Deduction-Export of goods- Export of goods purchased from EOU units

Addl. CIT vs Swan Industries Ltd. ITA Nos. 140/Luck/2004 and 31/Luck/2005; Asst. yrs. 2000-01 and 2001-02 And Swan Industries Ltd. vs Addl. CIT ITA No. 845/Luck/2004; Asst. yr. 2001-02 I.C. Sudhir, J.M and B.P. Jain, A.M 27 April 2007 S.D. Srivastava and Raj Mehra, for the Revenue P.C. Parwal and Bhupendra Mantri, for the Assessee ORDER— I.C. Sudhir, J.M: ITA Nos. 140/Luck/2004 and 31/Luck/2005 : In these appeals, the Revenue has questioned first appellate order on the common grounds involving the issue as to whether the learned CIT(A) was justified in directing the AO to allow deduction under s. 80HHC of the IT Act, 1961 to the assessee. 2. We have heard and considered the arguments advanced by the parties in view of the orders of the lower authorities and the decisions relied upon by them. 3. The facts in brief are that the assessee is trading in chemicals. During the years under consideration, the assessee had also exported granite blocks, etc. It claimed deduction under s. 80HHC which was denied by the AO on the basis that both, the manufacturer and the assessee could not have claimed deduction/exemption for the export of the same goods. In view of the AO, the assessee was only a facilitator to the export while the actual exporter was the manufacturer. The explanation of the assessee in this regard remained that the assessee company was a registered merchant exporter and procures orders from its foreign buyers directly. To comply with the export obligations, it makes purchases from various manufacturers/suppliers within the country, some of which also include EOUs. For the years under consideration, the assessee had procured orders directly from its foreign buyers. It thereupon exported the goods by procuring them from various manufacturers including 2 EOUs i.e. STI Granite India Ltd. and Coromandal Stamping and Stones Ltd. These two EOUs were entitled for deduction under s. 10B and were also entitled to export benefits such as REP license, special import license, etc. The assessee upon receiving the export orders from its foreign buyers places the order on its suppliers including the EOUs with the condition to the effect that they would supply the goods directly from its supply to the inland container depot on behalf of the assessee ex-factory in packed conditions for the purposes of export. The assessee explained further that in terms of the prescribed procedure for the purposes of claiming export benefits under the scheme of third party export provided in EXIM Policy, 1997-2002, the said manufacturers raised their invoices on the assessee specifying the name of the importer i.e. the foreign buyer, discussing the name of the assessee company as the third party exporter. Accordingly, the abovenamed manufacturers sent the goods to the port of shipment along with their invoice wherein the place of consignee, the name of the importer was endorsed and the name of the assessee company was mentioned in the column of third party exporter. The assessee company had also given disclaimer certificate under the provisions of EXIM Policy to the effect that they shall not be claiming any export benefit, namely, export performance certificate, export/trading/star license, special import license, duty drawback under customs and excise, etc. available to the EOUs and they have surrendered all such benefits in favour of the EOUs. The Ministry of Commerce has issued a circular on third party export vide F. No. 305/56/92—F-7T, dt. 28th April, 1992. In this circular, the concept of third party has also been explained. In fact, third party export has been explained as the export made by an exporter or manufacturer on behalf of a third party. In such cases the rules prescribing the procedure provide that the shipping bills shall indicate names of the both the exporter/manufacturer and the third party. The learned Authorised Representative accordingly claimed that the assessee was following the system which is prescribed in the EXIM Policy of India and disclaimer certificate in favour of the EOU was only to the extent that benefits under the Central Excise Act and license, etc. are passed on to the EOU. It was submitted further that there is no provision or system for transferring the income-tax deduction or exemption from one assessee to another except in the case of s. 80HHC(4A). Under that provision an export house or trading house can issue a certificate in the prescribed form stating that it had not claimed any deduction under s. 80HHC. In such case the supporting manufacturer can claim deduction under s. 80HHC. In the present case, the assessee is not an export house and therefore, the disclaimer certificate issued by the assessee is not the same as has been envisaged in s, 80HHC(4A)(B) of the Act. The learned Authorised Representative submitted further that the assessee had not only purchased from EOUs but it had also purchased from non-EOUs for export. The learned Authorised Representative submitted that the facts in the case of Sea Pearl Industries vs. CIT (2001) 165 CTR (SC) 395 : (2001) 247 ITR 578 (SC), relied on by the AO, have different facts, hence not applicable in the present case. In that case, the foreign exchange realization was done by the export house and both the export house and the supporting manufacturer had claimed deduction under s. 80HHC. In the present case, however deduction under s. 80HHC has been claimed only the assessee. The manufacturer had claimed exemption under s. 10B and that should not come in a way of the assessee getting the deduction under s. 80HHC. The learned CIT(A) being convinced and satisfied with the submissions made on behalf of the assessee came to the conclusion that the deduction under s. 80HHC should be given to the assessee even on sales for which the purchases were made from EOUs. This relief given by the learned CIT(A) to the assessee has been questioned by the Revenue before us. 4. The learned Departmental Representative has placed reliance on the assessment order whereas first appellate order has been justified by the learned Authorised Representative. 