TMI Blog2002 (7) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, inasmuch as, 'export turnover' does not include excise duty and sales-tax which are not leviable on exportable goods ?" 2. The assessee is a public limited company. It derives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C at Rs. 1,70,56,997 is rejected. Deduction under section 80HHC is worked out at Rs. 1,05,12,956 as discussed above." 4. The CIT (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 P L Account. 5. We have heard the learned counsel of the assessee Shri Rahul Mitra and the learned Departmental Representatives Ms. Banani Ghosh, CIT, DR and Shri D.K. Ghosh, Sr. DR, considered the rival submissions and gone through the record and various judgments cited at the Bar. 6. Section 80HHC provides for incentives for exports by granting deduction of the export profit earned by the assessee. It reads as under: "80HHC. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise: Provided that if the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dited 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 referred to in sub-section (1) of section 50 of the Customs Act, 1962 (52 of 1962), shall, for the purposes of this section, be deemed to be the sale proceeds thereof. (3) For the purposes of sub-section (1) (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such exports shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export House or Trading Houses, the amount which bears to the profits of the business the same proportion as the turnover in respect of sale to the respective Export House or Trading House bears to the total turnover of the business carried on by the assessee. (4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section. (4A) The deduction under sub-section (1A) shall not be admissible unless the supporting manufacturer furnishes in the prescribed Form along with his return of income, (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on" as reduced by (1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India; (c) "Export House Certificate" or "Trading House Certificate" means a valid Export House Certificate or Trading House Certificate, as the case may be, issued by the Chief Controller of Imports and Exports, Government of India; (d) "supporting manufacturer" means a person being an Indian company or a person (other than a company) resident in India, manufacturing (including processing) goods or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes of export." 7. The controversy in this appeal is with regard to the computation of deduction under sub-clause (i) to section 80HHC(3)(c) and the only dispute for our consideration is whether the term "total turnover" is to exclude excise duty and sales-tax recovered and included in the local sales. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r" also excluded any sum of export incentives referred to in clauses (iiia), (iiib) and (iiic) of section 28. It is thus evident that though 'export turnover' is stated to be the sales proceeds received in convertible foreign exchange without inclusion of freight and insurance, 'total turnover' is not given any meaning but negatively stated to be not including freight and insurance and also receipts of export benefits. The Legislature while specifically excluding freight or insurance attributable to foreign transport of goods did not consciously exclude excise duty and sales tax received by the assessee from the customers. In other words, the total turnover is the gross amount of turnover of the business as reduced by transport and insurance attributable to transport of goods beyond the customs station and the receipts of export incentives. Revenue's contention is that when particular items alone are excluded, the general meaning excluding only those specified enumerated receipts should be given to the term. 9. What is then the general meaning of the word 'total turnover'. We can find its meaning in various dictionaries. The word 'turnover' has been defined in Stroud's Judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Validation of Assessment) Act, 1954 was upheld and in this context the Supreme Court held in that case that when the seller passed on the tax and the buyer agrees to pay sales-tax in addition to the price, the tax is really part of the entire consideration and the distinction between two amounts - tax and price - loses all significance. The aforesaid proposition of law was taken after relying upon observation of King's Bench decision in the case of Paprika Ltd. v. Board of Trade [1944] 1 All E.R. 372, 374,- "wherever a sale attracts purchase tax, that tax presumably affects the price which the seller who is liable to pay the tax demands, but it does not cease to be the price which the buyer has to pay even if the price is expressed as X plus purchase tax." and also of Court of Appeals in the case of Love v. Norman Wright (Builders) Ltd. [1944] 1 All E.R. 618, 620,- "Where an article is taxed, whether by purchase tax, customs duty or excise duty, the tax becomes part of the price which ordinarily the buyer will have to pay. The price of an ounce of tobacco is what it is because of the rate of tax, but on a sale there is only one consideration, though made up of cost plus prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's distillery obtained distillery passes for release of liquor after making payment of excise duty and presenting the same at distillery whereupon the bill of sale or invoice was prepared by the distillery showing the price of liquor but excluding excise duty. The matter reached up to the Supreme Court and the Supreme Court in its earlier decision in McDowell Co. Lid v. CTO [1977] 1 SCR 914 took the view that the