Assessee Entitled For Deduction On Export Benefits On Account Of The Refund Of Excise Duty: Gujarat High Court

The Gujarat High Court has upheld the tribunal’s order, by which it was held that the assessee was entitled to and eligible for deduction on export benefits on account of the refund of excise duty under Section 80IC of the Income Tax Act.

The division bench of Justice Sonia Gokani and Justice Sandeep N. Bhatt has observed that the refund of excise duty was pivotal to the activities carried on by the assessee. Thus, it has been held that the payment of central excise duty has a direct nexus with the manufacturing activity, and likewise, a refund of central excise duty also has a direct nexus with the manufacturing activities. The payment of central excise duty would not be possible in the absence of natural activity, nor would a refund be possible in the absence of industrial activity. Thus, there is an inextricable link between the manufacturing activity, the payment of central excise duty, and its refund.

The assessee/appellant received export benefits in the form of excise duty refunds during the year because its Baddi Unit was eligible for outright excise duty exemption and was an independent source of income. The assessee claimed an export benefit of Rs. 35.59 lakhs under Section 80IC, which represented a refund of excise duties paid on material and other items purchased for its Baddi Unit's manufacturing purposes.

The Assessing Officer disallowed the claim, holding that the excess duty refund did not represent income with a first-degree nexus to manufacturing profits. The AO had disallowed the deduction while computing the deduction under Section 80IC.

The assessee had challenged the AO’s order before the CIT (Appeals), which deleted the addition on the ground that the payment on Central Excise Duty had direct nexus with the manufacturing activity and the refund of Central Excise could not arise in the absence of any industrial activity. Hence, there was an inextricable link between the manufacturing activity, the payment of central excise duties, and its refund. The CIT(A) deleted the Assessing Officer's additions.

The department challenged the order passed by the CIT (A) before the tribunal. The Tribunal dismissed the appeal on the ground that the assessee was entitled to and eligible for deduction on export benefits on account of the refund of excise duty under Section 80IC of the Act.

The department contended that the deductions claimed were in respect of the export benefits, which represented the refund of excise duty paid under the 80IC Act, and would not represent income with the first degree of nexus with the manufacturing profit.

The court held that the subsidies, which had been received, would be income from other sources.

Case Title: PCIT Versus M/s. Reckitt Benckiser Healthcare India Ltd. [R/Tax Appeal No. 601 of 2022]

Case Citation: 2023 Livelaw (Guj) 6

Date: 03/01/2023

Counsel For Appellant: Senior Standing Counsel Kalpana Raval, Advocate Karan Sanghani

Counsel For Respondent: Advocates Dhinal Shah, Raviraj Singh

Click Here To Read The Order