ACIT, New Delhi V. M/s. First Flexipack Corporatioin, New Delhi

ITA 609/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73994 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-01-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 03-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SRIVASTAVA
• Assessee Lawyers: SURESH ANANTHARAMAN
• Keywords: Capital receipt
• Section: 37

Judgement Text

I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 5056/DEL/2010 A.Y. 2006-07 M/S FIRST FLEXIPACK CORPORATION, 305, 3 RD FLOOR, BAHNOT CORNER, PAMPOSH ENCLAVE, GREATER KAILASH-I, NEW DELHI 110 048 (PAN: AABFF0837D) VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE- 18, NEW DELHI ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 18, ROOM NO. 327, ARA CENTRE, E-2, JHANDEWALAN EXTN., NEW DELHI 110 055 I.T.A. NO. 4013/DEL/2011 A.Y. 2007-08 VS. M/S FIRST FLEXIPACK CORPORATION, 305, 3 RD FLOOR, BAHNOT CORNER, PAMPOSH ENCLAVE, GREATER KAILASH-I, NEW DELHI 110 048 (PAN: AABFF0837D) I.T.A.NO. 609/DEL/2012 A.Y. 2008-09 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 18, ROOM NO. 327, ARA CENTRE, E-2, JHANDEWALAN EXTN., NEW DELHI 110 055 (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) VS. M/S FIRST FLEXIPACK CORPORATION, 305, 3 RD FLOOR, BAHNOT CORNER, PAMPOSH ENCLAVE, GREATER KAILASH-I, NEW DELHI 110 048 (PAN: AABFF0837D) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 2 ASSESSEE BY : SH. SURESH ANANTHARAMAN, FCA DEPARTMENT BY : MS. NIDHI SRIVASTAVA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THESE APPEALS BY THE REVENUE AND ASSESSEE EMANAT E OUT OF ORDER OF THE LD. CIT(A) FOR THE RESPECTIVE ASSESSME NT YEARS. SINCE THE ISSUES ARE COMMON AND THE APPEALS WERE HEARD TOGETHE R AND THESE ARE BEING CONSOLIDATED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE 2. THE ISSUE RAISED IN ITA NO. 5056/DEL/2010 (A.Y. 2006-07) IN THE ASSESSEES APPEAL READ AS UNDER:- I) THE LOWER AUTHORITY HAS ERRED IN NOT ALLOWING DEDUCTION OF RS. 2,04,42,410/- BEING THE SUM OF CENVAT CREDIT AVAILED AS ELIGIBLE PROFIT U/S. 80-IB . II)(A) THE LOWER AUTHORITY HAS ERRED IN NOT ALLOWIN G DEDUCTION OF RS. 13,709.67 BEING THE VAT REMISSION CREDIT AVAILED AS ELIGIBLE PROFIT U/S. 80 - IB. (B) WITHOUT PREJUDICE TO THE ABOVE, THE LOWER AUTHORITY HAS WRONGLY TAKEN THE FIGURE OF RS. 1,92,000/- AS VAT REMISSION IN PLACE OF ACTUAL FIGURE OF RS. 13,790.67. III) WITHOUT PREJUDICE TO THE ABOVE, THE LOWER AUTHORITY HAS ERRED IN NOT TREATING THE AMOUNT OF RS. 2,04,42,410/- TOWARDS CENVAT CREDIT AS CAPITAL SUBSIDY. I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 3 IV) WITHOUT PREJUDICE TO THE ABOVE, THE LOWER AUTHORITY HAS ERRED IN NOT TREATING THE AMOUNT OF RS. 13,790.67 TOWARDS VAT REMISSION AS CAPITAL SUBSIDY. V) THE ASSESSEE CRAVES ITS RIGHT TO ADD, ALTER, WITHDRAW, MODIFY OR DELETE ANY OF THE GROUNDS OF APPEAL. 3. THE GROUNDS RAISED IN ITA NO. 4013/DEL/2011 (A.Y . 2007-08) IN THE REVENUES APPEAL READ AS UNDER:- I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE DISALLOWANCE OF RS. 91,94,880/- U/S. 80-IB ON ACCOU NT OF SELF CENVAT CREDIT AVAILMENT. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT EXCIDE DUTY REFUND IS A CAPITAL RECEIPT IN NATURE AN D NOT LIABLE TO TAX. III) THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND I S NOT TENABLE ON FACTS AND IN LAW. IV) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY / ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARING OF THE APPEAL. 