TaxTMI 
TaxTMI 
2016 (7) TMI 1662
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....: Rs.15,84,40,288/- and Excise Duty : Rs.10,49,23,175/-) availed in the relevant year by treating it as a revenue receipt. 2. The Appellant prays that the order of the learned Commissioner of Income Tax (Appeals)-LTU on the grounds be set aside and that claim of the Appellant be allowed." 3. Rival contentions have been heard and record perused. Facts in brief are that Assessee Company is engaged in the business of manufacturing saw pipes and spiral pipes. It set up and started industries in Anjar-Kutch (Gujarat) in 2005. Accordingly the assessee company became eligible for subsidy scheme provided by central and State Government for development of earthquake prone area - Anjar-Kutch (Gujarat). The assessee is regularly assessed to tax under the provisions of the Income Tax Act,1961. For the relevant year, i.e., A.Y. 2009-10, the assessee had filed the return of income on 29/09/2009 computing total income at Rs.37,21,96,759/-. In the course of the assessment proceedings, by a letter dated 11/01/2013, the assessee filed a revised computation of Income wherein the subsidy by way of VAT exemption of Rs.15,84,40,288/- and excise refund of Rs.10,49,23,175/- was reduced from th....
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....ng up' a new Industry. In the scheme new Industries will get tax exemption equivalent to the investment made within a period of 10 years from the date of first sale. In the scheme Industrial unit will charge VAT and retain the same as an Incentive. 4.1 Following judgments of various High Courts saying that Incentives declared by the Government for development are of capital nature were referred before the AO : - . 1. Shree Balajl Alloys Vs. CIT 333 ITR 335 - High Court of Jammu Kashmir held that Refund of Excise under subsidy scheme Is a capital nature and not taxable, 2. Vinod Kumar Jain vs. ITO, Jammu, ITAT, Amritsar Bench (Special Bench) (IT Appeal Nos. 65& 68 (Asr.) of 2010) 140 ITD 1, held that excise duty refund is to be treated as capital receipt. 3. CIT vs. Rasoli ltd. [2011J 245 CTR. 667 (Cal High Court) - Sales Tax subsidy received is capital receipt. 4. CIT vs. Reliance Industries lid. [2011] 339 ITR 632 (Bom. High Court) Sales Tax Incentive was a capital receipt." 5. However, the AO did not convince with the assessee‟s reply and held as under: 1. All the Incentives are production Incentives in the sense that t....
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....ll only and assessee was entitled to purchase the raw materials, packing materials and all the processing materials utilized for the purpose of manufacturing goods without payment of sales tax/VAT. Similarly, assessee was also entitled to exemption from the payment of sales tax In respect of sale of finished goods intermediaries, by products, waste and scrap produced by the eligible unit and assessee was required to furnish details of purchases of raw materials and sales to meet with the input/output norms prescribed under the exim policy of the Central Government and the same had to be , certified by the Chartered Accountant, Even though the quantum of incentives by way of sales tax/value added tax exemption was linked to and restricted by the eligible fixed capital investment, the benefits/incentives were to be available for a period of 5/7/10 years, depending upon the quantum investment and the benefit of sales tax exemption was available only from "the date of commencement of commercial production" and which was defined as "date of first sale bill" under clause 3.3 of the notification. Conditions in clause 5, 7 and 8 of the notification dated 09/11/2001 clearly show that the co....
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....nd' goods are purchased and sold. Similarly, provisions of section 18A, 18B and 18C of Gujarat Value Added Tax Act 2003 which came into effect from 1/4/20,06, also unequivocally speak about and link the grant of value added tax incentives by way of exemption' of VAT to become available, only if, the goods are purchased and sales are effected by the, eligible unit located. In Bhuj district of Gujarat state after certain date only. Thus, even under the Gujarat Value Added Tax 2003, provisions for availing VAT remission benefits by way of exemption from payment of VAT at source are more or less similar to the sales tax provisions. 8. The CIT(A) further observed that there was no physical receipt of benefits by way of sales tax Incentives in the form of exemption of sales tax, purchase tax/value, added tax since assessee was exempted from payment of purchase/sales/value added tax at the point and sale itself from the first day of sale itself. Thus, there was neither a constructive receipt nor a constructive payment by the assessee and when that is the fact of the case, the question of ST/VAT exemptions being capital receipts do not arise. 9. After having above discussion ....
