 dated 14.06.2006 also contains clear and specific restrictions as to credit being available only in respect of “Capital Goods” as defined in the Foreign Trade Policy. 11. SFIS is a credit receipt used for making payment of excise duty on domestic purchases. Scrips under SFIS are enticements which can be set off against excise duty while making purchase / import of capital goods. In no case has any amount been received by the Assessee under SFIS. All the purchases have been capitalized and hence new assets have come into existence. 12. The Assessee has not reckoned SFIS credit in its Profit & Loss account, since such credit for its nature as well as built-in conditions, could never have been an item on revenue account. Wherever it has made purchases of eligible capital goods however, it has corresponded with vendors as to availability of SFIS credit against Excise / Customs liability against the said purchases, obtained certificates from Excise / Customs authorities against provisional Invoices from vendors, and has purchased the said capital goods net of Excise / Customs duty, ITA No. 4199 & 4320/Del/2019 Container Corporation of India Ltd. 6 against SFIS credit. The capital goods as purchased have been brought into Assets at the net-of Excise / Customs value in the Balance Sheet. 13. Details of utilization of SFIS credit during the year are are examined. Documents in respect of 17 transactions of purchase, referencing the SFIS credit and its accounting are perused. The first 16 transactions are for purchase of rakes of 30 — 45 wagons, while last one is in respect of purchase of Slack less draw bar(SLDB), which is the joint between railway wagons. 14. Thus, the rake enters the Assessee’s business and the Assessee’s accounts as a fixed asset, and is capitalized at the cost of acquisition, i.e. Rs.9,79,49,291/-. All that the SFIS credit has done therefore, is to reduce the value of a capital asset brought into the books, by the amount of excise duty thereof. Had the SFIS credit not been included, the Assessee would have paid the duty and added the same to the asset cost while capitalizing the same. There is therefore no element of revenue or income in the SFIS credit, even from the point of view of the Assessee’s accounting. In each case, SFIS credit available through a specific certificate as furnished to each vendor has been utilized to make purchases of capital goods at net of Excise prices. Those capital assets have then been capitalized at the purchase value. Clearly therefore, SFIS credit is not in the nature of income. Thus it is clear that SFIS credit goes to reduce the cost of capital goods purchased by the Assessee and the SFIS credit given to the assessee can be utilized only against purchase of capital goods and to set off a portion of excise duty and customs duty only and do not ITA No. 4199 & 4320/Del/2019 Container Corporation of India Ltd. 7 constitute taxable income of the assessee as per the Clause (xviii) to section 2(24) of the Income tax Act 1961. 15. In the result, the appeal of the assessee is allowed and that of the Revenue is dismissed. Order Pronounced in the Open Court on 30/06/2022. Sd/- Sd/- (Yogesh Kumar US) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 30/06/2022 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR