The Revenue Has Raised The Following Substantialquestions Of Law For Consideration v. The Short Question Involved In This Appeal Iswhether The Remission Of Value Added Tax (Vat) Extended Tothe Respondent/Assessee Pursuant To A Scheme Formulated B

O-30 ITAT/145/2018 IA No.GA/2/2018 (Old No.GA/1086/2018) IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE COMMISSIONER OF INCOME TAX,CENTRAL-2, KOLKATA -Versus-M/S. BARAK VALLEY CEMENTSLTD. Appearance:Mr. Vipul Kundalia, Adv.Mr. Anurag Roy, Adv....for the appellant/revenue. Mr. Pranit Bag, Adv.Ms. Ashis Choudhury, Adv.Ms. Aindrilla Basu, Adv.,. . . for the respondent/assessee. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE BIVAS PATTANAYAK Date : 6[th] July, 2022. The Court:- This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ forbrevity) is directed against the order dated 2[nd] August,2017 passed by the Income Tax Appellate Tribunal ‘B’ Bench,Kolkata in I.T. (SS) A. Nos. 137 to 141/Kol/2016 for theassessment years 2007-08 to 2011-12. The revenue has raised the following substantialquestions of law for consideration : i)Whether on the facts and in the circumstances of thecase, the Learned Appellate Tribunal, has erred inlaw while treating the amount of VAT reemission aseligible for deduction under Section 80IC of theIncome Tax Act, 1961, when essentially, it is of thenature of duty drawback and cannot be called profitderived from industrial undertaking and cannot bereckoned in computing deduction under Section 80ICof the Income Tax Act, 1961?case, the Learned Appellate Tribunal, has erred inlaw while treating the amount of VAT reemission aseligible for deduction under Section 80IC of theIncome Tax Act, 1961, when essentially, it is of thenature of duty drawback and cannot be called profitderived from industrial undertaking and cannot bereckoned in computing deduction under Section 80ICof the Income Tax Act, 1961? ii)Whether on the facts and in the circumstances of thecase, the Learned Appellate Tribunal, has erred inallowing deduction under Section 80IC of the IncomeTax Act, 1961 on VAT remission while is contrary tolaw laid down in the case of Ritesh Industrial Ltd.reported in (2005) 274 ITR 324 and also in the caseof CIT Versus H.M. Steels Ltd. reported in [2015] 62Taxmann.com 252 (Punjab & Haryana)?case, the Learned Appellate Tribunal, has erred inallowing deduction under Section 80IC of the IncomeTax Act, 1961 on VAT remission while is contrary tolaw laid down in the case of Ritesh Industrial Ltd.reported in (2005) 274 ITR 324 and also in the caseof CIT Versus H.M. Steels Ltd. reported in [2015] 62Taxmann.com 252 (Punjab & Haryana)? iii)Whether on the facts and the circumstances of thecase, the Learned Appellate Tribunal, has erred inallowing the deduction under Section 80IC of theIncome Tax Act, 1961 on VAT remission by relying thedecision in the case of Meghalaya Steels which isdistinguishable and not applicable in the instantcase since it was on the issue of subsidy and not onVAT reemission?case, the Learned Appellate Tribunal, has erred inallowing the deduction under Section 80IC of theIncome Tax Act, 1961 on VAT remission by relying thedecision in the case of Meghalaya Steels which isdistinguishable and not applicable in the instantcase since it was on the issue of subsidy and not onVAT reemission? We have heard Mr. Vipul Kundalia, learned standingcounsel appearing for the appellant/revenue and Mr. PranitBag, learned counsel appearing for the respondent/assessee. We have heard Mr. Vipul Kundalia, learned standingcounsel appearing for the appellant/revenue and Mr. PranitBag, learned counsel appearing for the respondent/assessee. The short question involved in this appeal iswhether the remission of Value Added Tax (VAT) extended tothe respondent/assessee pursuant to a scheme formulated bythe State Government can be claimed as a deduction underSection 80IC of the Act. The learned tribunal had disposedof a batch of matters and the assessee’s case pertains toremission of VAT which the assessee contended to form partof the profits and gains of the eligible unit and,therefore, the benefit of Section 80IC could be applicableto the assessee. The learned tribunal had followed thedecisions in the assessee’s own case passed by the GuwahatiTribunal for the assessment years 2008-09 and 2009-10 videorder dated 19[th] November, 2013 and also the decisions ofthe Guwahati tribunal in other cases as well, namely, inthe case of ACIT Vs. G.L. Coke Pvt. Ltd. in ITANo.43/Gau/2009 dated 