Whether even if amendment to Sec 80HHC(3) creates two categories of exporters on turnover basis and prescribes two conditions with retro effect for those whose turnover is more than Rs 10 Crore, both are to be treated similarly - YES: Supreme Court

ONE of the sections in the Income tax Act which has contributed heavily to the ocean of tax litigation is Sec 80HHC. Our political masters and the policy makers have often resorted to whims to amend the section and prescribe new conditions to avail the benefits.

The issue before the Apex Court in the present case is - Whether even if the amendment to Sec 80HHC(3) creates two categories of exporters on turnover basis and prescribes two conditions with retrospective effect for those whose turnover is more than Rs 10 Crore, both are to be treated similarly. And YES is the answer.

Facts of the case

The CBDT amended Section 80HHC(3) with retrospective effect i.e with effect from April 1, 1992. By undertaking such amendment the CBDT extended certain benefits to the exporters who were entitled to claim Sec 80HHC benefits. But this amendment also carved out two categories of exporters - those whose export was less than Rs 10 Crore per year and those whose exports turnover was more than Rs 10 Crore annually. For the second category the amendment prescribed two conditions contained in third and fourth proviso and the exporters were required to satisfy them for claiming such benefits. And they were:

(a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and

(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being Duty Remission Scheme.

All the assessees in the present case belonged to the second category. They filed the writ petitions challenging conditions mentioned in third and fourth proviso to Section 80 HHC(3). In fact it was their precise contention that these conditions were severable and therefore they should be declared ultra vires and severed. The rationale behind seeking such a prayer was obvious inasmuch as the writ petitioners did not want entire Notification to be declared ultra vires which was to their advantage. What they wanted was that the benefit of amended provision be accorded, without insisting on the aforesaid conditions.

The High Court had decided the issue in favour of the writ petitioners.

On appeal before the Apex Court the AG submitted that once the prayer made was to severe the aforesaid two conditions as onerous and utra vires, the High Court should have couched the reliefs in terms of that prayer only, instead of stating that the operation of the Section would be given effect to prospectively only and these conditions would not operate retrospectively. At the same time, he accepted that the legal position would be that those exporters with turnover of Rs less than Rs. 10 crores and other like the assessees with turn over of more than Rs.10 crores would be at par and both would be entitled to the benefits.

Held that,

++ we find that in essence the High Court has quashed the severable part of third and fourth proviso to Sec.80HHC (3) and it becomes clear therefrom that challenge which was laid to the conditions contained in the said provisos by the assessees has succeeded. However, to make the position crystal clear, we substitute the direction of the High Court with the following direction:

"Having seen the twin conditions and since 80HHC benefit is not available after 1.4.05, we are satisfied that cases of exporters having a turnover below and those above 10 cr. Should be treated similarly. This order is in substitution of the judgment in Appeal.

++ with the aforesaid clarification all these SLPs including that of assessees filed against the judgment of M.P.High Court are disposed of..