1973 (6) TMI 3 - HC - Income Tax

Court rules tax credit based on variety, not overall clearance, for distinct classes of goods.

The court held that tax credit under section 280ZD should be calculated for each variety of paper as a distinct class of goods, not based on overall ... Petitioner-company owns and runs three paper mills - Assessee producing different varieties of paper - whether tax credit under s. 280ZE is to be computed for each variety of paper - the tax credit is to the computed in respect of each variety or quality of paper which forms a distinct class of goods for the purpose of excise duty and in calculating the rate at which the tax credit is to be computed the quantum of such goods is to be determined not with reference to one particular factory when the goods are manufactured in more than one factory the total quantity of the same class of goods produced in all the factories owned by the person should be considered - There will also be a writ in the nature of mandamus commanding the respondents to deal with and to decide according to law the application of the petitioner for grant of tax credit certificate Issues Involved:1. Eligibility for tax credit certificate under section 280ZD of the Income-tax Act, 1961.2. Basis for calculating tax credit: factory-wise or overall clearance.3. Classification of goods for tax credit purposes.Detailed Analysis:1. Eligibility for Tax Credit Certificate under Section 280ZD:The petitioner-company applied for a tax credit certificate under section 280ZD of the Income-tax Act, 1961, read with the Tax Credit Certificate (Excise Duty on Excess Clearance) Scheme, 1965, for the financial year 1966-67. The claim made amounted to Rs. 9,88,893.18, but the respondent No. 2 restricted it to Rs. 4,19,375. The Deputy Director of Inspection, Customs and Central Excise, interpreted that the tax credit should be determined based on the overall net excess clearance after considering the shortfall in any unit within a group owned by an individual, firm, or corporate body. The petitioner argued that the benefit should be allowed for each quality or variety of paper and factory-wise, not on the overall clearance from all factories.2. Basis for Calculating Tax Credit: Factory-wise or Overall Clearance:The court examined the relevant sections of the Act and the Scheme. Section 280ZB provides for the grant of a tax credit certificate for increased production of goods, calculated based on the excess amount of duty of Central excise payable on the quantum of goods cleared during the relevant financial year over the base year. The court found that the tax credit certificate should be granted based on the clearance of each particular variety or quality of paper, which constitutes a different class of goods. The Scheme requires a person owning more than one factory manufacturing the same class of goods to file a declaration in Form 'B' for each factory, indicating that the overall production of such goods in different factories is to be considered.3. Classification of Goods for Tax Credit Purposes:The court noted that the term 'goods' is defined in clause 2(h) of the Scheme as any excisable goods for which a tax credit certificate can be granted. The Central Excises and Salt Act, 1944, charges excise duty on excisable goods produced or manufactured in India. Different qualities and varieties of products, such as various types of paper, constitute distinct and separate classes of goods. The court emphasized that each variety of paper constitutes a class of goods, and for the purpose of granting tax credit, all varieties with their separate and distinct qualities should not be lumped together. The object of section 280ZD and the Scheme is to encourage the manufacture or production of specified goods, and this objective cannot be achieved by lumping all varieties together.Conclusion:The court concluded that under section 280ZD, the tax credit is to be computed in respect of each variety or quality of paper, which forms a distinct class of goods. The total quantity of the same class of goods manufactured or produced in all the factories owned by the person should be taken into account for calculating the tax credit. The court issued a writ of certiorari quashing the order of respondent No. 2 dated 2nd February, 1968, and a writ of mandamus commanding the respondents to decide the application for the tax credit certificate according to law. The rule was made absolute, with no order as to costs.