SC to look into withdrawal of tax sops to exporters

The Supreme Court has decided to look into an amendment in the Income Tax Act that withdrew various tax incentives granted to exporters to encourage foreign exchange earnings in the country.

A bench headed by Justice RV Raveendran, on the Centre’s plea, has transferred to itself a batch of petitions challenging the constitutional validity and vires of retrospective insertion of conditions in the third proviso to Section 80 HHC of the Income tax Act, 1961.

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.

?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,? the exporters said.

Stating that such incentives were given so as to boost exports, they added that the amendment now upsets their financial structuring.

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 R10 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 R10 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 R10 crore are singled out and allowed deduction on DEPB without any conditions, the exporters alleged, adding that there is no rationale for such classification.