Counter sales of goods against convertible foreign exchange though does not involve clearance at customs shall be treated as export.

To levy interest under section 234A, B and C, specific section shall be mentioned in the order.   

Case: Commissioner of Income Tax vs. Oswal Exports

Facts:

The assessee being a company was engaged in dealing of marble goods and exported it to countries directly as well as selling the same at the counter of the emporium of the assessee to the foreign tourists in convertible foreign exchange.

In the return filed, assessee claimed deduction under Section 80-HHC of the Income Tax Act for goods sold at the counter in convertible foreign exchange including for sales made directly by exporting it out of India.

The AO disallowed the deduction for the goods sold at the counter in convertible foreign exchange. AO stated that the assessee failed to produce evidence to establish that the goods sold at the counter of the emporium in convertible foreign exchange were in fact custom cleared. In addition, AO directed that “interest would be chargeable as per the Rules.”

On this, appeal was filed to the Commissioner, where appeal was rejected. Aggrieved by the order, assessee preferred an appeal to the Tribunal. After studying the case, Tribunal set aside the order of AO and directed that interest would be charged as per the Rules. For the interest portion, the Tribunal held that since the particular Section under which levy of interest was not mentioned, the levy of interest could not be charged.

On this, Revenue appealed to the High Court.

Held:

The High Court highlighted that:

• For the purpose of section 80-HHC, there will be no export out of India if two conditions are cumulatively fulfilled, viz.,

(a) It was a transaction by way of sale or otherwise in a shop, emporium or establishment situated in India, and

(b) It does not involve clearance in any customs station as defined in the Customs Act.

• There is no dispute between the parties that the transactions of counter sales effected by the respondent involved customs clearance.
• The sales were in convertible foreign exchange.
• In order to charge interest, AO shall be specific and clear. Assessee must know under which section AO has levied the interest.

The High Court opined that AO was not correct in treating the counter sale to foreigners against foreign exchange as not export sale. It was held that such sales were export sales i.e. within the meaning of Explanation to Section 80HHC (4A) of the Act.

In this respect, the order of the AO was set aside. Further, relating to the interest charged it was held that to levy interest, specific section shall be mentioned in the order. Thus, order must be clear that under which sections interest were being charged.

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