Critically examine the following cases and discuss whether the provisions of General Anti-avoidance Rules (GAAR) can be invoked in these cases? (i)…

(i) In the present case, Seeta Ltd., an Indian company has 2 manufacturing units, unit R in the SEZ and unit P in non-SEZ. Though unit R only does the packaging of goods manufactured by unit P, the company, in its books of account, shows the goods manufactured by unit P as manufacture of goods by unit R to enjoy exemption under section 10AA. This is a case of misrepresentation of facts by showing manufacture of non-SEZ unit as manufacture of SEZ unit. Hence, this is an arrangement of tax evasion and not tax avoidance. Tax evasion, being unlawful, can be dealt with directly by establishing correct facts. GAAR provisions need not be invoked in such a case. (ii) In this case, goods manufactured by unit L, a non-SEZ unit, being a non-eligible business, are transferred to unit S, a SEZ unit, being an eligible business, at a price significantly lower than the market value of the goods to claim higher deduction under section 10AA in respect of unit S. As there is no misrepresentation of facts or false submissions, it is not a case of tax evasion. The company has tried to take advantage of tax provisions by diverting profits from non-SEZ unit to SEZ unit. However, this is not the intention of the legislation. Such tax avoidance is specifically dealt with through the provisions contained in section 10AA (9) , as per which provisions of section 80-IA (8) would get attracted in such a case. Further, if the aggregate of such transactions entered into in the relevant previous year exceeded the threshold of 20crore, domestic transfer pricing regulations under section 92BA would be attracted. Hence, the Revenue need not invoke GAAR in such a case, though GAAR and SAAR can co-exist as per clarification given in the CBDT Circular.