4. THE GROUNDS RAISED IN ITA NO. 609/DEL/2012 (A.Y. 2008-09) IN THE REVENUES APPEAL READ AS UNDER:- I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 4 I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE DISALLOWANCE OF RS. 1,16,78,452/- U/S. 80-IB ON ACC OUNT OF SELF CENVAT CREDIT AVAILMENT. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT EXCIDE DUTY REFUND IS A CAPITAL RECEIPT IN NATURE AN D NOT LIABLE TO TAX. III) THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND I S NOT TENABLE ON FACTS AND IN LAW. IV) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY / ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARING OF THE APPEAL. 5. IN THIS CASE THE ASSESSEE IS A MANUFACTURING PART NERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING FLEXIBLE PA CKAGING MATERIAL MAINLY USED IN FMCG INDUSTRIES FOR PACKING FINISHED G OODS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2006-0 7 DECLARING TAXABLE INCOME AT RS. 2,93,310/- AFTER CLAIMING DEDUCTION O F RS. 10,07,74,881/- U/S. 80-IB OF THE I.T. ACT. IN THE ASSESSMENT U/S. 143(3), THE ASSESSING OFFICER ENHANCED THE RETURNED INCOME BY DISALLOWING A SUM OF RS. 2,04,42,410/- ON ACCOUNT OF CENVAT CREDIT AVAILMENT AND VAT REMISSION OF RS. 1,92,000/- OUT OF THE DEDUCTION U/S . 80IB. THE AO NOTED FROM THE PROFIT AND LOSS ACCOUNT OF THE UNIT S THAT THE ASSESSEE HAS CREDITED AN AMOUNT OF RS. 2,04,42,410/- ON ACCOU NT OF CENVAT CREDIT TO JAMMU UNIT AS WELL AS VAT REMISSION AMOUNTIN G TO RS. 1,92,000/-. THE ASSESSING OFFICER HELD THAT THE CRE DITS ON ACCOUNT OF EXCISE DUTY REFUND AND VAT REMISSIONS WERE NOT ELIGI BLE FOR DEDUCTION I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 5 U/S. 80-IB AS THE SAME WERE NOT THE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING. AS PER THE ASSESSING OFFICER, THE CENV AT CREDIT AND VAT REMISSIONS CANNOT BE SAID TO BE PROFITS OR GAINS DE RIVED FROM THE INDUSTRIAL UNDERTAKING AS ITS IMMEDIATE AND PROXIMA TE SOURCE IS NOT THE INDUSTRIAL UNDERTAKING BUT THE EXCISE POLY FOR THE REFUND OF EXCISE DUTY. 6. SIMILAR DISALLOWANCES WERE ALSO MADE BY THE ASSE SSING OFFICER FOR ASSTT. YEAR 2007-08 AND 2008-09. FOR ASSTT. YEA R 2006-07 THE LD. CIT(A) AFFIRMED THE ACTION OF THE ASSESISNG OFFICER . FOR ASSTT. YEAR 2007-08 AND 2008-09 LD. CIT(A) DELETED THE ADDITION BY HOLDING THAT ASSESSEE WAS ENTITLED TO DEDUCTION U/S. 80-IB ON AC COUNT OF CENVAT CREDIT AVAILMENT. FURTHERMORE, LD. CIT(A) ALLOWED T HE ADDITION GROUND OF THE ASSESSEE THAT EXCISE DUTY REFUND WAS A CAPIT AL IN NATURE AND NOT TAXABLE TO TAX. 7. AGAINST THE ABOVE ORDER THE ASSESSEE IN APPEAL F OR ASSTT. YEAR 2006-07 AND REVENUE IS IN APPEAL FOR ASSTT. YEA R 2007-08 & 2008-09 BEFORE US. 8. SINCE THE ISSUES ARE ANALOGICAL, WE ARE ADJUDIC ATING THE ISSUE WITH REFERENCE TO THE FACTS AND FIGURES OF THE ASST T. 2007-08. 