Duty Drawback treated as independent receipt, not derived from industrial undertaking, but input duties may be deducted after verification.

Duty drawback and similar remissions are treated as independent receipts and not adjustments to cost of manufacture for purposes of claiming deduction under Section 80-IC; accordingly they are not derived from the industrial undertaking and the benefit is denied on nexus grounds. Separately, where excise/customs duties were paid on purchased inputs, those input duties must be verified and netted against duty drawback receipts; the addition attributable to duty drawback was set aside and the matter remitted to the assessing officer to subsume/deduct input duties on factual verification, with consistent treatment across assessment years.

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Issues: (i) Whether duty drawback is derived from the industrial undertaking for the purposes of deduction under Section 80-IC of the Income-tax Act, 1961; (ii) Whether excise and customs duties paid on purchase of raw materials are required to be subsumed from the duty drawback received on export.

Issue (i): Whether duty drawback is derived from the industrial undertaking for the purposes of deduction under Section 80-IC of the Income-tax Act, 1961.

Analysis: The question is decided by reference to binding Supreme Court precedents which hold that duty drawback, DEPB benefits and similar remissions are not adjustments to cost of manufacture but constitute independent sources of income beyond the first-degree nexus between profits and the industrial undertaking; accounting standards and guidance notes treat such remissions separately from purchase cost.

Conclusion: Duty drawback is not derived from the industrial undertaking for purposes of Section 80-IC; this issue is decided against the assessee.

Issue (ii): Whether excise and customs duties paid on purchase of raw materials are required to be subsumed from the duty drawback received on export.

Analysis: The Tribunal in the related assessment years remanded the matters to the Assessing Officer with a direction to verify purchases and duty paid and to examine the net impact of duty paid and duty drawback; the Tribunal's orders on this question attained finality and the principle of consistent treatment across years applies. The appellate Court framed the issue and found remand and verification appropriate to determine net effect.

Conclusion: The excise and customs duties paid on purchase of raw materials are to be deducted from/subsumed into the duty drawback received; the addition of Rs. 1,52,07,079/- on account of duty drawback is set aside and the matter is remanded to the Assessing Officer to subsume/deduct the input duties and pass fresh assessment orders.

Final Conclusion: The appeal is partly allowed by denying benefit on the question of nexus (duty drawback not derived from the industrial undertaking) while allowing relief by remanding for deduction of input excise and customs duties from the duty drawback, with liberty to the Assessing Officer to verify factual claims.

Ratio Decidendi: Duty drawback and similar remissions constitute independent income for tax purposes and are not part of the cost of manufacture under Section 80-IC, but where input excise/customs duties paid on purchases exceed or offset the incentive, the net impact must be examined and input duties may be deducted from duty drawback on verification by the Assessing Officer.

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