TIOL-DDT 9 · the untouched capture
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<p align="left"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#0000CC" size="3">TIOL-DDT
9</font><br>
13 12 2004<br>
Monday</b></font></p>
<p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif">
<b>IS EXCISE DUTY INCLUDIBLE IN TOTAL TURNOVER U/S 80HHC?</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>UNDER</b>
Section 80HHC of the Income Tax Act, an exporter is allowed a deduction of profits
derived from export of goods. There was recently this tricky question before
the Madras High Court whether in calculating the turnover, excise duty is includible.<br>
<br>
The Bombay High Court had earlier held that:-</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Such profits cannot be reduced artificially by including statutory levies
in the denominator, namely, total turnover. Therefore, the turnover should be
restricted to such receipts which have an element of profit in it. It is only
the actual sale price which is relevant. 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. Even, according to accounting principles, such levies
do not form part of the profit and loss account. In fact, they are shown as
liability in the balance sheet.</b></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Madras High Court itself had in an earlier order had held that:-</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>the amount received by the way of Modvat credits could not have been received
by the assessee, had the assessee not purchased the raw materials for running
its industry of manufacturing forgings. So the amount received by the assessee
under Modvat credits were eligible for deduction under section 80HH of the Act.</b></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court observed that:-</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>It is a settled law that though the "total turnover" may include
the receipts of excise duty and sales tax, etc., in its general parlance and
under specific statutes, because of its wider coverage in the definitions given
thereunder, it has to be given a restrictive meaning while computing the "export
profit" for the purposes of section 80HHC, namely, only that part of the
receipt for sale consideration is to be taken as part of the total turnover
which has an element of profit therein, and, accordingly, the receipts of excise
duty and sales tax which do not include an element of profit should be excluded
from the "total turnover".</b></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So the High Court was of the firm opinion that excise duty does not form part
of the total turnover for the purpose of calculation of deduction under section
80HHC of the Act. <br>
<br>
Please see the full text of the High Court order in </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=38&filename=legal/hc/2004/2004-TIOL-37-HC-MAD-IT.htm">2004-TIOL-37-HC-MAD-IT</a></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It
appears that the fact that there is really no excise duty on exports was not
brought to the notice of the High Court, not that it would have made any difference.<br>
<br>
<font color="#FF0000"><b>It would be nice if we could all pay our taxes with
a smile, but normally cash is required.</b></font><br>
<br>
Embarrassment is when a big van comes to pick up your luggage and all that you
have is a small suitcase. This happened to President APJ Abdul Kalam, when he
moved into the sprawling Rashtrapati Bhavan.<br>
<br>
Until Tomorrow with more of DDT<br>
<br>
Have a Nice Day</font></p>
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