9. THE ASSESSEE HAS RECEIVED REFUND OF EXCISE DUTY PAID BY IT, FROM THE EXCISE AUTHORITIES. THE GOVERNMENT OF INDIA, MIN ISTRY OF COMMERCE AND INDUSTRY AND DEPARTMENT OF INDUSTRIAL POLICY AND PR OMOTION VIDE ITS OFFICE MEMO DATED 14.6.2002 HAS FORMULATED A SPECIA L PACKAGE OF INCENTIVES FOR THE DEVELOPMENT OF INDUSTRIES IN THE STATE OF J&K. SUCH OFFICE MEMORANDUM STATES THAT THE SPECIAL PACKAGE FOR THE STATE OF J&K IS ON THE SAME LINES WHICH WERE EARLIER FORMULAT ED BY THE GOVERNMENT OF INDIA FOR THE NORTH EASTERN STATES NO TIFIED VIDE OM NO. I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 6 EA/1/2/96-IPD DATED 24 TH DECEMBER, 1997. WITH A VIEW TO ACCELERATE INDUSTRIAL DEVELOPMENT IN THE STATE OF J&K, THE PAC KAGE OF INCENTIVES WAS INTRODUCED AND MADE APPLICABLE TO THE INDUSTR IAL UNDERTAKINGS SPECIFYING CERTAIN CONDITIONS AND PUT UP IN THE STA TE OF J&K. ONE OF THE INCENTIVES MADE IS 100% EXCISE DUTY EXEMPTION FOR A P ERIOD OF TEN YEARS FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PROD UCTION BY THE INDUSTRIAL UNDERTAKINGS. THE ASSESSING OFFICER DISALLOWED THE ASSESSEE RELIEF U/S. 80-IB AND AMOUNT RECEIVED ON AC COUNT OF CENVAT CREDIT ALONGWITH VAT REMISSION BY HOLDING THAT THE I MPUGNED AMOUNT CANNOT BE CONSTRUED AS PROFIT OR GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING. IN THIS REGARD, SUBMISSIONS OF THE ASS ESSEE BEFORE THE LD. CIT(A) CAN BE GAINFULLY REFERRED AS UNDER:- IT WAS INTER ALIA POINTED OUT BY THE APPELLANT THA T THIS ISSUE OF GRANTING DEDUCTION U/S 80 IB ON REFUND OF EXCISE DUTY HAD ALSO ARISEN BEFORE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DHARAMPAL PREMCHAND (2009) 221 CTR 133 WHERE THE COURT HELD THE REFUND OF EXCISE DUTY HAS A DIRE CT NEXUS WITH MANUFACTURING ACTIVITY AND THEREFORE SUCH REFU ND IS AN INCOME DERIVED FROM INDUSTRIAL UNDERTAKING ELIGIBLE FOR RELIEF UNDER S. 80-IB. IT WAS ALSO SUBMITTED BY THE APPELLA NT THAT THE SPECIAL LEAVE PETITION FILED BY THE REVENUE AGA INST THE JUDGMENT OF DELHI HIGH COURT IN DHARAMPAL PREMCHAND LTD . DEALING WITH THE ISSUE OF REFUND OF EXCISE DUTY U/S 80-IB OF THE IT ACT HAS ALSO BEEN DISMISSED BY THE SUPREME CO URT (2010 T[OL 18-SC-IT). REGARDING THE APPLICABILITY OF THE RATIO OF THE DEC ISION OF HON'BLE SUPREME COURT IN THE LATEST CASE OF LIBERTY INDIA I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 7 LTD. 317 ITR 218 ASSESSEE MADE DETAILED SUBMISSIONS DISTINGUISHING THE JUDGMENT OF THE DELHI HIGH COURT IN DHARAMPAL PREMCHAND LTD. WITH THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF LIBEL1Y INDIA LTD .. T HE SUBMISSIONS OF THE ASSESSEE ARE AS UNDER: '1. YOUR HONOUR, THE JUDGEMENT GIVEN BY THE HON'BI E SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. COMMIS SIONER OF INCOME TAX (2OO9) 317 ITR 218 (SC) IS ON THE ISSU E WHETHER DUTY DRAW BACK / DEPB ALLOWED U/S. 75 OF THE CUSTOM ACT, I962 ARE INCENTIVE, PROFIT OR PROFIT DE RIVED FROM ELIGIBLE BUSINESS U/S. 80-IB. THE HON'HLE SUPREME COURT IN THIS REGARD, HELD AS UN DER: 'DEPB / DUTY DRAWBACK ARE INCENTIVES, WHICH FLOW FROM T HE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT OR FROM SECTI ON 75 OF THE CUSTOMS ACT, 1962. INCENTIVE PROFITS ARE NOT PROFITS DERIVED FROM ELIGIBLE BUSINESS UNDER SECTION 80-IB : THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS O F SUCH UNDERTAKING. PROFITS DERIVED BY WAY OF INCENTIVES S UCH AS DEPB / DUTY DRAWBACK CANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND L OSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING UNDER SECTION 80-IB.' BEFORE GOING INTO DETAILED ANALYSIS OF THE JUDGMENT OF HON'BLE SUPREME COURT, IT IS IMPORTANT TO GO INTO CE RTAIN OBSERVATION OF HON'BLE SUPREME COURT TO UNDERSTAND T HE WHOLE CONCEPT OF DUTY DRAWBACK AND DEPB AS WELL AS TH E I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 8 CONTENTION OF HON'BLE SUPREME COURT' IN THE