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TMI Blog2002 (7) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... h are not leviable on exportable goods ?" Though a reference to clause (a) of sub-section (3) of Section 80HHC is made in the question which is applicable where the export out of India is of goods and merchandise manufactured or processed by the assessee, the real controversy in this case arises under clause (c) of Section 80HHC(3) which applies where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods because in the assessee's case the export is both of manufactured and trading goods. Secondly, the question of exclusion of octroi from the figure of total turnover is not in issue in this appeal. We, therefore, reframe the question as under : "Whether, for the purposes of computation of the amount of deduction under section 80HHC by applying the formula as provided in sub-clause (i) of clause (c) of sub-section (3) of the said section, it is necessary to exclude the amounts of excise duty and sales tax from the figure of 'total turnover' of the business of the assessee for the purpose of bringing in parity between the numerator, viz., 'export turnover' and the denominator, 'total turnover', in the said formula, inasmuc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be included in the figure of total turnover for the purpose of deduction under section 80HHC. As per the decision of the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542, excise duty and sales tax forms part of turnover. In view of the aforesaid fact, claim of the assessee for deduction under section 80HHC at Rs. 1,70,56,997 is rejected. Deduction under section 80HHC is worked out at Rs. 1,05,12,956 as discussed above." 3. The Commissioner of Income-tax (Appeals) agreed with the Assessing Officer and rejected the assessee's claim to for reduction of excise duty and sales tax from the total turnover shown in the profit and loss account. 4. We have heard learned Counsel for the assessee, Shri Rahul Mitra, and the learned Departmental Representatives, Ms. Banani Ghosh, Commissioner of Income-tax, Departmental Representative and Shri D.K. Ghosh, Senior Departmental Representative, considered the rival submissions and gone through the record and various judgments cited at the Bar. 5. Section 80HHC provides for incentives for exports by granting deduction of the export profit earned by the assessee. It reads as under : "80HHC. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf. (b) This section does not apply to the following goods or merchandise, namely : - (i) mineral oil; and (ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule). Explanation 1. - The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. Explanation 2. - For the removal of doubts, it is hereby declared that where any goods or merchandise are transferred by an assessee to a branch, office, warehouse or any other establishment of the assessee situate outside India and such goods or merchandise are sold from such branch, office, warehouse or establishment, then, such transfer shall be deemed to be export out of India of such goods and merchandise and the value of such goods or merchandise declared in the shipping bill or bill of export as referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in clause (b) of sub-section (3); (c) 'adjusted total turnover' means the total turnover of the business as reduced by the export turnover in respect of trading goods; (d) 'direct costs' means costs directly attributable to the trading goods exported out of India including the purchase price of such goods; (e) 'indirect cost' means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover; (f) 'trading goods' means goods which are not manufactured or processed by the assessee. (3A) For the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be, - (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of the business; (b) &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962); (b) 'export turnover' means the sale proceeds, received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962); (ba) 'total turnover' shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) : Provided that in relation to any assessment year commencing on or after April 1, 1991, the expression 'total turnover' shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28; (baa) 'profits of the business' means the profits of the business as computed under the head 'Profits and gains of business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Bench of the Tribunal in Ponds (India) Ltd. v. Deputy CIT [1998] 64 ITD 33 for the assessment year 1987-88 and a Calcutta Tribunal decision in the case of Britannia Industries Ltd. v. Deputy CIT [1999] 71 ITD 14 for the assessment year 1989-90. It may be stated here that the first decision in Chloride India Ltd.'s case [1995] 53 ITD 180 (Cal.) was before the introduction of the definition of the term "total turnover" by way of Explanation (ba) below Section 80HHC(4A) by the Finance (No. 2) Act, 1991, with retrospective effect from April 1, 1987, whereas the other two decisions are after that insertion and upon considering the amendment and taking divergent views. 7. Let us first understand what is the meaning given to the terms "export turnover" and "total turnover" under the Act. As extracted above the term "export turnover" is defined in Explanation (b) to section 80HHC(4A) to mean that the sale proceeds received in, or brought into, India by the assessee in convertible foreign exchange on the export of goods outside India but does not include freight or insurance attributable to the transport of goods or merchandise beyond the customs station as defined in the Customs Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the general sense in which a particular word is understood in common parlance. 9. The tax which is passed on to the buyer is held to be the part of the price, in India as well as other countries. In the case of Chowringhee Sales Bureau P. Ltd. [1973] 87 ITR 542 (SC), the issue was whether the sales tax collected by an auctioneer who issued cost memos showing itself as seller was to be excluded from the assessee's business income. In that context, their Lordships of the Supreme Court held that the sum of Rs. 32,986 realised as sales tax by the assessee in its character as an auctioneer forms part of its trading or business receipts. The discussion was more on the issue that the sales by an auctioneer was a sale for the purposes of the Sale of Goods Act and the amount collected by it was as a dealer and, therefore, a trading or business receipt. In this context it was observed that (page 548): "as the amount of sales tax was received by the appellant in its character as an auctioneer, the amount, in our view, should be held to form part of its trading or business receipt." 