Supreme Court: Excise & Sales Tax not part of turnover for deductions under Section 80HHC

The Supreme Court clarified that excise duty and sales tax should not be included in the total turnover for deduction under section 80HHC. Consultancy fees linked to export business are not automatically excluded from profits for deduction. The deduction based on a disclaimer certificate from an Export House requires further examination to determine eligibility. The Tribunal partially allowed the Revenue's appeal, remanding specific issues for fresh assessment by the Assessing Officer.

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Issues Involved:
1. Inclusion of sales tax and excise duty in total turnover for deduction u/s 80HHC.
2. Exclusion of consultancy fees from profits for deduction u/s 80HHC.
3. Deduction u/s 80HHC on disclaimer certificate issued by an Export House.

Summary:

Issue 1: Inclusion of Sales Tax and Excise Duty in Total Turnover for Deduction u/s 80HHC

The Revenue contended that after the insertion of section 145A, the total turnover for calculating deduction u/s 80HHC should include excise duty and sales tax. However, the Tribunal observed that section 145A is applicable only for computing income chargeable under "Profits and Gains from business or profession" and does not affect the interpretation of total turnover for the purpose of section 80HHC. The Hon'ble Supreme Court in IPCA Laboratory Ltd. clarified that total turnover in section 80HHC has a special meaning and does not include excise duty and sales tax. Therefore, the Tribunal dismissed this ground of appeal by the Revenue.

Issue 2: Exclusion of Consultancy Fees from Profits for Deduction u/s 80HHC

The Revenue argued that 90% of consultancy fees earned in foreign currency should be excluded from business profits for deduction u/s 80HHC. The Tribunal noted that both lower authorities did not consider whether the consultancy charges were connected with the export business of merchandise. The Tribunal held that if consultancy charges are inextricably linked with the export of goods, they form part of export turnover and are not covered by Explanation (baa) to section 80HHC. In the absence of full details, the Tribunal set aside the orders of the lower authorities and remanded the issue back to the Assessing Officer for fresh adjudication.

Issue 3: Deduction u/s 80HHC on Disclaimer Certificate Issued by an Export House

The Revenue disallowed the deduction claimed by the assessee based on a disclaimer certificate issued by M/s. Clariant (India) Ltd., citing a loss on export of trading goods by the Export House. The Tribunal observed that sub-section (1A) of section 80HHC allows deduction to a supporting manufacturer based on profits derived from sales to an Export House, irrespective of the Export House's profit or loss on trading goods. The Tribunal found that the facts of the case required reconsideration, particularly whether the Export House ultimately showed a profit or loss in its return. The Tribunal set aside the orders of the lower authorities and remanded the matter to the Assessing Officer for reconsideration, providing the assessee with a reasonable opportunity of being heard.

Conclusion:

The appeal of the Revenue is partly allowed for statistical purposes, with specific issues remanded to the Assessing Officer for fresh adjudication.

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