SAID JUD GMENT (LIBERTY INDIA). AT PARA 12, PAGE NO. 231 OF ITR - '12. IN THIS BATCH OF CIVIL APPEALS WE ARE CONCERNE D WITH ADMISSIBILITY OF THE AMOUNTS OF DUTY DRAWBACK AND DEPB FOR DEDUCTION UNDER SECTION 80-IB. 16. DEPB IS AN INCENTIVE. IT IS GIVEN UNDER THE DUTY EXEMPTION REMISSION SCHEME. ESSENTIALLY, IT IS AN EXP ORT INCENTIVE. NO DOUBT, THE OBJECT BEHIND DEPB IS TO NEUT RALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF EXPORT PRODUCT. UNDER DEPB, AN EXPORTER MAY APPLY FOR CREDIT AS A PERCENTAGE OF THE FOB VALUE OF EXPORTS MADE IN FEELY CONVERTIBLE CURRENCY. CREDIT IS AVAILAB LE ONLY AGAINST THE EXPORT PRODUCT AND AT RATES SPECIFIED B Y THE DGFT FOR IMPORT OF RAW MATERIALS, COMPONENTS, ETC., DEPB CREDIT UNDER THE SCHEME HAS TO BE CALCULATED BY TAK ING INTO ACCOUNT THE DEEMED IMPORT CONTENT THE EXPORT PRODUCT AS PER BASIC CUSTOMS DUTY AND SPECIAL ADDITIONAL DUTY PAYABLE ON SUCH DEEMED IMPORTS. THEREFORE, IN OUR VIEW, DEPB/DUTY DRAWBACK ARE INCENTIVES, WHICH FLOW FROM TH E SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT, 1962, HENCE, INCENTIVES PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER SEC TION 80- IB. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFI TS OF SUCH UNDERTAKINGS. 17. THE NEXT QUESTION IS - WHAT IS DUTY DRAWBACK? S ECTION 75 OF THE CUSTOMS ACT, 1962 AND SECTION 37 OF THE CENTRAL I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 9 EXCISE ACT, 1944, EMPOWER THE GOVERNMENT OF INDIA TO PROVIDE FOR REPAYMENT O{ CUSTOMS DUTY AND EXCISE DUT Y PAID BY AN ASSESSEE. THE REFUND IS OF THE AVERAGE A MOUNT OF DUTY PAID ON MATERIALS Q/ ANY PARTICULAR CLASS OR DE SCRIPTION OF GOODS USED IN THE MANUFACTURE OF EXPORT GOODS OF SPECIFIED CLASS. THE RULES DO NOT ENVISAGE A REFUN D OF AN AMOUNT ARITHMETICALLY EQUAL TO CUSTOMS DUTY OR CENTRA L EXCISE DUTY ACTUALLY PAID BY AN INDIVIDUAL IMPORTER- CUM- MANUFACTURER. SUB-SECTION (2) OF SECTION 75 OF THE C USTOMS ACT REQUIRES THE AMOUNT THE DRAWBACK TO BE DETERMINED ON A CONSIDERATION OF ALL THE CIRCUMSTANCES PREVALENT IN THE PARTICULAR TRADE AND ALSO BASED ON THE FACTS SITUAT ION RELEVANT IN RESPECT OF EACH OF VARIOUS CLASSES OF G OODS IMPORTED. BASICALLY. THE SOURCE OF THE DUTY DRAWBACK RECEIPT LIES IN SECTION 75 OF THE CUSTOMS ACT AND SECTION 3 7 OF THE CENTRAL EXCISE ACT. 18. ANALYZING THE CONCEPT OF REMISSION OF DUTY DRAWB ACK AND DEPB, WE ARE SATISFIED THAT THE REMISSION OF DUTY IS ON ACCOUNT OF THE STATUTORY / POLICY PROVISIONS IN T HE CUSTOMS ACT/ SCHEME (S) FRAMED BY THE GOVERNMENT OF INDIA. I N THE CIRCUMSTANCES, WE HOLD THAT PROFITS DERIVED BY WAY O F SUCH INCENTIVES DO NOT FALL WITHIN THE EXPRESSION 'PRO FITS DERIVED FROM INDUSTRIAL UNDERTAKING' IN SECTION 80-IB ' IT HAS BEEN SUBMITTED THAT THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) AS STATED BY HON'BLE SUPREME COURT ITSELF IS APPLICABLE ONLY O N DUTY DRAWBACK AND DEPB INCENTIVES AVAILABLE UNDER THE EXPOR T I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 10 PROMOTION POLICY OF GOVERNMENT OF INDIA. IT DOES NOT COVER THE ISSUE OF CENVAT CREDIT/ REFUND AVAILABLE TO THE MANUFACTURER UNDER A SEPARATE NOTIFICATION ISSUED BY EXCISE AUTHORITIES TO INDUSTRIAL UNIT SET UP IN THE STATE OF JAMMU & KASHMIR. THAT CENVAT CREDIT / DUTY DRAWBACK IS ALLOWE D TO THE MANUFACTURER OF GOODS. THIS MANUFACTURING FACILI TY SHOULD BE IN THE STATE OF JAMMU & KASHMIR. THE CENVAT CREDIT