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TMI Blog2016 (7) TMI 1662X X X X Extracts X X X X X X X X Extracts X X X X ..... micals Ltd.(supra). Applying the proposition of law laid down we have no hesitation to hold that various incentives received by assessee was in nature of capital receipt and the same was meant for establishing new unit. Accordingly, we set aside orders of lower authorities and direct the AO to treat various incentives received by assessee as capital receipts not liable to tax.Appeals of the assessee are allowed. - I.T.A. No. 6696, 6697 & 6698/Mum/2014 - - - Dated:- 13-7-2016 - SHRI R.C. SHARMA, AM AND SHRI RAM LAL NEGI, JM For the Appellant : Shri Jehangir D. Mistri For the Respondent : Shri N.P.Singh CIT DR ORDER Per R.C. SHARMA, A. M.: These are Appeals filed by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)- 24, Mumbai ( CIT(A)‟ for short) dated 01.08.2014 for the Assessment Year (A.Y.)2009-10 to 2011-2012, in the matter of order passed u/s 143(3) of the Income Tax Act. 2. Common grievance of assessee in all the year relate to treating the subsidy received by the assessee by way of refund/exemption of excise duty and sales tax, as a revenue receipt in place of capital receipt. Precise grounds of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tives of Rs. 15,84,40,288/- and excise duty incentives of Rs. 10,49,23,175/- should be excluded from the business income and also while computing the book profits u/s. 115JB of LT. Act, 1961. Assessing Officer called for the details and documents relating to various schemes. In respect of sales tax/Value added tax and excise duty AO examined assessee‟s claim for treating sales tax/value added tax incentives of Rs.15,84,40,288/- and excise duty incentives of Rs.10,49,23,175/- as capital receipt. The Assessing Officer noticed that as per the provisions of various schemes and the provisions of law/rules and notifications, the benefits of sales tax/value added tax exemption availed by the assessee under the relevant provisions of ST/VAT Law of the Gujarat state are not in the nature of capital receipt, accordingly he reject assessee‟s claim for sales tax exemption and excise duty refunds as capital receipt. 4. Assessee submitted before the AO that The Central Government had issued Incentive scheme to develop the earthquake prone area Anjar Kutch (Guj.) vide Notice 39 of 2001 CE dated 31st July, 2001. In the said notification manufacturing unit will get Excise incentive u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of carrying on the business of the assessee and, therefore, these were of revenue character and would have to be taxed accordingly. 7. By the impugned order CIT(A) confirmed the action of AO after observing inter alia that assessee availed of benefit of exemption of sales tax/vat under the notifications issued under the respective sales tax/value added tax schemes, which were formulated under the broad outlines of the development of Kutch district in light of devastating earthquake in the sate on 26/1/2001. Perusal of the notification dated 9/11/2001 of the Gujarat Government shows that even though the broad parameters of this notification was creation of, new investment and new employment opportunities and attracting new industries and improving ,the overall economic environment in 'the district of Kutch in the state of Gujarat at Macro Level, the, basic and ultimate purpose of giving incentives in the form of sales tax/Value added tax from, purchases and sales was to aim for commercial production which will ultimately result in employment of local persons and production , and sale of finished manufactured goods. However, the benefit of the ST/VAT exemption was to start ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reckoned with date of first sale bill and this date of sale/commercial production was with reference to the purchase of raw materials/packing material, and production of goods and sale of finished goods, and exemption of sales tax/value added tax was directly linked to purchase of raw materials, production of goods and sale of finished goods only. However, without payment of sales tax/value added tax under the eligibility period of incentives and upper limit for the grant of quantum of sales tax incentives were linked to and were to be made with reference to the eligible fixed capital investment in land, buildings and plant/machinery as per the norms prescribed in the sales tax and value added tax notifications/rules/laws and nothing else. 7.1 The CIT(A) further observed that as per the notification total stress is laid on the business activity consisting of purchase, manufacture and sale only and the assessee became entitled to the benefits of sales tax incentives by way of remissions of purchase tax/sales tax only after the start of commercial production which was defined to begin with the first sale bill only. Thus, the entire provisions relating to the grant of remission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Value Added Tax Rules 2006, according to which such industrial unit shall be entitled to tax incentives in the form of exemption and deferment of the tax so collected. Our attention was also invited to the relevant provisions which make eligible unit entitlement for estimation of Central Sales Tax payable under the provisions of Central Sales Tax Act, 1956 on the sales effected by them in the course of Inter-State Trade and Commerce. Ld. AR further stressed that all these incentives were given to cover the disaster happened at Kutch District by motivating establishment of new unit in the Kutch for its revival. As per ld. AR it is clear from the scheme that subsidy was given only for the new unit to be set up in these area and, therefore, in the nature of capital receipt. He further relied on the decision of Hon‟be Supreme Court in the case of Ponni Sugar and Chemicals Ltd.