In a relief to exporters across the country, the Gujarat High Court (HC) on Monday held that amended Section 80 HHC of the Income Tax Act cannot be implemented with retrospective effect.

The amendment was made in 2005 sought to withdraw various tax incentives granted to exporters. Provisions in this section deal with deduction in respect of profits retained for export business.

There were questions raised against this amendment in various high courts and the Supreme Court, but the apex court transferred all appeals to the Gujarat HC.

A bench of acting Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala upheld the amendment to an extent, but also observed that it cannot be made applicable with retrospective effect because it is unconstitutional.

Following the amendment in 2005, 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 implementation with retrospective effect.

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 criterion to determine the eligibility of concession under Section 80HHC.

Further, the exporter whose turnover exceeds Rs 10 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 Rs 10 crore need not satisfy any conditions.

While the amendment grants benefit to exporters having turnover of more than Rs 10 crore and whose products are notified/eligible for both duty drawback scheme as well as DEPB scheme, exporters having turnover of less than Rs 10 crore are singled out and allowed deduction on DEPB without any conditions, the exporters alleged.