5[th] April, 2010 and in the case of JBBLime Industry in ITA No.58/Gau/2009 dated 5[th] April, 2010and allowed the assessee’s appeal.The revenue is before us challenging the said order.After we have elaborately heard the learned counselappearing for the parties and carefully perused thematerials placed on record, we are of the opinion that weneed not labour much to find out any answer to thesubstantial questions of law which have been raised before us. In fact, such questions have been considered andanswered by the Hon’ble Supreme Court in the case ofCommissioner of Income Tax Vs. Meghalaya Steels Ltd.,reported in (2016) 6 SCC 747. The learned counsel appearing for theappellant/revenue placed strong reliance upon the decisionof the Hon’ble Supreme Court in Liberty India Vs. CIT,reported in (2009)9 SCC 328 and submitted that theremission of VAT is not directly relatable to the businessof an industrial undertaking for manufacturing or sellingits product and, therefore, the assessee is not entailed toclaim deduction under Section 80IC of the Act. The decisionin Liberty India was considered by the Hon’ble SupremeCourt in Meghalaya Steels and the relevant portion of thejudgment is as follows : “20. Liberty India being the fourth judgment inthis line also does not help the Revenue. What thisCourt was concerned with was an export incentive, whichis very far removed from reimbursement of an element ofcost. A DEPB drawback scheme is not related to hebusiness of an industrial undertaking for manufacturingor selling its products. DEPB entitlement arises onlywhen the undertaking goes on to export the said product,that is, after it manufactures or produces the same.Pithily put, if there is no export, there is no DEPBentitlement, and therefore, its relation to manufactureof a product and/or sale within India is not proximate or direct but is one step removed. Also, the objectbeing DEPB entitlement, as has been held by this Court,is to neutralise the incidence of customs duty paymenton the import content of the export product which isprovided for by credit to customs duty against theexport product. In such a scenario, it cannot be saidthat such duty exemption scheme is derived from profitsand gains made by the industrial undertaking or businessitself”. As pointed out by the Hon’ble Supreme Court, the DEPBentitlement arises only when the undertaking goes on toexport the said product, that is, after it manufactures orproduces the same and if there is no export, there is noDEPB entitlement and, therefore, its relation tomanufacture of a product and/or sale within India is notproximate or direct but is step removed. The Hon’bleSupreme Court took note of the decision of this Court inthe case of Merinoply & Chemicals Ltd. Vs. CIT, reported in(1994) 209 ITR 508. The Hon’ble Supreme Court had quotedthe relevant paragraph of the said judgment which is asfollows : As pointed out by the Hon’ble Supreme Court, the DEPBentitlement arises only when the undertaking goes on toexport the said product, that is, after it manufactures orproduces the same and if there is no export, there is noDEPB entitlement and, therefore, its relation tomanufacture of a product and/or sale within India is notproximate or direct but is step removed. The Hon’bleSupreme Court took note of the decision of this Court inthe case of Merinoply & Chemicals Ltd. Vs. CIT, reported in(1994) 209 ITR 508. The Hon’ble Supreme Court had quotedthe relevant paragraph of the said judgment which is asfollows : “21. The Calcutta High Court in Merinoply &Chemicals Ltd. v. CIT, held that transport subsidieswere inseparably connected with the business carried onby the assessee. In that case, the Division Bench held:(SCC Online Cal para 28) 28. We do not find any perversity in theTribunal’s finding that the scheme of transportsubsidies is inseparably connected with the businesscarried on by the assessee. It is a fact that theassessee was a manufacturer of plywood, it is also a fact that the assessee has its unit in a backward areaand is entitled to the benefit of the scheme. Furtheris the fact that transport expenditure is an incidentalexpenditure of the assessee’s business and it is thatexpenditure which the subsidy recoups and that thepurpose of the recoupment is to make up possible profitdeficit for operating in a backward area. Therefore, itis beyond all manner of doubt that the subsidies wereinseparably connected with the profitable conduct of thebusiness and in arriving at such a decision on the factsthe Tribunal