(supra), Shaney Steels Press Works Ltd. (supra) and P.J.Chemicals Ltd.(supra). Reliance was also placed on the decision of Hon‟ble jurisdictional High Court in the case of Reliance Industries Ltd. (supra) and decision of Hon‟ble Gujarat High Court in the case of Baroda Inox Leisure Ltd. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prone Anjar-Kutch area of Gujarat and not a production incentive as in the case of Sahney Steel and Press Works Ltd. Vs. CIT, 228 ITR 253(SC) relied on by the learned Assessing Officer. However, the AO has declined assessee‟s claim of subsidy as a capital receipt on the plea that subsidy so received was production incentive and not a incentive for setting up new industrial unit in the notified areas. The subsidy received by the assessee is capital in nature and not income. The distinction between Production subsidy and the subsidy for setting up new Industry has been considered by Courts in many judgments and in particular by the Hon'ble Supreme Court in different judgments including in the case of Sahney steel and Press Works Ltd. Vs. CIT; 228 ITR 253 (SC). In all the cases it has been held that the incentive/subsidy for setting up new Industry is a capital receipt and not Income. In CIT Vs. P. J. Chemicals Ltd.; 210 ITR. 830 (SC) It has been accepted by the Department that the subsidy for setting up of new Industry is a capital receipt and not Income. Thus the learned Assessing Officer was wrong in rejecting the claim of the assessee that the subsidy is a capital receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1979, the Government of Maharashtra had framed a subsidy scheme by way of sales tax incentive for setting up new industries in notified backward areas in Maharashtra for development of the area and generation of employment. The scheme was formulated by a resolution dated 05/01/1980. The sales tax incentive received by the assessee in this case in the A. Ys. 1984-85 to 1986-87 was held by the Bombay High Court to be capital receipt and not income. 13.2 The issue was also considered by the ITAT Special Bench in Dy. CIT vs. Reliance Industries Ltd. 273 ITR (AT) 16 (Mum) (SB) wherein similar sales tax incentive was held in favour of the assessee, being capital receipt. This view was upheld by the Hon‟ble Bombay High Court in the above case. While deciding so the Hon‟ble Bombay High Court followed the judgment of the Hon‟ble Supreme Court in CIT vs. Ponni Sugar and Chemicals Ltd.; 306 ITR 392 (SC). 14. We found that the facts in the instant case before us are identical to the above cases decided by Supreme Court in case of Shree Balaji Alloys (supra), Ponni Sugar Chemicals Ltd(supra) and by Bombay High Court in the case of Reliance Industries (supra), Chaphalk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. Furthermore following the principle laid down by the Hon‟ble Supreme Court in CIT vs. Ponni Sugar and Chemicals Ltd.; 306 ITR 392 (SC) and the judgemnet of the Hon‟ble Bombay High Court in CIT vs. Chaphalkar Bros.; 351 ITR 309 (Bom), the Hon‟ble Gujarat High Court in the case of Baroda Inox Leisure Ltd.(supra) held that the subsidy by way of exemption from payment of entertainment tax to boost tourism sector was a capital receipt and not income. 17. In the case of CIT vs. Kirloskar Oil Engines Ltd.;364 ITR 88 Hon‟ble Bombay High Court following the above principle laid down by the Hon‟ble Supreme Court in CIT vs. Ponni Sugar and Chemicals Ltd.;306 ITR 392(SC), held that the subsidy for setting up of new unit is capital receipt and not income. The Hon‟ble High Court held as under: i) The character of a receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. The purpose test has to be applied. The point of time at which the subsidy is given is not relevant. The source is immaterial. The form of subsidy is immaterial. The main condition and with which the court should be conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded under Kachchh Package. Government of India, in the Ministry of Finance, vide Notification No.39/2001-Central excise dated 31st July 2001 has announced a five year excise holiday to the new industrial units set up in the district of Kachchh. 20. We had carefully gone through the relevant terms of excise duty exemption - Kachchh Package, wherein we found that new units established after the issue of the notification dated 31.7.2001 are eligible to get exemption from Central excise. Initially, the unit has to pay the excise duty and, thereafter, submit a statement of the duty paid less the credit availed under CENVAT Credit Rules 2001 to the concerned jurisdictional excise authority to claim the refund. After due verification of the claim, the amount will be refunded. In case of units having value of investment in plant and machinery less than Rs.20crore, the quantum of exemptions available up to a maximum of twice the value of such investment, of excisable goods every year. In all other cases, no such monetary ceiling is applicable. The facility of exemption is extended for a period of five years from the date of commencement of commercial production. 