5. After having gone through the orders of the lower authorities in view of aforesaid submissions of the parties, we find that there is no dispute on the facts of the case. The only dispute is about the entitlement of deduction under s. 80HHC of the Act to the assessee on the export of the goods which the. assessee had purchased from two manufacturers, happened to be EOUs. Regarding these goods the assessee had made an arrangement with the manufacturers (2 EOUs) that the EOUs would send the goods to the port of shipment along with their invoice wherein the place of consignee, the name of the importer would be endorsed and the name of assessee would be mentioned in the column of third party exporter. The assessee company had also given disclaimer certificate under the provisions of EXIM Policy to the effect that they shall not be claiming any export benefit, namely, export performance certificate, export/trading/special import license, duty drawback under customs and excise etc. available to the EOUs and they had surrendered all such benefits in favour of the EOUs. There is no dispute that in terms of the prescribed procedure for the purposes of claiming export benefits under the scheme of third party export provided in the EXIM Policy, 1997-2002, no such arrangement as discussed above could have been made by the assessee with the EOUs to allow the manufacturers EOUs by the assessee under a disclaimer certificate to claim deduction under s. 10B and other entitlements of export benefits such as REP license, special import license etc. The only dispute remained that the assessee cannot claim deduction under s. 80HHC on the same goods. The AO alleged that the entire show has been managed by the assessee to claim deduction under the IT Act on the same exports twice. The AO was of/the view that once the assessee had surrendered its right in favour of the manufacturer EOUs and allowed them to be treated as exports in the hands of manufacturers, what right does the assessee has in law to claim 100 per cent deduction under s. 80HHC of the Act. Clearly, it is a marriage of convenience between manufacturers, EOUs and the assessee. Further, in case sales from manufacturers to assessee are to be treated as Indian sales, the manufacturers are liable for sales-tax on the same which have not been shown. The assessee at the best is a co-ordinator, facilitator or a commission agent working for the export oriented undertaking. The AO was of the view that whatever income assessee is earning being the difference of realization of sale proceeds less the purchase price paid to export oriented undertakings is basically its income in the nature of commission and the expenses are incurred by it to earn this income, which are duly allowable to it but the assessee is not entitled to claim deduction under s. 80HHC on the same. The AO did not find substance in the contention of the assessee that the EOUs are not getting payment in convertible foreign exchange and the orders from foreign buyers were procured by the assessee and the amounts in consideration against the goods so exported were sent and realized in convertible foreign exchange in the accounts of the assessee. It is relevant to mention over here that in respect of units established in asst. yr. 2000-01 or prior to it, it was not mandatory that realization should be made in convertible foreign exchange for claiming exemption under s. 10B of the IT Act, 1961. 6. Considering all these aspects of the matter, we fully agree with the view of the AO that exemption/deduction cannot be allowed twice on the export of same goods i.e. 100 per cent deduction under s. 10B of the Act to the manufacturer EOUs and 100 per cent deduction under s. 80HHC of the Act to the assessee on the export of same goods. But at the same time, in our view, the EOUs can claim exemption under s. 10B and other export benefits on the profits they earned on the goods exported. Similarly, the assessee is entitled to claim deduction under s. 80HHC on the income it earned on the goods exported. There is no dispute that orders for export of the goods were procured by the assessee and the proceeds against those goods are realized in convertible foreign exchange in the account of the assessee only, which are the two important requirements for claiming deduction under s. 80HHC. There is also no dispute that goods purchased from the manufacturers were exported. The whole confusion has arisen since claim of the assessee regarding deduction under s. 80HHC and that of the manufacturer EOUs regarding deduction under s. 10B and other benefits are being seen in terms of same goods which were exported. The AO has denied the claimed