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....nd sales tax was in the nature of income insofar as same was received only after commencement of the production. He further contended that incentive was not paid as percentage of investment so as to call the same as capital receipt but was payable to assessee only after commencement of the commercial production. Reliance was placed on the decision of Hon‟ble Supreme Court in the case of Shaney Steels Press Works Ltd. (supra). 12. We have considered rival contentions and carefully gone through orders of authorities below. We have also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. AR and ld. DR during the course of hearing before us in the context of factual matrix of the case. 12.1 From the record we found that to avail the benefits of Incentive scheme Issued by Central and State Government, the assessee has set up and started Industries at Anjar - Kutch (Guj.) in the year 2005. The assessee got the benefits year to year on Investment made under the Incentive scheme and credited to profit and loss account. The said receipt are capital receipt in nature therefore not liable to tax while computin....
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....ress Works Ltd. Vs. CIT; 248 ITR 253 (SC) and has observed at page 400 as under: ".. The Importance of the judgment of this Court in Sahney steel case lies in the fact that it has discussed and analyzed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to* the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set up a new ....
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....essing Officer has wrongly held that the facts are different and has erroneously refused to follow these judgements. Following the principle laid down by the Hon‟ble Supreme Court in CIT vs. Ponni Sugar and Chemicals Ltd.306 ITR 392 (SC), the Hon‟ble Jammu and Kashmir High Court in the case of Shree Balaji Alloys, held that the subsidy by way of excise duty refund and interest subsidy given by the Central Government for setting up new industries in notified backward areas in Jammu and Kashmir was a receipt on capital account and not income. The decision of Hon‟ble Jammu & Kashmir High Court has been recently affirmed by Hon‟ble Supreme Court.The facts in all these cases are identical to the case of the assessee with respect to subsidy received by way of refund/exemption of excise duty/VAT/Sales Tax. However, the Assessing Officer has wrongly held that the facts are different and has refused to follow this judgement. One of the reasons given by the Assessing Office not to follow the judgement of Hon‟ble Bombay High Court was that the SLP against this judgment is pending before the Hon‟ble Supreme Court. 15. In the case of Rasoi Ltd. 335 ITR 438....
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.... ii) If the object of the subsidy scheme is to enable the assessee to run the business more profitably the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set up a new unit the receipt of subsidy would be on the capital account. iii) Once the undisputed facts pointed towards the object and that being to enable the assessee to set up a new unit then the receipt was a capital receipt." 18. We had carefully gone through Gujarat Industrial Policy 2003 and Incentive Scheme 2001 for Economic Development of Kachchh District. As per Gujarat Industrial Policy for setting up industrial park state government was encouraging participation of private sector for setting up small estates and specialized industrial parks. As per the scheme eligible unit will be provided subsidy in the form of sales tax exemption in respect of units having investment upto Rs.10 crore, equal to 100% Fixed eligible investment. In case investment is more than 10 crore and upto 50crores the exemption will be for 7 seven years period equal to 100% on fixed eligible investment. The incentive scheme 2001 for economic devel....
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....f Kutch by any industrial undertaking during the operative period of this scheme. This unit shall have to fulfill the following conditions for being qualified as a new industrial project. (a) For new project, a separate license or registration shall have to be obtained or necessary amendments should have carried out in the existing license or registration. (b) For the new project, separate identifiable investment shall have to be made and it should not be a part of existing project or expansion thereof. For new scheme, it is necessary to have a separate building and the accounts should also be maintained separately. However, the new project using the utilities such as water, power, steam and pollution control facilities form the existing units shall not loose the eligibility to receive the incentives under the scheme. 20.2 As per clause Eligible units will be able to avail of the benefits of sales tax exemption or sales tax department on their eligible fixed capital investment. Under the sales tax incentive, the -tax to-be recovered against the sales proceeds under the Gujarat Sales Tax Act or Central Sale Tax Act shall be considered. The units shall have to op....
