In a major relief to exporters of yesteryears, Supreme Court on Wednesday ruled that income tax should be levied only on the difference between the selling price and face value of Duty Entitlement Passbook (DEPB) scrips.

DEPB has been a refund to exporters, in the form of scrips for undertaking exports.The DEPB scheme was, however, abolished with effect from October 1, 2011. Export products earlier covered under DEPB now have the benefit of the duty drawback scheme.

For assessment year 1998-99 to 2004-05, government was levying IT on exporters with turnover of Rs 10 crore or higher, on entire sale proceeds accruing from the sale or transfer of DEPB.

Consequently, number of exporters who had a turnover exceeding Rs 10 crore and had already submitted their return were re-opened for scrutiny and heavy tax demands / liabilities were raised on these units with retrospective effect (1998) by the income tax department, thereby threatening their very existence. It is estimated that the overall tax liability was over Rs 1,000 crore.

“The judgement comes as a silver lining amidst grimmer realities of falling GDP and exports and declining credit off-take, low capital formation and somewhat stagnant manufacturing,” Rafeeque Ahmed, president of Federation of Indian Export Organisation (FIEO).

The apex court’s decision has come as a blow to the government that had introduced second amendment to Taxation Laws Act 2005 (No. 155 of 2005) under which exporters with turnover less than Rs 10 crore were exempted with effect from April 1, 1998.

Bombay HC, in June 2010, ruled in favour of the revenue department in Kalpataru Colours and Chemicals case. It had held that for computing deduction under section 80HHC, entire sale proceeds from DEPB should be reduced from eligible profits.

Special Bench of Mumbai ITAT had earlier ruled in favour of the assessee, holding that sec 28(iiid) (referring to the ‘profits on transfer of the DEPB’) intended to refer only to the ‘profit’ element and not the gross sale proceeds of the DEPB.

Cumulative merchandise exports from India in the first three quarters up to December 2011 has gone up by 25.8 per cent to $217.6 billion while imports have seen an increase of 30.4 per cent at $350.9 billion, resulting in a trade deficit of $133.3 billion.

yogimassharma

@mydigitalfc.com