committed no error.” In our considered view, the facts of the case inMerinoply & Chemicals Ltd. (supra) are more or lessidentical to the case on hand. In the said case theassessee was a manufacturer of plywood and has its unit ina backward area and was entitled to certain benefits undera scheme formulated by the State Government. However, onfacts, the assessee therein claimed the transportexpenditure to be incidental expenditure of the assessee’sbusiness and while considering the said plea, it waspointed out that the subsidy recoups and that the purposeof recoupment is to make up the possible profit foroperating in a backward area and the subsidises wereinseparably connected with the profitable conduct of thebusiness and, therefore, the assessee was entitled to thebenefit of Section 80IC of the Act. The Hon’ble Supreme Court in Meghalaya Steels Ltd. (supra) held that thedecision in Merinoply & Chemicals Ltd. (supra) correctlyappreciated the legal position. Undisputed facts of thecase on hand is that the assessee had set up their businessin a backward area. Consequently, they were entitled to thebenefit of a scheme under which the assessee uponcollection of VAT from the customer on sale is entitled toa remission of 99 per cent as issued by the Commercial TaxDepartment. This remission obviously is a business receiptbecause the assessee is allowed to retain the amount forthe growth of the business and, therefore, the VATremission in the hands of undertaking is very much businessincome. The learned standing counsel for theappellant/revenue had placed reliance on the decision ofthe High Court at Delhi in the case of Commissioner ofIncome Tax, Delhi – V, New Delhi Vs. Ritesh IndustriesLtd., reported in (2005) 274 ITR 324. The said casepertains to duty drawback claim and which issue had beenconsidered by the Hon’ble Supreme Court in Meghalaya SteelsLtd. Therefore, the decision could not render anyassistance to the case of the revenue before us. Reliancewas also placed on the decision of the Punjab and HaryanaHigh Court in the case of Commissioner of Income Tax,Patiala Vs. M/s. H.M. Steels Ltd., reported in 2015 SCC Online P & H 13151. In the said case the issue was whetherthe sales tax rebate can be said to be derived from anybusiness. What has been granted to the respondent/assesseeis a remission of the VAT by which 99 per cent of the VATcollected from the customer on sale of the product ispermitted to be retained by the assessee and only 1 percent is to be remitted to the Department. Therefore, thereis a market difference between a scheme of remission and arebate on sales tax. Therefore, the decision in H.M. SteelsLtd. (supra) is also distinguishable on facts. While onthis issue, we take note of the decision of the Hon’bleCourt in Sahney Steel and Press Works Ltd. Vs. CIT,reported in [1997] 228 ITR 253 (SC) wherein the Hon’bleSupreme Court held that the nature of subsidy needs to becommissioned by the Court in each case. The decision of theHon’ble Supreme Court in Sahney Steel and Press Works Ltd.(supra) would be of great relevance to the case on hand.The Hon’ble Supreme Court pointed out that when subsidy isgiven for the purpose of operating an industry moreprofitably, the subsidy would be revenue receipt and beingrevenue receipt, it has to be taxed in accordance with lawmeaning thereby that the profits and gains derived from orderived by, an industrial undertaking in a case, whereoperational cost is reduced by providing subsidy, in any form, the profits and gains earned, because of suchsubsidy, would be eligible for deduction under Section 80ICor 80IB, as the case may be. Further, the Hon’ble SupremeCourt in CIT Vs. Rajaram Maize Products, reported in [2001]251 ITR 427 (SC) and CIT Vs. Eastern Electro ChemcialIndustry, reported in [1999] 9 SCC 20 held that when asubsidy granted by the Court, is operational in nature,which helps in generation of profits for any industrialundertaking, such a profit, is indeed, covered by theprovisions embodied under Section 80IB or 80IC of the Act. In the light of the above discussions, we are of theview that the tribunal had rightly allowed the appealsfiled by the assessee and no grounds have been made out tointerfere with the said order. Accordingly, the appealfails and the same is dismissed and the substantialquestions of law are answered against the revenue. With the dismissal of the appeal, the connectedapplication being IA No.GA/2/2018(Old No.GA/1086/2018)stands closed. (T.S. SIVAGNANAM, J.) S.Das/spal