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....n respect of original value of Rs.88,70,70,832/- (Rupees Eighty Eight Crore Seventy Lakh Seventy Thousand Eight Hundred Thirty Two only) as investment made in plant and machinery. " Yours faithfully, Sd/- Deputy Commissioner (CCO) Encl. As above. Copy to: The Commissioner, Central Excise, Rajkot along with above mentioned two original certificates. OFFICE OF THE CHIEF COMMISSIONER OF CENTRAL EXCISE l 7th FLOOR, CENTRAL EXCISE AHMEDABAD ZONE AHMEDABAD 7th Floor, Central Excise Bhavan, B/h. Polytechnic Bus-stand, Nr. Panjrapole, Ahmedabad-380 015 F. NO. V /3 0-2/CCO/Kutch/03-04 Date: CERTIFICATE This is to certify that the original value of investment in plant and machinery in the factory of MIs. Man Industries (India) Ltd., Survey No. 485/2, Anjar-Mundra Highway, Village - Khedoi, Taluka : Anjar, Dist.- Kutch, Gujarat having Central Excise Registration No. AAACM2675GXM003 in terms of Notification. No. 39/2001-CE dated 31.07.2001 is Rs. 88,70,70,832/- ( Eighty Eight Crores Seventy Lakhs Seventy Thousand Eight Hundred Thirty Two Only). This certificate is issued on the basis of a Certificat....
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....irteen Lakhs four Thousand only) is sanctioned. Place: Gandhidham Dated: 29/09/2008 sd/- Dy.Commercial Tax Commissioner, Ward - 25, Gandhidham, (Kutch). Copy to: Director, E Governance cell, Office of the Commercial Tax Commissioner, Ahmedabad. Copy to: Assistant Commercial Tax Commissioner, Office of the Commercial Tax, Bhuj/Gandhidham. sd/- Dy.Commercial Tax Commissioner, Ward - 25, Gandhidham, (Kutch). Ministry of Finance has notified the scheme of exemption from excise duty for the district of Kutch in the State of Gujarat. The scheme is effective for a period of 5 years. The scheme is applicable to all goods with exception of tobacco and tobacco products. goods attract.ing special excise duty and goods that are chargeable to a confessional rate of duty of 4% or 8%. It has been decided to exempt goods manufactured in new factories that are set up in the district of Kutch within two years from now. If the investment on plant and machinery is not less than Rs. 20 crore, goods manufactured by the factory shall be exempt from excise duty without any limit. However, if the investment is less than Rs.....
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.... observed from the PO received from M/s GAIL (India) Limited dated 20.11.2008 amounting to Rs.267,88,36,636/- wherein clause 3.1 it is specifically mentioned that the total order value is including Central Sales Tax (CST) @4%. Further, Annexure 2 of the said PO gives the breakup of entire order value including Ex-warehouse Unit Price, excise duty on the unit price and Unit Sales Tax applicable extra. 26. We observed from the PO received from M/s GAIL (India) Limited dated 22.05.2008 amounting to Rs.108,43,40,915.84/- that the sales tax @4% is separately mentioned on the PO and is to be collected on sale price plus excise duty. In the given PO the sale price for the ntire contract is Rs.90,79,17,959/-, total excise duty including cess if Rs.13,09,21,769.69/- total to Rs.103,88,39,728.69/- and sales tax is Rs.4,15,53,589.15/- i/e 4% of Rs.103,88,39,728.69/-. 27. From the above documentary evidence as placed on record we found that assessee has to charge VAT separately to the customers over and above the sale price of the products supplied. We had also verified invoices raised by the assessee wherein the VAT @4% is charged over and above the invoice value and collected from the ....
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....y certificate issued by Deputy Commissioner Ward25, Gandhidham (Kutch) dated 29.09.2008, .. to which tax exemption/ tax remission amount to Rs.148,13,4000/- was sanctioned. 31. In view of the above documentary evidence there is no merit in the observation of the CIT(A) that assessee was not eligible for any amount of sales tax exemption. 32. We had gone through various class of incentive scheme so launched by Government of India and found that assessee has set up new unit in accordance with the scheme and was in receipt of various types of incentive in the form of sales tax exemption/ deferment, exemption of weight and excise duty refund as per the Judicial pronouncements laid down by Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd. (supra) we have to apply purpose test for judging nature of subsidy received by assessee. As the object of the subsidy scheme as discussed above was to enable the assessee to set up new unit or to expand existing unit, the receipt of subsidy is to be taken on capital account. Form or mechanism through which subsidy is given is irrelevant. As per the provisions of incentive scheme as discussed above, benefit was available ....