JINDAL SAW LTD., NEW DELHI vs. DCIT, CIRCLE- 13(2), NEW DELHI

Assessee by Sh. Rohit Jain, Adv. and Sh. Tavish Verma, Adv. Revenue by Sh. Dayainder Singh Sidhu, CIT DR सुनवाईक�तारीख/ Date of hearing: 03.01.2025 24.01.2025 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R PER C.N. PRASAD, J.M.

This appeal is filed by the Assessee against the order of the Ld.CIT(Appeals)-5, Delhi dated 16.08.2018 for the AY 2004-05 in upholding the order of the Assessing Officer in treating excise duty refund received by the assessee as revenue receipt as against the claim of the assessee that it is only a capital receipt.

“4.1. We have heard the rival submissions and perused the materials available on record. In the wake of devastation caused by earthquake in the Kutch District of Gujarat, the Central Government, in public interest, issued Notification No. 39/2001 -Central Excise dated 31.7.2001. The salient features of the said Incentive Scheme and behavior of the assessee qua the same are as under:- 2 a) It shall apply only to new industrial units which are set up on or after 31.7.2001 in the Kutch District but before 31.7.2003. b) The assessee had undisputedly set up an eligible unit and entitled to the incentive under Notification No. 39/2001 dated 31.7.2001. c) The manufacturer shall produce a certificate from a Committee consisting of the Chief Commissioner of Central Excise, Ahmedabad and the Principal Secretary to the Government of Gujarat, Department of Industries, to the jurisdictional Central Excise Officer certifying that the unit in respect of which exemption is claimed is a new unit and has been set up on or after 31.7.2001 but not before 31.7.2003. d) The manufacturer is first required to pay excise duty with the Central Excise department and thereafter claim refund of the said amount from the department. e) The exemption shall apply for a period not exceeding 5 years from the date of commencement of commercial production by the unit. f) The date of setting up of the new industrial unit was extended from 31.7.2003 to 31.7.2004 vide Notification No. 45/2002 dated 2.9.2002 and thereafter, vide Notification No. 9/2004 dated 21.1.2004 and vide Notification No. 55/2004 dated 9.11.2004, the last date of setting up of the new unit was further extended to 31.12.2004 and 31.12.2005 respectively. 4.2. The assessee in the year 2003 had set up pipe coating unit namely, Anti Corrosion and Concrete Weight Coating at Mundra, Gujarat. Thereafter, in the year 2005, the assessee also set up another unit for pipe manufacturing namely, Integrated Pipe Unit at Mundra,

Gujarat. The said new units had been set up by the assessee in compliance with the aforesaid Notifications within the stipulated time limits thereon and the Certificate issued by the Customs and Central Excise, Ahmedabad certifying that the said new units have been established during the period prescribed in the said Notifications. These certificates are enclosed in Pages 85 and 86 of the Paper Book. 4.3. The assessee during the year under consideration, received excise duty refund of Rs 163,15,661/- which was offered to tax as revenue receipt in the return of income and assessed as such by the Id. AO. Before the Id. CIT(A), the assessee raised an additional ground claiming the said receipt to be capital receipt not chargeable to tax. The Id. CIT(A) after calling for a remand report from the Id. AO admitted the said additional ground, being legal in nature and by applying the 'purpose test' of the Incentive Scheme 2001 held that the excise duty refund received by the assessee is not liable to tax as it is in the nature of capital receipt. 4.4. We find that the appellate authorities are duly entitled to admit the additional ground if it is legal in nature and goes to the root of the matter and not requiring verification of fresh facts. All the facts relevant for adjudication of the said additional ground was already available on record before the Id. CIT(A). Since the same being legal ground, there was nothing wrong in the action of the Id. CIT(A) admitting the said additional ground, even though the same was offered to tax by the assessee voluntarily in the return of income. It is trite law that there is no estoppel against the statute. Reliance in this regard is placed on the decision of Hon'ble Supreme Court in the case of Taparia Tools Ltd vs JCIT reported in 372 ITR 605 (SC). Hence the objection raised by the revenue before us in this regard is hereby dismissed. 4.5. The Incentive scheme 2001 for Economic Development of Kutch District dated 9.11.2001 issued by Government of Gujarat is enclosed in Pages 71 to 81 of the Paper Book. The Central Excise Notification No/. 39/2001 dated 31.7.2001 is enclosed in Pages 82 to 84 of the Paper Book. The Certificates issued by Chief Commissioner of Central Excise & Customs, Ahmedabad and Principal Secretary of Industries & Mines Department to Government of Gujarat are enclosed in Pages 85 to 86 of the Paper Book. The workings for claim of excise duty refund made by the assessee are enclosed in Page 87 of the Paper Book. It is trite law that the taxation of excise duty refund pursuant to incentive scheme is to be determined by the purpose for which the same is granted and not the form / mode / manner in which it is determined or disbursed. 'Purpose Test' qua the incentive scheme is the relevant consideration and not the manner of determining the incentive. Reliance in this regard is placed on the decision of Hon'ble Supreme Court in the case of CIT vs Ponni Sugars and Chemicals Ltd reported in 306 ITR 392 (SC). We find that the Id AR before us relied on the decision of Hon'ble Gujarat High Court in the case of SAL Steel Limited vs Union of India reported in Special Civil Application No. 6299 of 2008 and 5909, 6300, 6298, 5907, 8468, 6334 and 6562 of 2008 dated 18.3.2010. In our considered opinion, this decision relied by the Id. AR clearly brings out the purpose behind the excise duty exemption issued by the Government to achieve a larger public interest of incentivizing setting up of industries in the Kutch District of Gujarat in the wake of massive earthquake in the said region so as to generate employment and achieve industrial development with the larger public interest of rehabilitating the people and economic activity in the affected region. In fact in the said decision, the petitioners had challenged the validity of the subsequent notifications issued in the year 2008 substantially diluting excise incentives granted by the original notification issued in the year 2001 in the form of excise duty refund. Hence the Hon'ble Gujarat High Court was required to examine whether the subsequent notifications issued by the Government in the year 2008 were legally valid or not. The Hon'ble Gujarat High Court after going through the incentive scheme 2001 observed that exemption from excise duty was granted by the original notification in the year 2001 in order to incentivize setting up of industries in the Kutch region of Gujarat in the wake of massive earthquake. The intention behind the exemption scheme was to attract fresh investment so as to generate employment and for industrial development of the region. The subsequent notifications issued in the year 2008 substantially diluted the benefit granted by the original notification on the ground that there was substantial revenue loss to the Government. The Hon'ble High Court held that the notifications issued in the year 2008 to be invalid to the extent they were sought to be applied to the new unit set up in the Kutch District of Gujarat in compliance of the original notification in the year 2001 on the ground that it was contrary to the principles of promissory estoppel. Further it was clearly held by the Hon'ble Gujarat High Court that the purpose of the original notification issued in the year 2001 was to incentivize and promote setting up of industries in the Kutch Region of Gujarat thereby clearly satisfying the 'purpose test' thereon. Hence it could be safely concluded that the excise duty refund received is clearly in the nature of capital receipt not chargeable to income tax. We find that the Id. CIT(A) had rightly decided the issue in favour of the assessee and we do not find any infirmity in the said order granting relief to the assessee. Accordingly, the Ground No. 2 raised by the revenue is dismissed.”

Therefore, respectfully following the decision of the Tribunal, we hold that the excise duty refund received by the assessee is in the nature of capital receipt not chargeable to tax. Grounds raised by the assessee are allowed.

Order pronounced in the open court on 24.01.2025