10. In Sinclair Murray and Co. P. Ltd. v. CIT [1974] 97 ITR 615 (SC) again the dispute was that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the price paid by the buyer. The amount goes into the common till of the dealer till he pays the tax. It is money which he keeps using for his business till he pays it over to Government. Indeed, he may turn it over again and again till he finally hands it to Government. There is thus nothing anomalous in the law treating it as part of the amount on which tax must be paid by him. This conception of a turnover is not new. It is found in England and America and there is no reason to think that when the Legislatures in India defined 'turnover' to include tax also, they were striking out into something quite unknown and unheard of before." 12. S.K. Das, J. speaking for the Constitution Bench of this court, observed (page 484 of 12 STC) : "We think that these observations are apposite even in the context of the provisions of the Acts we are considering now, and there is nothing in those provisions which would indicate that when the dealer collects any amount by way of tax, that cannot be part of the sale price. So far as the purchaser is concerned, he pays for the goods what the seller demands, viz., price even though it may include tax. That is the whole considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal liability of the manufacturer-dealer for payment of excise duty is specified by the purchaser by direct payment to excise authorities or to the State exchequer. Reference of the earlier decision of the Supreme Court in the case of Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13; AIR 1978 SC 1496, 1499 was made of the following observations (page 27 of 43 STC) : "The test is, what is the consideration passing from the purchaser to the dealer for the sale of the goods. It is immaterial to enquire as to how the amount of consideration is made up, whether it includes excise duty or sales tax or freight. The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale . . ." and the further observation at page 1500 of the Report as under (page 27 of 43 STC) : "Take for example, excise duty payable by a dealer who is a manufacturer. When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. Ordinarily, it is not shown as a separate item in the bill, but it is included in the price charged by him. The 'sale price' in such a case could be the entire price inclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below sub-section (4A) of section 80HHC which has been extracted hereinbefore. This rule of construction has been endorsed by the Supreme Court in the case of Banarsi Debi v. ITO [1964] 53 ITR 100 approving this statement of Viscount Buckmaster in Barras v. Aberdeen Steam Trawling and Fishing Co. Ltd. [1933] AC 402 when he states (page 106) : "It has long been a well-established principle to be applied in the consideration of Act of Parliament that where a word of doubtful meaning has received a clear judicial interpretation, the subsequent statute which incorporates the same word or the same phrase in a similar context, must be construed so that the word or phrase is interpreted according to the meaning that has previously been assigned to it." 16. From the aforesaid, one can conclude that excise duty and sales tax constitute part of turnover and trading receipts of the business and, therefore, the term "total turnover", should be taken as inclusive of these levies. The principle seems to be that in a statute directed to commercial men, words having definite commercial sense must be understood in that sense as that would be the natural proper sense in that context has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emicals Industries Ltd. [2000] 245 ITR 769 cited at the time of hearing and the other is of a jurisdictional High Court of Calcutta in the case of CIT v. Chloride India Ltd. [2002] 256 ITR 625-I.T.R. Nos. 131 and 136 of 1995 dated December 19, 2001. In these two decisions a contra intention was expressed to the meaning of the term "total turnover". 19. The Bombay High Court held that reading of the two clauses (b) and (ba) defining the terms "export turnover" and "total turnover" shows that they included anything which has a nexus with the sale proceeds. Correspondingly, they show that they exclude everything which has no nexus with the sale proceeds; that the turnover should be restricted to such receipts which have an element of profit in it; that it is only the actual sale proceeds that is relevant; that anything charged by the assessee by way of excise duty and sales tax cannot be taken into account as they do not have any element of profit; that even according to the accounting principles, such levies do not form part of profit and loss account; that in fact, they are shown as liabilities in the balance-sheet; and that in such circumstances, the above two items cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Dimakuchi Tea Estate [1958-59] 14 FJR 41 ; AIR 1958 SC 353, it was observed that it is well-settled that the words of the statute, where there is a doubt about their meaning are to be understood in the sense in which they best harmonise with the subject of the enactment and the object which the Legislature has in view. The following observation in the case of S. Mohanlal v. R. Kondiah, AIR 1979 SC 1132, 1134 was then referred to : "It is not a sound principle of construction to interpret expressions used in one Act with reference to their use in another Act ; more so if the two Acts which the same word is used are not cognate Acts. Neither the meaning, nor the definition of the term in one statute affords a guide to the construction of the same term in another statute and the sense in which the term has been understood in the several statutes does not necessarily throw any light on the manner in which the term should be understood generally. On the other hand, it is a sound, and, indeed, a well-known principle of construction that meaning of words and expressions used in an Act must take their colour from the context in which they appear." 22. Viewed in this perspective, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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