deduction by the assessee mainly on this basis only that exemption cannot be allowed twice on the same export of goods. Unfortunately, it is not the case because the manufacturer EOUs had claimed deduction under s. 10B and other export benefits on the income they earned while selling the goods to the assessee meant for export procured by the assessee, whereas the assessee had claimed deduction under s. 80HHC on the income it had earned on the export of the same goods. Thus, the income of the assessee would be calculated as the amount realised in consideration against the selling of goods in export minus the cost in purchasing of the goods from the manufacturer and other miscellaneous expenses involved in its transportation, etc. The income in the hands of the manufacturers on the said goods would be the price, it received minus the cost incurred on the manufacturing of the goods. Thus, for these two concerns, there may be same goods which were exported but incomes earned on the transactions of those goods by the two said concerns are not the same as the AO while denying the claim of deduction under s. 80HHC to the assessee has failed to appreciate. The theory of the AO that for the manufacturers goods were sold to the assessee in India hence sales-tax was required to be paid on this transaction does not matter more because admittedly the goods were to be destined for export purposes. The only difference in the provisions of law in s. 10B during asst. yrs. 2000-01 and 2001-02 remained that in respect of units established in asst. yr. 2000-01 or prior to it, it was not mandatory that realization should be made in convertible foreign exchange for claiming exemption under s. 10B of the IT Act, 1961. Thus, the grievances, if any, in this regard would be of manufacturers only and not of the assessee. In conclusion we are of the view that the assessee was very much entitled for deduction under s. 80HHC on the income it had earned on the export of the goods. We order accordingly. The first appellate order is thus upheld. The issue raised in the grounds of the appeals is decided in favour of the assessee. 7. The grounds as well as appeals are thus dismissed. ITA No. 845/Luck/2004 : 8. The assessee has questioned first appellate order on the grounds that the learned CIT(A) has erred in confirming the disallowance of deduction under s. 80HHC of the Act in respect of export turnover of the goods purchased from overseas market transshipped directly from a third country to the buyer against which convertible foreign exchange was received in India and all the conditions of s. 80HHC were satisfied by the assessee. 9. We have heard and considered the arguments advanced by the parties in view of orders of the lower authorities and the decisions relied upon by them. 10. The assessee had made overseas purchases amounting to Rs. 11,49,880 and made the sales of these goods to a third country without bringing these goods to India. The AO denied the claim on the basis that these goods were not exported out of India. Before the learned CIT(A), which arguments have also been reiterated before us, the learned Authorised Representative submitted that there is no such condition that the goods purchased for the purpose of export out of India should be physically brought to India. The learned Authorised Representative tried to make a distinction between the word "out of India" and "from India". The learned CIT(A) did not agree with these submissions of the assessee and in this regard he referred definition of s. 2(18) of the Customs Act, 1962, as per which export means taking out of India to a place outside India. Thus, there does not seem to be any difference between "from India" and "out of India" in view of the Customs Act. The learned CIT(A) also tried to distinguish the decisions relied upon by the learned Authorised Representative. Those decisions are A.S. Mani vs. Union of India and Ors. (2003) 184 CTR (Kar) 511 : (2003) 264 ITR 5 (Kar), Sea Pearl Industries vs. CIT (2001) 165 CTR (SC) 395 : (2001) 247 ITR 578 (SC) and Bajaj Tempo Ltd. vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 138 (SC). The learned CIT(A), ultimately following the decision of Mumbai Bench of the Tribunal in the case of Hindustan Lever Ltd. vs. IAC (1996) 56 TTJ (Mumbai) 598 : (1996) 58 ITD 555 (Mumbai) on the identical issue, has decided the matter in favour of Revenue upholding the assessment order. 11. Before the Tribunal, the learned Authorised Representative also placed reliance on a recent decision of Bombay Bench of the Tribunal in the case of S.M. Energy Teknik and Electronics Ltd. vs. Dy. CIT, ITA No. 141/Mum/2000 [reported at (2007) 109 TTJ (Mumbai) 34—Ed.], on the identical issue, a copy of which has been supplied by the learned Authorised Representative. In this decision the Tribunal after having gone through the decisions of Hon'ble Supreme Court and High Courts in the cases of Ram Babu and Sons and Anr. vs. Union of India (1997) 141 CTR (All) 310 : (1996) 222 ITR 606 (All), CIT vs. Silver and Arts Palace (2003) 180 CTR (SC) 309 : (2003) 259 ITR 684 (SO, CIT vs. Gimpex (P) Ltd. (2002) 176 CTR (Mad) 112 : (2004) 268 ITR 377 (Mad), Asif Taherbhai, ITA No. 101/Mum/2002 and Hindustan Lever Ltd. vs. IAC (supra), has come to the conclusion that literary meaning of the term "export" means sending goods to another country, it did not mean only sending goods out of one own country to another, Tribunal remained of the view that reliance placed by the Revenue on the decision of Mumbai Tribunal in the case of Hindustan Lever Ltd. was misplaced, as the said decision did not, have occasion to consider the Bombay High Court decision in the case of Bombay Burmah Trading Corporation vs. CIT (1991) 188 ITR 122 (Bom). 