ACIT vs. The Total Packaging Services (ITAT Mumbai)

DATE: (Date of pronouncement)
DATE: November 11, 2011 (Date of publication)

Click here to download the judgement (total_packaging_modvat_credit_80_IB.pdf)

For s. 80-IB, Modvat credit is “derived” from industrial undertaking

The assessee availed/set off Modvat credit of excise duty of earlier years amounting to Rs. 1.93 crores. The AO held that s. 80-IB deduction was not admissible on the said Modvat credit on the ground that the “source of the income was government policy imposing excise duty at differential rate” and it was not “derived” from the industrial undertaking. This was reversed by the CIT (A). On appeal by the department, HELD dismissing the appeal:

The payment of central excise duty has a direct nexus with the manufacturing activity and similarly, the refund of the Central excise duty also has a direct nexus with the manufacturing activity. The issue of payment of Central excise duty would not arise in the absence of any industrial activity. There is, therefore, an inextricable link between the manufacturing activity, the payment of central excise duty and its refund. Consequently, it is “derived” from the industrial undertaking and eligible for s. 80-IB deduction (CIT vs. Meghalaya Steels 332 ITR 91 (Gau) and J.K. Aluminium vs. ITO (ITAT Delhi) followed)

Note: Liberty India 317 ITR 218 (SC) which held that duty drawback & DEPB are “not derived” from the undertaking was considered. See also Shree Balaji Alloys 51 DTR 217 (J&K) where excise refund was held to be a “capital receipt

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