intending purchaser of the Indian liquor, seek to obtain distillery passes were also responsible for payment of excise duty which was collected from them by the authorities of the Excise Department and held that excise duty did not go into the Government till and did not become part of the circulating capital and therefore, the sales-tax authorities were not competent to include in the turnover of the assessee the excise duty which was not charged by it, but was paid directly to the excise authorities by the buyer of the liquor. The distillery rules were amended thereafter and the new Rule 76(a) provided "No spirit or liquor manufactured or stored shall be removed unless the excise duty specified in r.6 has been paid by a holder or a D-2 licence before such removal." T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asoning, it would make no difference whether the amount of excise duty is included in the price charged by the dealer or is shown as a separate item in the bill." 14. It is also expressed by the CBDT that the 'export turnover' is to be taken at its FOB as against 'total turnover' at CIF value while explaining the scope of the two terms in para 32.18 of its Circular No. 621 dated 19-12-1991 as under: "32.18. Whereas the definition of the term "export turnover" excludes freight and insurance attributable to transport, no such exclusion has been specified in respect of the term "total turnover". As a result, in CIF transaction, while the export turnover is taken at FOB value, the total turnover includes the sale proceeds of exports at CIF value." 15. It is further stated that where Legislature uses in Act a legal term which has received judicial interpretation, it is to be assumed that the term is used in the sense in which it has been judicially interpreted unless a contrary intention appears. It could further possibly be said that the word "turnover" as understood in common parlance and as judicially interpreted is the sale price received by a dealer inclusive of sales-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport turnover" and "total turnover" should unless a contra intention appears be given their natural and general meaning as understood in commercial laws as interpreted by the judicial decisions and not the restricted meaning as claimed by the assessee on the ground that one has a particular kind of receipt and therefore the other should also be of similar nature or specie. The contention of the assessee that like should be compared with the like may give absurd results and it could never be applied unless the same type of goods are exported and sold in local market. A similar plea for interpreting section 80HHC(3)(b) as it then stood was rejected by the Special Bench in the case of International Research Park Laboratories Ltd. v. Asstt. CIT [1994] 50 ITD 37 (Delhi) by observing 'There are no words in sub-section (3) as to limit this apportionment of profit on the basis of turnover in exports or to suggest that the apportionment has to be resorted to only when the same kind of goods are exported are also dealt with'. In the present case, export is stated to be of marine goods, etc. and the local sales are of IMFL, Industrial Alcohol, etc. If the export sale is of a different item t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt has considered one of these decisions namely; McDowell Co. Ltd.'s case and distinguished the same by stating that the decision was rendered under the Sales-tax Act whereunder the definition given for turnover in section 2(s) of the Sales-tax Act included "the total amount set out in the bill of sale (or if there is bill of sale the total amount charged) as the consideration for the sale of or purchase of goods (whether such consideration be cash, deferred payment or any other thing or value) including any sum charged by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer, whatever be the description, name or object thereof'. It was in such context observed by their Lordships of the Calcutta High Court, that the Supreme Court observed that the said definition which would clearly indicate that the total amount charged as the consideration for the sales would have to be taken into account for determining the turnover. It was therefore, held that the word "turnover" as defined under the Sales-tax Act cannot be given effect to while interpreting the expression "total turnover" under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir Murray Co. (P.) Ltd., the issue was whether the receipt of sales tax was a trading receipt and not whether they form part of turnover or total turnover. The decision of George Oakes (P.) Ltd.'s case is also for sales-tax levy and as stated above the turnover there includes the total amount set out in the bill and collected by an assessee because of a specific definition given under the sales-tax law, the distinction drawn by Their Lordships of Calcutta High Court hold valid for this decision also. We may also observe that on a comparison of the two decisions of the Supreme Court in the case of McDowell Co. Ltd., it could be visualised that it may not always be true that the term 'turnover' included excise duty and it depends upon the provisions of law and the fact that the excise duty did not go into the common till of the assessee and did not become a part of circulating capital. 24. It may be stated here that these are the only two decisions of Bombay and Calcutta High Courts which are directly on the issue of interpretation of section 80HHC wherein it was held that excise duty and sales-tax are not part of the total turnover for the purposes of computing export profit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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