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TMI Blog1996 (1) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant have since produced a copy of the certificate from the Chartered Accountant dated 13-9-1995 stating clearly that the cost of the impugned moulds inclusive of bill value, customs duty and clearing and forwarding charges, was fully capitalised in the books of the firm as fixed asset and depreciation of the same has been claimed every year. 4. A specific question was put to the learned Counsel as to whether the customs duty included in the cost of the imported moulds in question, was inclusive of the impugned excess duty paid by the appellant for the purpose of claiming depreciation and deduction in their Profit & Loss account from their gross profit, the learned Counsel requested for 10 days time to verify this aspect and make further submissions. 5. Accordingly next personal hearing is fixed on 17-1-1996 at 10 a.m. 6. In continuation of the Personal Hearing on 2-1-1996 it is submitted by the learned Counsel that for the purpose of computing depreciation, the value of the capital goods was inclusive of the customs duty that was actually paid by the appellant. However, it was emphasised that the higher incidence of duty, now claimed as refund, had not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel accompanied by other representatives of the appellant, submitted on 17-1-1996 that for the purpose of computing depreciation on capital account, the value of the moulds was inclusive of the total customs duty actually paid by the appellant. In other words, the landed cost of the moulds for the purpose of computing depreciation was inclusive of the impugned customs duty, later claimed as refund. The depreciation was to neutralise the total landed cost in a period of five years, as submitted by the learned Counsel. It is however, admitted that depreciation is deducted from the gross profit of the company to arrive at the profit before tax and thus, it is evident that the taxable net income of the appellant was not inclusive of the impugned refundable amount. It is, however, submitted by the the learned counsel that during the material accounting year 1992-93, the appellant suffered a loss of ₹ 78,452.57 whereas their refund claim was for a sum of ₹ 1,21,988/-. The appellant have also produced another certificate from their Chartered Accountant dated 16-1-1996, further explaining that any refund of customs duty paid on imported moulds would constitute reduction of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , copper oxychloride. It is simple economics that customs duty paid on copper scrap in addition to its value becomes a part of the cost of the manufacture of the new item - Copper oxychloride in which the imported component - copper scrap is an ingredient". 13. In para 33 and para 34, Hon'ble Madras High Court have further observed as follows :- "When customs duty paid becomes a part of the cost of the manufacture of the new item, it goes without saying that customs duty paid is indirectly passed on to the customer or buyer, inasmuch as the customs duty paid on the raw-material or imported goods, is included in the price of the finished product. No manufacturer will be charitable enough to exclude customs duty paid on the raw material, in the price of the finished product. Further, the Bombay High Court is of the view that the importer or the person who paid the duty of customs or excise is entitled to refund of the duty so paid, if he had not directly passed on the incidence of such duty to any other person. We are, however, not persuaded to share such an opinion. The reasons is rather obvious. What is contemplated in Section 27(2)(e) of the Act is relatable to passsing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of duty paid [on] silica crucibles did not arise. 17. On a careful reading of the judgment of the Hon'ble High Court, Madras it would seem that the ratio of the judgment, as contained in paras 33 and 34, will cover all types of situation as the Hon'ble High Court have made it clear that the passing [of] the incidence of duty is not confined to the direct passing on and even indirect passing on by including such duty in the cost of the end-product is also covered by the test of unjust enrichment as provided in Section 27 of the Customs Act, 1962. 18. In the case of capital goods such as moulds, obviously, there is no question of directly passing on the duty of customs to the buyers. The moulds are not directly sold. However, this does not preclude the passing on of the incidence of duty indirectly by including the extra duty paid on the moulds in the cost of the end products. To quote the Hon'ble Madras High Court, `no manufacturer will be charitable enough to exclude customs duty paid on the raw materials in the price of the finished product'. In the case of Indo-Swiss Synthetic Gem Mfg. Co. Ltd., the department, obviously, did not have any evidence to establish that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which attracts the mischief of unjust enrichment in all cases irrespective of whether the incidence of customs duty has been directly or indirectly passed on to any other person and not necessarily to the buyer of the very same imported goods. As a matter of fact, Section 27 of the Customs Act, 1962 does not pre-suppose any buyer of the imported goods. It would suffice if the imported goods are not sold at all but used captively in the manufacture of end products which are sold in the market. It would suffice if the impugned excess duty of customs paid by the importer and later claimed as refund gets merged in the cost of the said end products and in the process recovered from the buyers. To sum up, in a case where the imported goods have been directly sold to a buyer, the presumption under Section 28(d) of the Customs Act, 1962 shall be that the incidence of duty has been passed on to the buyer of such goods. Where it has not been directly sold, it will be for the customs to determine whether the incidence of such duty had been passed on by the importer to any other person indirectly by including such duty in the cost of the end products." 19. Let us now proceed to det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. By including the impugned excess customs duty in the landed cost of the moulds and, therefore, taking the depreciation to the extent of 20% every year, the appellant, obviously, have got higher deduction from their sales turn- over/gross profit to arrive at the taxable net profit which was to their advantage. At the same time, it is evident that the said higher customs duty has been amortised and included in the sale price of the end-product. The above fact also emerges from the certificate of the Chartered Accountant dated 16-1-1996 produced by the appellant, during the personal hearing on 17-1-1996. In the said certificate, the Chartered Accountant has stated as follows :- "Any refund of Customs duty paid on imported moulds would constitute reduction of cost of capital asset and under the Income Tax Act, 1961, the refund will be reduced from the written down value of the Block of assets for the purposes of computation of depreciation. Thus, any refund of Customs duty will result in corresponding decrease in depreciation allowance and increase in the Income Tax payable. Consequently, the original Income Tax reduction availed on payment of excess Customs duty by includ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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