DEPB bonanza for taxman

Income Tax officials slap arrears notice on drug, steel companies

Under pressure to deliver on revenue targets before the end of the year, income tax officials have found a great new source of revenue "" the Rs 10,000 crore of export benefits given out each year in the form of duty entitlement passbook benefits (DEPB).

Taking their cue from a recent judgment by the Bombay High Court in the Rohan Dyes case, the taxman has started sending notices to various pharmaceutical companies, steel exporters, and a host of other industries asking for taxes to be paid for the past seven years on DEPB benefits claimed by these units as tax exemptions.

Commerce ministry has taken up by the matter with both the finance ministry and the Prime Minister's Office.

While exporters are allowed benefit in the form of advance licences, duty drawback or the DEPB, Section 28 Para iii(a) of the Income Tax Act was not amended to take into account the fact that DEPB benefits would also be tax-exempt as was done in the case of duty drawback.

Exporters have been arguing that since DEPB is nothing but a substitute for advance licence or duty drawback, and is a refund of actual Customs duty paid on imports made for the purposes of export, it cannot be taxed.

Former FIEO chief Ramu S Deora has sent a memorandum to the Prime Minister arguing that "in every platform, including WTO and in Parliament, the Government clarified that DEPB and Duty Drawback are a reimbursement of Custom Duty, but not any subsidy."

Tax officials, however, have been treating DEPB income as local sales in some cases, and argue that this is taxable.

The dispute centers around the fact that in most cases of exports, exporters show two types of accounts, one to do with manufacturing and the other to do with exports.

Since exporters know that they will get certain export benefits, they often sell their products at below cost and make this up through the benefits. So, the 'manufacturing' account shows losses while the 'export' account shows profit.

As per a recent ruling of the Commissioner Appeals of income tax in one case, "If there is a positive profit before export incentive then only the assessee is eligible for deduction under 80HHC ... (if there is) negative profit or loss ... before considering export incentive ... the CIT (has) disallowed the deduction under 80HHC."

In other words, the taxman is challenging the authenticity of the claim by exporters that they sell below cost and make their profits through various incentives like DEPB.

Tax dispute

The matter has been taken up by the commerce ministry with both the finance ministry as well as the Prime Minister's Office

Section 28 Para iii(a) of the income tax act was not amended to take into account the fact that DEPB benefits will also be tax-exempt as was done in the case of duty drawback

Exporters have been arguing that since DEPB is nothing but a substitute for advance licence or duty drawback, it cannot be taxed.

Pantaloon expects new model to last for seven years

Private labels for two new business categories, beverages and homes, will be launched shortly

Beverages to fall under the umbrella of Food Bazaar