20.1 Scheme furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms for the items which are not covered under the Exim Policy shall be prescribed by the Industries Commissioner and the same will be informed to the Sales Tax Commissioner. 21. From the record we found that after the assessee found to be eligible for grant of excise duty exemption, the competent authority i.e. Office of the Chief Commissioner of Central Excise Ahmedabad vide letter dated 24.11.2005 issue certificate to the assessee which reads as under: OFFICE OF THE CHIEF COMMISSIONER OF CENTRAL EXCISE l 7th FLOOR, CENTRAL EXCISE BHAVAN, AMBAWADI AHMEDABAD-380 015 By Speed Post F. No. V/30-02/CCO/Kutch/03-04 Date: 24-11-2005 To, M/s. Man Industries (India) Ltd., Survey No. 485/2, Anjar-Mundra Highway, Village - Khedoi, Taluka - Anjar, District - Kutch, Gujarat. Sir, Sub: Issuance of certificate to M/s. Man Industries (India) Ltd., Survey No. 485/2, Anjar-Mundra Highway, Village - Khedoi, Taluka - Anjar, District - Kutch, Gujarat. Enclosed please find herewith two certificates duly signed by the committee, one in respect of setting up of the above said unit in Kutch district of Gujarat and another in respect of original value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission/42/06-07 dated:30/08/2006 issued from our office. (2) Final Eligibility Certificate No. IC/INC/ST/kutch/T-5/1741 Dated 10/06/2006 issued by Commissioner of Industries, Bhuj/Gandhinagar. (3) Your application dated 16/06/2008 for correction. Dear Sir, As mentioned in certificate in reference to 1 above, amounting to RS,26,59,47,000/- as Tax Exemption/Tax Remission was sanctioned for the period 28/03/2005 to 28/03/2015. Hence, according to application mentioned in reference 3 and certificate mentioned in reference 2 for amount of Rs.26,59,47,000/- Tax Exemption/Tax Remission certificate 49(2) for period 29/03/2005 to 31/03/2006 and 01/04/2006 to 28/03/2015 is sanctioned under Gujarat Value Added Tax 2003, Rule 5(2). As per above details, certificate mentioned in reference 2 Tax Exemption/Tax Remission of amount Rs.148,13,04,000/- (Rs. One Hundred forty Eight Crores Thirteen Lakhs four Thousand only) is sanctioned. Place: Gandhidham Dated: 29/09/2008 sd/- Dy.Commercial Tax Commissioner, Ward - 25, Gandhidham, (Kutch). Copy to: Director, E Governance cell, Office of the Commercial Tax Commissioner, Ahmedabad. Copy to: Assistant Commercial T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central Sales Tax Act,1956 on the sales effected by him in the course of inter-State trade and commerce. 23.2 In pursuance of the above scheme the industrial Commissioner has granted final eligibility certificate to the assessee dated 4th June 2008 amounting to Rs.14813.04 lacs for Sales Tax exemption to assessee. 24. From the record we found that in accordance with the provision of sub rule (3) (4) of rule 18 B of Gujarat Value Added Tax Rules, 2006 the assessee had collected Value Added Tax (VAT) and Central Sales Tax (CST) separately on sales effected by it and did not pay such VAT and CST to the Government Treasury. 25. We had verified the purchase orders placed on record which were received from customers wherein VAT/CST amount is to be charged on sales price and to be collected as a part of invoice value it can be observed from the PO received from M/s GAIL (India) Limited dated 20.11.2008 amounting to Rs.267,88,36,636/- wherein clause 3.1 it is specifically mentioned that the total order value is including Central Sales Tax (CST) @4%. Further, Annexure 2 of the said PO gives the breakup of entire order value including Ex-warehouse Unit Price, excise duty on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and CST remission is determined and accepted by the Commercial Officer. 29. Furthermore the tax exemption and deferment granted to the industrial units by the State Government under the earlier law and continued as such under the Government Notification, Finance Department No (GHN-43) VAT-2006/S.5(2)(2)-TH, dated the 1st April,2006. Such industrial units shall be entitled to tax incentives only for the balance amount and for the balance period of tax incentive as on the appointed day on the basis of the Certificate for Entitlement issued under this Chapter. 30. As per Rule18(B) the eligible unit shall be entitled for emission of the central sales tax payable under the provisions of the Central sales Tax Act,1956 on the sales effected by him in the course of inter-State trade and commerce. We had also verified final eligibility certificate issued by Deputy Commissioner Ward25, Gandhidham (Kutch) dated 29.09.2008, .. to which tax exemption/ tax remission amount to Rs.148,13,4000/- was sanctioned. 31. In view of the above documentary evidence there is no merit in the observation of the CIT(A) that assessee was not eligible for any amount of sales tax exemption. 32. We had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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