In what could come as a relief to many exports across the country, the Gujarat High Court on Monday held that the implementation of amendment to Section 80 HHC of the Income tax Act, 1961 cannot be made effective in retrospect. The amendment made in 2005, sought to withdraw various tax incentives granted to exporters.
A division bench of acting Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala held this while hearing a bunch of petitions transferred to the Gujarat High Court by the Supreme Court in February this year where the validity of Section 80HHC of the Income Tax Act was challenged by various assesses, mainly export houses.
The court observed that the amendment made by the Taxation Laws (Amendment) Act, 2005, cannot be applicable with retrospective effect from 1998-99 as it was unconstitutional. It, however, said that the amendment could be applicable prospectively if needed. This verdict from the High Court would comes as a relief to many exporters.
The Supreme Court in February this year transferred to the Gujarat High Court all cases pending in various other high courts, where the validity of Section 80HHC of the Income Tax Act was challenged by various assessees. The central government wanted this transfer as there might be conflicting judgments if the cases are dealt with by different high courts. This lengthy provision deals with deduction in respect of profits retained for export business.
The Supreme Court order in this batch of cases noted that the maximum number of cases were pending in the Gujarat High Court and therefore it was proper that the high court there decided the law.
Following the amendment in 2005, many exporters led by the Indian Exporters Grievances Forum had moved various high courts challenging the amendment that provided for deduction of profits, from total income of the assessees, retained for export businesses. While the Centre had amended Section 80HHC by Sections 3 and 4 of the Taxation Laws (Amendment) Act, 2005, the amendment was implemented retrospectively from April 1, 1998.
The exporters, who had availed the benefit of the deduction between 1983 and 2005, had challenged the retrospective taking away of the benefit for the entire period. They had alleged that the impugned portion of the amendment discriminates between the assessees falling in the same class and the same is prohibited by Article 14 of the Constitution and also imposes condition which were not required at the relevant time.
Prior to the amendment, the provision, which was inserted by the Finance Act 1982 with a view to encouraging exports, granted deduction to the extent of 90% of the profit relating to the drawback earned.
After the new insertion, the value of export turnover alone has been made a criteria to determine the eligibility of concession under Section 80HHC, the petitions said. Further, the exporter whose turnover exceeds Rs 10 crore has now to fulfill certain preconditions before claiming the deduction of profit earned out of sale/ transfer of the duty entitlement passbook (DEPB) scripts. However, an exporter whose turnover is less than R10 crore need not satisfy any conditions. While the amendment grants benefit to exporters having turnover of more than Rs 10 crore and whose products are notified/eligible for both duty drawback scheme and DEPB scheme and the rate of duty drawback is higher than DEPB, rest of the exporters having turnover of less than Rs 10 crore are singled out and allowed deduction on DEPB without any conditions, the exporters alleged, adding that there is no rationale for such classification.