IS ALLOWED ONLY TO THE MANUFACTURER AND NOT TO TRADERS OR OTHER ACTIVITIES OF THE ASSESSEE EVEN TH E SAME ARE BEING CONDUCTED BY THE SPECIFIED UNIT. IT IS ON LY ON A CONDITION WHEN EXCISABLE GOODS ARE MANUFACTURED BY NEW INDUSTRIAL UNDERTAKING. IN THE CASE OF CENVAT CREDI T, THE MANUFACTURING OF GOODS BY UNDERTAKING IS A PRE-CONDI TION. THAT IT IS ALSO IMPORTANT TO NOTE THAT EXCISE DUTY I S AVAILABLE ONLY ON MANUFACTURE AND IS PAYABLE ON REMOVABLE OF G OODS FROM THE MANUFACTORY, DUTY DRAWBACK OR DEPB IS ALLOW ED ONLY ON EXPORT. IT IS ALLOWABLE TO ANY EXPORTER, IR RESPECTIVE OF FACTS WHETHER HE IS MANUFACTURING OR NOT, MEANING THEREBY THAT EVEN IF THE EXPORTER IS NOT A MANUFACTU RER; THE INCENTIVE IN TILE FORM OF DUTY DRAWBACK / DEPB WILL BE ALLOWED. HENCE, IT IS A VERY PIVOTAL DIFFERENCE BET WEEN DEPB/ DUTY DRAWBACK AND CENVAT CREDIT THAT IN THE CAS E OF DUTY DRAWBACK / DEPB, IT IS NOT NECESSARY THAT THE EX PORTER SHOULD BE A MANUFACTURER ALSO BUT IN THE CASE OF CEN VAT CREDIT / REFUND; THIS IS A PRE-CONDITION THAT THE C LAIMANT (ASSESSEE) MUST BE A MANUFACTURER AND MANUFACTURING T HE SAME GOODS ON WHICH THE CENVAT CREDIT IS GIVEN. AS CAN BE OBSERVED FROM PARA NO. 16 & 17 OF THE JUDGMENT OF HO N'BLE I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 11 SUPREME COURT (SUPRA), DEPB IS ALLOWED AS A PERCENTA GE OF FOB VALUE OF EXPORT, WHICH IS MADE IN FREELY CONVERT IBLE CURRENCY AND DUTY DRAWBACK IS A REFUND OF AIL AVERA GE AMOUNT OF DUTY PAYABLE ON RAW MATERIAL OF ANY PARTIC ULAR CLASS OR DESCRIPTION IN THE MANUFACTURE OF EXPORT OF GOODS. THESE OBSERVATIONS OF THE HON'BLE SUPREME COURT HAD TWO FOLD MEANING ONE THE DUTY DRAWBACK OR DEPB IS NOT THE REFUND OF THE DUTY PAID BY THE EXPORTER BUT THE DEE MED REFUND ON THE BASIS OF A PERCENTAGE OF VALUE OF GOO DS EXPORTED BY THE EXPORTER, WHO MAY BE A TRADER ALSO B UT IN THE CASE OF CENVAT CREDIT, IT IS ALLOWED ONLY OF TH E AMOUNT, WHICH IS PAID BY THE MANUFACTURER AS EXCISE DUTY ON MANUFACTURE OF GOODS THAT TOO ONLY TO THE MANUFACTURI NG UNIT AND NOT ANY TRADER. SECONDLY, IN THE CASE OF D EPB AND DUTY DRAWBACK, THERE IS NO PRECONDITION THAT THE GOOD S ARE TO BE MANUFACTURED BY ANY SPECIFIED UNDERTAKING BY T HE CLAIMANT OF DEPB OR DUTY DRAWBACK BUT IN THE CASE OF CENVAT CREDIT, IT IS A PRE-CONDITION THAT GOODS ARE TO BE MANUFACTURED BY THE SPECIFIED UNDERTAKING AND EXCISE DUTY IS PAID ON SUCH MANUFACTURED GOODS BY THE SAME INDU STRIAL UNDERTAKING. THAT IT MAY KINDLY BE OBSERVED THAT BEFORE THE CLAI M OF DEPB / DUTY DRAWBACK, THE MOST PROXIMATE EVENT IS EXP ORT, WHEREAS IN CASE OF CENVAT CREDIT / REFUND, THE MOST PROXIMATE EVENT IS THE MANUFACTURE, HENCE MANUFACTURI NG IS AN IN-EXTRICABLE EVENT FOR CLAIM OF CENVAT CREDIT /REFUND. IT IS THE REFUND OF SAME EXCISE DUTY, WHICH IS PAID BY THE I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 12 UNDERTAKING IN CASH. THIS PAYMENT OF EXCISE DUTY IS ON MANUFACTURE OF GOODS BY THE ELIGIBLE UNDERTAKING AND IS SUBSEQUENTLY REFUNDED. IN VIEW OF THE ABOVE, IT MAY KINDLY BE OBSERVED THAT THE FACTS OF THE APPELLANT'S CASE ARE ENTIRELY DIFFEREN T FROM THE FACTS IN THE CASE OF LIBEL1Y INDIA LTD.' IT WAS FURTHER ARGUED THAT THE APPELLANT'S CASE IS BASICALLY COVERED BY THE JUDGMENT OF HON 'BLE DELHI HIGH COURT I N THE CASE OF DHARAMPAL PREMCHAND [SUPRA]' IT WAS ALSO SUBMITTED ON BEHALF OF THE APPELLANT TH AT THE ONLY DIFFERENCE IS THAT THE