12. The learned Departmental Representative, on the other hand, placed reliance on the decision of Hon'ble Gujarat High Court in the case of Dhall Enterprises and Engineers (P) Ltd. vs. CIT (2007) 207 CTR (Guj) 729, holding that export out of India means export should be from India and not from any other country. He thus justified the first appellate order. 13. The learned Authorised Representative submitted, in rejoinder that in the decision in the case of Dhall Enterprises and Engineers (P) Ltd. vs. CIT (supra), the Hon'ble Gujarat High Court does not have the benefit of the decision of Hon'ble Supreme Court in the case of CIT vs. Bombay Burmah Trading Corporation (2000) 159 CTR (SC) 110 : (2000) 242 ITR 298, 301 (SC) as also the provisions of ss. 80HHC, 10A and 10B of the IT Act, 1961. This issue has been discussed in detail in a decision before Mumbai Bench of the Tribunal in the case of S.M. Energy Teknik and Electronics Ltd. vs. Dy. CIT (supra). In alternative, the learned, Authorised Representative submitted that when there are two decisions on an issue, the decision favourable to assessee is required to be followed and placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Vegetable Products 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) in this regard. 14. After having gone through the decision of Mumbai Bench of the Tribunal in the case of S.M. Energy Teknik and Electronics Ltd. vs. Dy. CIT (supra) on the identical issue, we fully agree therewith that literary meaning of the term "export", means sending goods to another country, it did not mean only sending goods out of one's country to another. Admittedly, in the present case, the export orders were received by an Indian resident/concern, the performance of its part of the contract for supply of the goods was there on the assessee and undisputedly the realization of proceeds in convertible foreign exchange was there in the account of assessee in India. Thus, export of the goods was made from an Indian concern under its control arid amount in consideration was received in its account in India. It does not matter as to how and from where the assessee managed and sent the goods in compliance of the export order. The aim and object of the legislature behind granting deduction under s. 80HHC is to encourage the export so that foreign currency can be earned, which has been fully fulfilled by the assessee in the present case. In fact, Expln. (aa) to s. 80HHC which defines 'export out of India' does not provide that export should be from India. As against this, s. 80HHE, which deals with export of computer software, specifically provides in Expln. (b) that the export should be from India to a place outside India. Similar Explanations are there in ss. 10A and 10B of the Act. Thus, when in other sections the language is specific that export should be from India to a place outside India, these words cannot be imported in s. 80HHC to mean that export should be from India. The Hon'ble Supreme Court in the ease of Bombay Burmah Trading Corporation (supra) with reference to s. 35B of the Act has been also pleased to hold that for claiming deduction in that section export need not be ex-India. The Bombay Bench of the Tribunal in the case of S.M. Energy Teknik and Electronics Ltd. vs. Dy. CIT (supra) has dealt with the identical issue in details. In that case the assessee had claimed deduction under s. 80HHC on goods purchased by the assessee company from Germany and sold it directly to the customers in Bangladesh. The deduction was denied by the lower authorities leading to the issue as to whether the above sale constitutes export or not. The Tribunal after discussing the matter in details and relying upon the decisions of Hon'ble Courts in the case of Bombay Burmah Trading Corporation (supra), J.K. Boda and Co. (P) Ltd. vs. CBDT (1997) 137 CTR (SC) 287 : (1997) 223 ITR 271 (SC), Bajaj Tempo Ltd. (supra), Coca Cola Export Corporation vs. ITO and Anr. (1998) 146 CTR (SC) 250 : (1998) 231 ITR 200 (SC), Ram Babu and Sons vs. Union of India (1997) 141 CTR (All) 310 : (1996) 222 ITR 606 (All), CIT vs. Gimpex (P) Ltd. (supra), etc., and discussing the relevant provisions of law on the issue, CBDT Circular No. 621, dt. 19th Dec., 1991 [(1992) 101 CTR (St.) 1] as well as various provisions of Government of India rules and regulations like Import and Export Policy and Procedures 1992 to 1997 and RBI Manual, etc. has decided the issue in favour of the assessee. Even otherwise, as per the decision of Hon'ble Supreme Court in the case of CIT vs. Vegetable Products (supra) relied upon by the learned Authorised Representative in case of different decisions on an issue, the decision favourable to the assessee is to be followed. We thus while setting aside the orders of the lower authorities direct the AO to allow the claimed deduction under s. 80HHC in question. The ground is thus allowed. 15. In result, the appeal is allowed in favour of the assessee. 16. We summarize the result as both the Departmental appeals are dismissed, whereas the assessee's appeal is allowed