Pathbreaking decision-SC rules in favour of assessee- Reverses Bombay HC decision of CIT vs Kalpataru Colours and Chemicals : 328 ITR 451 on DEPB

The Supreme Court has today delivered its judgment, deciding the batch appeals, reversing the Bombay High Court decision in the case of  CIT vs Kalpataru Colours and Chemicals : 328 ITR 451, held that:

• Objective of DEPB scheme is to neutralize the incidence of customs duty on the import content of the export products. Hence, it has direct nexus with the cost of the imports made by an exporter for manufacturing the export products

• Face value of  DEPB would be taxable as business income under clause (iiib) of section 28 of the Act.

• Only “Profit” element embedded in the consideration received on transfer of DEPB would be taxable under clause (iiid) of section 28 of the Act.

• The cost of acquiring DEPB is not nil because the person acquires it by paying customs duty on the import content of the export

product and the DEPB which accrues to a person against exports has a cost element in it.

• The Court further held that DEPB represents part of the cost incurred by a person for manufacture of the export product and hence even where the DEPB is not utilized by the exporter but is transferred to another person, the DEPB continues to remain as a cost to the exporter.

• The Court further held that where the export turnover of an assessee exceeds Rs.10crores, he does not get the benefit of addition of ninety per cent of export incentive under clause (iiid) of Section 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation of a bigger export profit.

By

 

Rohit Garg

 

B.Com(H), ACA,LLB