CASE OF DHARAMPAL PREMCHAN D IS COVERED BY THE NOTIFICATION APPLICABLE FOR NORTH EA ST. WHEREAS THE CASE OF APPELLANT IS COVERED BY NOTIFIC ATION ISSUED FOR THE STATE OF JAMMU & KASHMIR. THE APPELLAN T HAS ALSO SUBMITTED A DETAILED CHART COMPARING THE NOTIFIC ATIONS OF BOTH THE STATES AND PLACED AT PAGE NO. 83 OF THE PAPER BOOK. IT IS THE CONTENTION OF THE APPELLANT THAT SI NCE BOTH THE NOTIFICATION ARE PARA MATERIA, THEREFORE, THE C ASE OF APPELLANT IS SQUARELY COVERED BY THE JUDGMENT OF HON' BLE DELHI HIGH COURT IN THE CASE OF DHARMPAL PREMCHAND. THE MAIN SUBMISSION OF THE APPELLANT ON THE APPLICABI LITY OF DHARAMPAL PREMCHAND ARE REPRODUCED HERE BELOW : THE HON'BLE DELHI HIGH COURT AFTER CONSIDERING NOTI FICATION AS WELL AS THE TACTUAL POSITION HAD OBSERVED AS UND ER: '18 - AS STATED ABOVE, THE NOTIFICATIONS CLEARLY MA NDATE FROM EXCISE DUTY IS AVAILABLE ONLY IF THE INDUSTRIA L ACTIVITY I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 13 CARRIED OUT BY THE ASSESSEE EITHER IN A NEW INDUSTR IAL UNDERTAKING IN WHICH INSTALLED CAPACITY IS INCREASE D BY AT LEAST BY 25%. IT IS THUS CLEAR THAT IN THE FIRST NO TIFICATION, I.E. 32/1999 THE EXEMPTION IS AREA SPECIFIC, WHILE IN TH E SECOND NOTIFICATION, I.E. 33/1999 THE EXEMPTION IS SPECIFIC TO GOODS AS REFERRED TO IN THE SCHEDULE APPENDED TO THE SAID NOTIFICATION. IT IS THUS CLEAR THAT THE EXEMPTION IS DIRECTLY RELATABLE TO INDUSTRIAL UNDERTAKING MANUFACTURING G OODS, WHICH ARE OTHERWISE EXIGIBLE TO DUTY. THE EXEMPTION IS AVAILABLE EITHER UNDER NOTIFICATION NO. 32/1999 OR UNDER NOTIFICATION NO. 33/1999 DEPENDENT ON WHERE THE UNI T IS LOCATED OR THE TYPE OF GOODS MANUFACTURED BY AN ASS ESSEE AS SPECIFIED IN THE RELEVANT NOTIFICATION. 19 - TO OUR MIND, THE PROCEDURE FOR GRANTING OF EXE MPTION IS, AS INDICATED ABOVE, THAT THE, ASSESSEE IN THE F IRST INSTANCE, PAYS THE EXCISE DUTY FROM ITS CURRENT ACC OUNT. THE STATEMENT WITH RESPECT TO CLEARANCES MAD, IS SUBMITTE D WITH THE CONCERNED CENTRAL EXCISE AUTHORITIES BY TH E 7 TH OF THE SUCCEEDING MONTH. THE CENTRAL EXCISE AUTHORITI ES AFTER VERIFYING THE CLAIM OF THE ASSESSEE ARE REQUIRED TO GRANT REFUND OR EXCISE DUTY PAID FROM THE CURRENT ACCOUNT DURING THE MONTH UNDER CONSIDERATION TO THE MANUFACTURER / ASSESSEE BY THE 15 TH OF THE SUCCEEDING MONTH. THE NOTIFICATION FURTHER PROVIDED THAT IN THE EVENT IT WAS NOT POSSIBLE FOR THE CONCERNED AUTHORITIES TO VERIFY TH E CLAIM FOR REFUND OF EXCISE DUTY THEN IT HAD TO BE MADE ON PROVISIONAL BASIS. I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 14 20. IN THESE CIRCUMSTANCES, THE SUBMISSIONS OF THE L EARNED COUNSEL FOR THE REVENUE IS THAT THERE IS NO DIRECT NEXUS BETWEEN REFUND OF EXCISE DUTY PAID OR THAT THE REFU ND OF EXCISE DUTY PAID WAS DEPENDENT ON THE SAID NOTIFICA TION IS, TO SAY THE LEAST, COMPLETELY UNTENABLE. 10. CONSIDERING THE ABOVE, CIT(A) HAS DECIDED THE I SSUE AS UNDER:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. FROM THE PERUSAL OF THE INDUSTRIAL POLICY ANNOUNCED BY THE CENTRAL GOVERNMENT FOR THE STATE OF JAMMU & KASHMIR READ WITH THE NOTIFICATION ISSUED BY THE EXCISE DEPARTMENT IN THE STATE OF JAMMU & KASHMIR, IT IS FOUND THAT THE CONCESSION GIVEN IN THE FORM OF EXCIS E DUTY REFUND IS A PRODUCTION LINKED INCENTIVE. IT IS ALSO SEEN THAT THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. IS ON THE ISSUE AS TO WHETHER DU TY DRAW BACK AND DEPB COULD BE SAID TO BE PROFIT DERIVED FRO M THE BUSINESS OF THE INDUSTRIAL UNDERTAKING U/S 80 IB OF THE ACT. IT HAS BEEN OBSERVED BY THE SUPREME COURT IN THIS CASE THAT DUTY DRAWBACK/DEPB WAS GIVEN TO ENCOURAGE EXPORT AND CANNOT BE SAID TO BE INEXTRICABLY LINKED WITH THE MANUFACTURING ACTIVITY. THE EXCISE DUTY REFUND IN TH E CASE OF THE APPELLANT IS HOWEVER DIRECTLY LINKED WITH TH E MANUFACTURING ACTIVITY AND IS PRODUCTION LINKED INCE NTIVE, WHICH ARISES OUT OF MANUFACTURING ACTIVITY OF APPEL LANT'S INDUSTRIAL UNDERTAKING AT JAMMU. SUCH EXCISE DUTY RE FUND IS THEREFORE, A FIRST DEGREE SOURCE OF RECEIPT LINKED WITH THE MANUFACTURING ACTIVITY OF THE UNDERTAKING. HENCE IT IS I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 15 DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAK ING AND FALLS WITHIN THE PARAMETERS LAID CLOWN IN SECTION 8 0IB OF THE IT ACT. WHILE ON THE ISSUE I HAVE GONE THROUGH THE FINDINGS OF MY PREDECESSOR IN APPELLANT'S CASE FOR AY 2006-07 IN A PPEAL NO: 427/08-09 DATED 07.09.10, WHEREIN MY LEARNED PREDECESSOR HAS DISALLOWED THE APPELLANT'S CLAIM FOR ALLOWING 80-IB DEDUCTION ON EXCISE DUTY REFUND (SEL F CENVAT CREDIT). ON RELYING UPON THE OBSERVATION OF HONOUR ABLE SUPREME COURT IN CASE OF LIBERTY INDIA LTD. (SUPRA) VIZ. FOR THE PURPOSE OF AS-2, CENVAT CREDITS SHOULD NOT BE I NCLUDED IN THE CASE OF PURCHASE OF INVENTORIES & THAT THE SAID DECISION IS APPLICABLE TO THE FACTS OF APPELLANT'S CASE TOO. IT IS HOWEVER NOTED FROM THE NOTIFICATION NO, 56/2002 OF CENTRAL EXCISE DATED 14.11,02 THAT THE EXEMPTION CON TAINED IN THE NOTIFICATION IS SUBJECT TO THE CONDITION THAT THE MANUFACTURER FIRST UTILIZES WHOLE OF THE CENVAT CRED IT (THIS ARISES OUT OF PURCHASE OF RAW MATERIAL) AVAILABLE T O HIM ON THE LAST DAY OF THE MONTH MEANING THEREBY THAT NO EXC ISE DUTY REFUND IS ELIGIBLE TO THE APPELLANT TILL SUCH TIME THERE REMAINS 'UNUTILIZED CENVAT CREDIT' AVAILABLE TO HIS ACCOUNT. IT IS ONLY WHEN EXCISE DUTY IS ADDITIONALLY PAID BY THE APPELLANT, AFTER EXHAUSTING THE AVAILABLE CENVAT CR EDIT THAT THIS EXCISE DUTY PAID IS SUBSEQUENTLY REFUNDED TO T HE APPELLANT. THUS THIS REFUND IS THEREFORE DIRECTLY R ELATABLE TO CARRYING OUT OF MANUFACTURING ACTIVITIES. I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 16 THIS BEING THE FACTUAL MATRIX RELATED TO EXCISE DUTY REFUND. I RESPECTFULLY DISAGREE WITH THE ABOVE FINDINGS OF MY PREDECESSOR AND HOLD THAT THE PAYMENT OF CENTRAL EXC ISE DUTY HAS A DIRECT NEXUS WITH THE MANUFACTURING ACTIVI TY AND AS A NATURAL COROLLARY THE REFUND OF THE VERY SAME C ENTRAL EXCISE DUTY ALSO HAS TO BE HELD AS HAVING A DIRECT N EXUS WITH THE MANUFACTURING ACTIVITY. IN FACT ANY ISSUE O F REFUND OF CENTRAL EXCISE DUTY WOULD NOT ARISE IN THE ABSENC E OF ANY MANUFACTURING CARRIED OUT IN THE INDUSTRIAL UNDERTAK ING. THEREFORE, THERE IS AN INEXTRICABLE LINK BETWEEN TH E MANUFACTURING ACTIVITY AND PAYMENT OF CENTRAL EXCISE DUTY AND ITS CONSEQUENT REFUND. HON'BLE DELHI HIGH COURT IN THE CASE OF DHARAMPAL PREMCHAND (SUPRA) HAD CLEARLY DISTINGUISHED THE NATU RE OF INCOME BY WAY OF DUTY DRAW BACK / DEPB AND CENVAT CRE DIT / REFUND. THEREFORE, RESPECTFULLY FOLLOWING THE JUD GMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF DHARAMPAL PREMCHAND (SLP FILED BY REVENUE HAS BEEN DISMISSED BY THE SUPREME COURT -20 I 0 TIOL,-18 SC-LT), WHICH MAKES A DISTINCTION BETWEEN THE TREATMENT TO BE GIVEN TO EX CISE DUTY REFUND AND DUTY DRAW BACK/DEPB, THE AO IS DIRECTE D TO TREAT EXCISE DUTY REFUND AS PROFIT DERIVED FROM T HE BUSINESS OF THE INDUSTRIAL UNDERTAKING, WHILE COMPUT ING THE I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 17 ELIGIBLE DEDUCTION U/S. 80-IB OF THE INCOME TAX ACT , OF THE APPELLANT'S JAMMU UNIT. 11. AGAINST THE ABOVE ORDER REVENUE HAS FILED THE A PPEAL. 12. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE JURISDICTIO NAL HIGH COURT IN THE CASE OF DHARAMPAL PREMCHAND (2009) 221 CT R 133 WHERE THE COURT HELD THE REFUND OF EXCISE DUTY HAS A DIRE CT NEXUS WITH MANUFACTURING ACTIVITY AND THEREFORE SUCH REFUND IS AN INCOME DERIVED FROM INDUSTRIAL UNDERTAKING ELIGIBLE FOR RELIEF U/S. 80-IB. HE FURTHER SUBMITTED THAT THE DECISION OF THE HONBLE APEX COU RT IN THE CASE OF LIBERTY INDIA LTD. 317 ITR 218 (SUPRA) IS NOT APPL ICABLE. HE FURTHER CLAIMED THAT THE DECISION OF THE DHARAMPAL (SUPRA) CA ME AFTER THE LIBERTY INDIA PRONOUNCEMENT BY THE APEX COURT. H E FURTHER SUBMITTED THAT THE ISSUE HAS TO BE DECIDED IN FAVOU R OF THE ASSESSEE IN AS MUCH AS THE IMPUGNED AMOUNT IS CAPITAL RECEIPT. 13. LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND THE LD. CIT( A)S ORDER FOR THE ASSTT. YEAR 2006-07. HOWEVER, SHE COULD NOT CONTRO VERT THE ASSESSEES SUBMISSIONS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 18 DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF DHARAMPAL PREMCHAND (SUPRA). 14. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND OURSELVES IN AGREEMENT WITH THE FI NDING OF THE LD. CIT(A) THAT THE ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF DHARAMPAL PREMCHAND 221 CTR 133. IN THIS CASE THE HO NBLE COURT HAS HELD THAT THE REFUND OF EXCISE DUTY HAS A DIREC T NEXUS WITH MANUFACTURING ACTIVITY AND THEREFORE SUCH REFUND IS AN INCOME DERIVED FROM INDUSTRIAL UNDERTAKING ELIGIBLE FOR RELIEF UNDE R SECTION 80-IB. WE FURTHER AGREE WITH THE CONTENTION THAT HONBLE APEX COURT DECISION IN THE CASE OF LIBERTY INDIA LTD. 317 ITR 218 IS NOT A PPLICABLE. THIS HAS BEEN DISCUSSED IN DETAIL IN PRECEDING PARAGRAPHS. UNDER THE CIRCUMSTANCES, WE HOLD THAT THE REFUND OF EXCISE DUT Y IS AN INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING. HENCE, TH E ASSESSEE IS ELIGIBLE FOR RELIEF U/S. 80-IB ON THESE AMOUNTS. 15. IT IS ALSO NOTED THAT FOR THE ASSTT YEAR 2007-0 8 AND 2008-09 THE LD. CIT(A) HAS ALLOWED THE ADDITIONAL GROUND OF THE ASSESSEE THAT THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE I N AS MUCH AS THE IMPUGNED AMOUNT IS CAPITAL RECEIPT. HOWEVER, WE FIND THAT WE HAVE ALREADY HELD HEREINABOVE THAT THE ASSESSEE IS ELIGI BLE FOR DEDUCTION U/S. 80-IB ON THE IMPUGNED AMOUNTS AND THE DECISION O F THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DHARAMCHAND PREMCHAND (SUPRA) IS SQUARELY APPLICABLE. HENCE, WE FIND TH AT THE ADJUDICATION ON I.T.A. NOS. 5056/DEL/2010, 4013/DEL/2011 & 609/DEL/2012 19 THE ISSUE AS TO WHETHER THE IMPUGNED AMOUNT IS CAPITA L RECEIPT OR NOT IS ONLY OF ACADEMIC INTEREST, HENCE, WE ARE NOT DEAL ING WITH THE SAME. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR THE ASSTT. YEAR 2006-07 IS ALLOWED AND BOTH THE REVENUES APPEALS FOR THE ASSTT. YEARS 2007-08 & 2008-09 STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/1/2014. SD/- SD/- [ [[ [I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 03/1/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES