MARUTI SUZUKI INDIA LTD. versus COMMISSIONER OF INCOME TAX, DELHI on 7 February 2020

SUPREME COURT REPORTS

[2020] 2 S.C.R.

AMARUTI SUZUKI INDIA LTD.

(EARLIER KNOWN AS MARUTI UDYOG LTD.)

v.

COMMISSIONER OF INCOME TAX, DELHI

B

(Civil Appeal No. 11923 of 2018)

FEBRUARY 07, 2020

[ASHOK BHUSHAN AND NAVIN SINHA, JJ.]

Income Tax Act, 1961 – Proviso to s.43B – AllowableCdeduction u/s.43B in respect of unutilised MODVAT credit –Appellant-assessee manufactures automobiles chargeable to ExciseDuty under the 1944 Act– It acquires excisable raw materials &inputs, which are used in manufacturing of vehicles, on which itwas also taking benefit of MODVAT credit – At the end of assessmentyear 1999-2000, Rs.69,93,00,428/- was left as unutilised MODVATDcredit – Assessee claimed deduction u/s.43B and also claimeddeduction of Rs.3,08,88,171/- in respect of Sales Tax RecoverableAccount – Assessing Officer disallowed both claims of deductions– Upheld by Commissioner of Income Tax & ITAT – High Courtanswered questions relating to the aforesaid disallowance in favourEof Revenue – Held: Under s.43B(a), deduction is allowed on “anysum payable by the assessee by way of tax, duty, cess or fee” –Credit of Excise Duty earned by appellant under MODVAT schemeas per 1944 Rules is not sum payable by the assessee by way of tax,duty, cess – Scheme u/s.43B is to allow deduction when a sum ispayable by assessee by way of tax, duty & cess and had beenFactually paid by him – Excise Duty leviable on appellant onmanufacture of vehicles was already adjusted in the concernedassessment year from the credit of Excise Duty under MODVATscheme – Unutilised credit in the MODVAT scheme cannot be treatedas sum actually paid by appellant – Assessee when pays the cost ofGraw materials where the duty is embedded, it does not ipso factomean that assessee is the one who is liable to pay Excise Duty onsuch raw material/inputs – It is merely the incident of Excise Dutythat has shifted from manufacturer to purchaser and not the liabilityto the same – Unutilised credit under MODVAT scheme does notqualify for deductions u/s.43B – Proviso to s.43B takes care of theH

situation when liability to pay a sum has incurred but could not bepaid in the year in question and has been paid in next financialyear before the date of submission of the Return – In the presentcase, the liability to pay Excise Duty of the assessee is incurred onthe removal of finished goods in the subsequent year i.e. yearbeginning from 01.04.99 and what the Court is concerned with isunutilised MODVAT Credit as on 31.03.1999 on which date theasseessee was not liable to pay any more Excise Duty– Present isnot a case where appellant can claim benefit of proviso to s.43B –High Court correctly answered both the questions against theappellant and in favour of Revenue– Central Excise Act, 1944–Central Excise Rules, 1944 – rr.57A-57F.

Central Excise Act, 1944 – Statutory liability to pay ExciseDuty – Appellant-assessee manufactures automobiles chargeableto Excise Duty under the 1944 Act – It acquires excisable rawmaterials & inputs which are used in manufacturing of vehicles –Held: Excise duty is levied under 1944 Act and collected as per1944 Rules – Assessee in reference to the 1944 Rules is Assessee asdefined in r.2(3) – Manufacture of the raw materials or inputs usedby the appellant are the excisable items within the meaning of 1944Rules – Liability to pay Excise Duty is not fastened on two entitiesas per the scheme of 1944 Act and 1944 Rules – It is themanufacturer of raw materials and inputs which are used byappellant who has statutory liability to pay Excise Duty – Appellantis not assessee within the meaning of 1944 Act, with reference toraw materials and inputs manufactured by the entities from whichappellant had purchased the raw materials – Central Excise Rules,1944 – r.2(3).

Dismissing the appeals, the Court

Conclusion

Dismissing the appeals, the Court

HELD: 1.1 Section 43B of the Act the provision indicatesthat deduction thereunder is to be allowed on fulfilment of thefollowing conditions: (a) there should be an actual payment ofExcise Duty whether “by way of tax, duty, cess or fee, by whatevername”; (b) such payment has to be “under any law for the timebeing in force”; (c) the payment of such sum should have beenmade by the assessee; (d) irrespective of the method ofaccounting regularly employed by the assessee, deduction shallbe allowed while computing the income tax for the previous year A

B

C

D

EF

GH

A“in which sum is actually paid” by the assessee; (e) the expression“any such sum payable” refers to a sum for which the assesseeincurred liability in the previous year even though such sum mightnot have been payable within that year under the relevant law.[Para 11][667 F-H; 668-A-B]

B1.2 The crucial words in Section 43B(a) are “any sumpayable by the assessee by way of tax, duty, cess or fee...”. TheExcise Duty is levied under the Central Excise Act, 1944 andcollected as per the Central Excise Rules, 1944. The assesseein reference to the Central Excise Rules, 1944 is Assessee asdefined in Rule 2(3) which is to the following effect. The taxableCevent is manufacture and production of excisable articles andpayment of duty is relatable to date of removal of such articlefrom the factory. The manufacture of the raw materials or inputswhich have been used by the appellant are the excisable itemswithin the meaning of Central Excise Rules, 1944. The ExciseDDuty is leviable on the manufacturer of raw materials and inputs.The supplier of raw materials or inputs includes the Excise Dutypaid on such articles in his sale invoices. The appellant whenpurchases raw materials and inputs for manufacture of vehicles itmaintains a separate account containing the Excise Duty asmentioned in sale invoices. The credit of such Excise Duty paidEby the appellant is to be given to the appellant by virtue of Rule57A to 57F of Central Excise Rules, 1944 as it then existed. Theappellant was fully entitled to discharge his liability to pay ExciseDuty on vehicles manufactured by adjusting the credit of ExciseDuty earned by it as per MODVAT scheme. The liability to pay FExcise Duty is not fastened on two entities as per the scheme ofCentral Excise Act and Central Excise Rules. It is themanufacturer of raw materials and inputs which are used byappellant who has statutory liability to pay Excise Duty. Theappellant is not assessee within the meaning of Central ExciseAct, 1944, with reference to raw materials and inputsGmanufactured by the entities from which appellant had purchasedthe raw materials and entities. [Paras 13-15][668-D-H; 669-A-C]

1.3 As per Section 43B(a) of Income Tax Act, deduction isallowed on “any sum payable by the assessee by way of tax, duty, H

cess or fee.” The credit of Excise Duty earned by the appellantunder MODVAT scheme as per Central Excise Rules, 1944 isnot sum payable by the assessee by way of tax, duty, cess. Thescheme under Section 43B is to allow deduction when a sum ispayable by assessee by way of tax, duty and cess and had beenactually paid by him. Furthermore, the deductions under Section43B is allowable only when sum is actually paid by the assessee.In the present case, the Excise Duty leviable on appellant onmanufacture of vehicles was already adjusted in the concernedassessment year from the credit of Excise Duty under theMODVAT scheme. The unutilised credit in the MODVAT schemecannot be treated as sum actually paid by the appellant. Theassessee when pays the cost of raw materials where the duty isembedded, it does not ipso facto mean that assessee is the onewho is liable to pay Excise Duty on such raw material/inputs. It ismerely the incident of Excise Duty that has shifted from themanufacturer to the purchaser and not the liability to the same.The unutilised credit under MODVAT scheme does not qualifyfor deductions under Section 43B of the Income Tax Act.[Paras 16-18][669-B-F]

1.4 The High Court had rightly answered the above questionin favour of the Revenue relying on its discussion with respect toQuestion No.1. The sales tax paid by the appellant was debitedto a separate account titled ‘Sales Tax recoverable account’. Theassessee could have set off sales tax against his liability on thesales of finished goods i.e. vehicles. No infirmity is found in theview of the High Court answering the above question. Theproviso to Section 43B provides that nothing contained in theSection shall apply in relation to any sum which is actually paid byassessee on or before due date applicable in his case for furnishingthe return in respect of the previous year in which the liability topay such sum was incurred. The crucial words in the proviso toSection 43B are “in respect of the previous year in which theliability to pay such sum was incurred”. The proviso takes careof the situation when liability to pay a sum has incurred but couldnot be paid in the year in question and has been paid in the nextfinancial year before the date of submission of the Return. In thepresent case, there was no liability to adjust the unutilisedMODVAT credit in the year in question since had there been A

B

C

D

E

F

GH

Aliability to pay Excise Duty by the appellant on manufacture ofvehicles, the unutilised MODVAT credit could have been adjustedagainst the payment of such Excise Duty. In the present case,the liability to pay Excise Duty of the assessee is incurred on theremoval of finished goods in the subsequent year i.e. yearbeginning from 01.04.1999 and what the Court is concerned withBis unutilised MODVAT Credit as on 31.03.1999 on which datethe asseessee was not liable to pay any more Excise Duty. Hence,present is not a case where appellant can claim benefit of provisoto Section 43B. High Court correctly answered both the questionsagainst the assessee-appellant and in favour of the Revenue.C[Paras 32, 34 and 35][674-E-F; 675-A-E]

Eicher Motor Ltd. and Another v. Union of India andOthers (1999) 2 SCC 361 : [1999] 1 SCR 295; Collectorof Central Excise, Pune and Others v. Dai Ichi KarkariaLtd. and Others (1999) 7 SCC 448 : [1999] 1 Suppl.DSCR 360; Berger Paints India Ltd. v. Commissioner ofIncome Tax 2004 (266) ITR 99 – distinguished.

Lakhan Pal National Ltd. v. ITO (1986) 162 ITR 240 –referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11923of 2018.

From the Judgment and Order dated 07.12.2017 of the High Courtof Delhi at New Delhi in ITA No. 31 of 2005.

G

With

Civil Appeal No. 11924 of 2018.

Arijit Prasad, S. Ganesh, Sr. Advs., S.A. Haseeb, Diksha Rai,Mrs. Anil Katiyar, Ms. Kavita Jha, Ms. Devika Jain, Anant Mann, Advs.for the appearing parties.H

The Judgment of the Court was delivered by ASHOK BHUSHAN, J.

1. By these appeals the assessee has challenged the judgment ofthe High Court of Delhi dated 07.12.2017 deciding the Income Tax AppealNo.31 of 2005. ITA No.31 of 2005 related to Assessment year 1999-2000 and ITA No.442 of 2005 related to Assessment year 2000-2001, inboth the appeal similar questions were answered against the assessee.For deciding these two appeals it is sufficient to notice the facts in CANo.11923 of 2018 for Assessment Year 1999-2000. The High Court bythe impugned judgment has affirmed the views of Income Tax AppellateTribunal on the questions which have been raised in this appeal. TheAssessing Officer as well as the Commissioner of Income Tax (Appeals)has not accepted the claim of the appellant. The appellant (hereinafterreferred to as the “assessee”) is engaged in the business of manufacturingautomobiles, which are chargeable to Excise Duty under the CentralExcise Act, 1994. The assessment year in question is assessment year1999-2000. The assessee, a Company, has been engaged inmanufacturing and sale of various Maruti Cars and also trades in sparesand components of the vehicles. It acquires exiceable raw materials andinputs which are used in the manufacturing of the vehicles. The assesseehad also been taking benefit of MODVAT credit on the raw materialand inputs used in the manufacturing. At the end of the Assessmentyear 1999-2000 an amount of Rs.69,93,00,428/- was left as unutilisedMODVAT credit. In the return it was claimed that the Company waseligible for deduction under Section 43B of the Income Tax Act as anallowable deduction. Similarly, the Company claimed deduction underSection 43B of an amount of Rs. 3,08,88,171/- in respect of Sales TaxRecoverable Account.

2. The Assessing Officer passed assessment order dated28.03.2002. The Assessing Officer disallowed the claim of deduction ofRs.69,93,00,428/- as well as Rs.3,08,99,171/-. Aggrieved by theassessment order, the assessee filed an appeal before the Commissionerof Income Tax. The Commissioner of Income Tax also sustained thedisallowance of the above two items. An appeal to ITAT met the samefate. The ITAT took the view that the advance payment of Excise Dutywhich represented unutilised MODVAT credit without incurring theliability of such payment is not an allowable deduction under Section43B. The assessee filed an appeal under Section 260A of the Income B

C

D

EF

GH

ATax Act in the High Court. The High Court answered question Nos.(ii)and ((iii) relating to the above noted disallowance in favour of theRevenue. Aggrieved by the judgment of the High Court, these appealshave been filed.

3. The two questions which were answered by the High Court inBfavour of the Revenue which were subject matter of this appeal arequestion Nos.(ii) and (iii) as framed by the High Court are to the followingeffect:

“(ii) Whether the ITAT had committed an error of law in upholdingthe disallowance of the amount of Rs.69,93,00,428/- whichCrepresented MODVAT credit of Excise Duty that remainedunutilised by 31[st] March, 1999 i.e. the end of the relevantaccounting year ?

(iii) Whether the ITAT has committed an error of law in upholdingthe disallowance of Rs.3,08,99,171/- in respect of Sales TaxDRecoverable Account, under Section 43B of the Income-tax Act?”4. We have heard Shri S. Ganesh, learned senior counsel for theappellant-assessee and Shri Arijit Prasad, learned senior counsel for theRevenue.

5. Shri Ganesh submits that the amount paid by way of ExciseEDuty by the assessee to its suppliers of raw materials and inputs, isaccepted as Excise Duty under the provisions of Central Excise Act andRules. Consequently, when the said payments are made by the assesseeto its suppliers, they should be treated as payments of Excise Duty whichstraightaway qualify for deduction under Section 43B of the IncomeFTax Act, irrespective of whether or when the MODVAT credit arisingfrom such payments is utilised to make payment of Excise Duty on theproducts manufactured by the assessee. The High Court erroneouslyheld that the above payments made by the assessee are mere contractualpayments and not payments by way of Excise Duty. As soon as the rawGmaterials and inputs are received in the appellant’s factory, the assesseebecomes entitled to avail of MODVAT credit in respect of Excise Dutypaid on the raw materials and inputs and which is mentioned in themanufacturer-supplier’s invoice. The assessee was clearly entitled fordeduction of unutilised MODVAT credit balance as on 31.03.1999.

H

6. Shri Ganesh in alternative submits that questions are squarelycovered in favour of the assessee by the 1[st] proviso to Section 43B. Theassessee’s Excise Returns establish that while the untilised MODVATcredit as on 31.03.1999 was Rs. 69.30 crores, the entire amount wasutilised in April, 1999 itself. Consequently, the assessee is entitled to thededuction under the 1[st] proviso to Section 43B. The object and purposeof Section 43B of the Act is to ensure that an assessee does not getdeduction in respect of an amount unless and until the amount has beenreceived by the Government. In the present case the full amount ofExcise Duty was paid into the coffers of Government when themanufacturer of raw material/inputs had cleared the same from hisfactory gate for supply to the assessee. The basic object of Section 43Bof the Act is fully subserved and deduction should have been granted asclaimed by the assessee.

7. Shri Arijit Prasad, learned senior counsel for the Revenuerefuting the submissions of the learned counsel for the assessee contendsthat deduction under Section 43B is allowable only when the amount oftax, cess etc. are due and payable and the assessee actually pays thesame. In the present case the Excise Duty becomes due and payableonly when the assessee removes the finished product from the factorygate, at the point in time when the assessee makes payment to the suppliersthe Excise Duty is not due and payable. It is not in dispute that theassessee was entitled to the duty paid by it to the manufacturer underRule 57A to Rule 571 of the Central Excise Rules, 1944. Further it is notin dispute that the assessee was entitled to utilise MODVAT credittowards payment of Excise Duty leviable on the final productsmanufactured by it. The liability under the Central Excise Act to payExcise Duty is only on the manufacture of the excisable goods. Theassessee is not one who is liable to pay Excise Duty on the raw materials/inputs. It is merely the incidence of Excise Duty that has shifted fromthe manufacturer to the purchaser and not the liability to pay the same.Answering the submission of counsel for the assessee based on provisoto Section 43B, it is submitted that liability to pay Excise Duty of theassessee is incurred on the removal of the finished goods in the subsequentyear, therefore, on 31.03.1999, the assessee was not liable to pay theExcise Duty and, therefore, the proviso will also not come to the aid ofthe assessee.

AB

C

D

E

F

G

H

AB

C

D

E

F

G

H

A8. We have considered the submissions of the learned counsel forthe parties and perused the records.

9. The two issues which need to be answered by us in theseappeals are:

“(i) Whether the ITAT had committed an error of law in upholdingBthe disallowance of the amount of Rs.69,93,00,428/- whichrepresented MODVAT credit of Excise Duty that remainedunutilised by 31[st] March, 1999 i.e. the end of the relevantaccounting year ?

(ii) Whether the ITAT has committed an error of law in upholdingCthe disallowance of Rs.3,08,99,171/- in respect of Sales TaxRecoverable Account, under Section 43B of the Income-tax Act?”10. We need to first notice the provisions of Section 43B underwhich deduction is sought to be claimed. Section 43B is as follows:

“43B.Certain deductions to be only on actual payment.-DNotwithstanding anything contained in any other provision of thisAct, a deduction otherwise allowable under this Act in respectof—

(a) any sum payable by the assessee by way of tax, duty, cessor fee, by whatever name called, under any law for the timeEbeing in force, or (b) any sum payable by the assessee as an employer by way ofcontribution to any provident fund or superannuation fund orgratuity fund or any other fund for the welfare of employees,or F

(c) any sum referred to in clause (ii) of sub-section (1) of section36, or (d) any sum payable by the assessee as interest on any loan orborrowing from any public financial institution or a Statefinancial corporation or a State industrial investmentGcorporation, in accordance with the terms and conditions ofthe agreement governing such loan or borrowing, or (e) any sum payable by the assessee as interest on any loan oradvances from a scheduled bank [or a co-operative bankother than a primary agricultural credit society or aHprimary co-operative agricultural and rural development bank] in accordance with the terms and conditions of theagreement governing such loan or advances, or (f)any sum payable by the assessee as an employer in lieu ofany leave at the credit of his employee, or (g) any sum payable by the assessee to the Indian Railways forthe use of railway assets, shall be allowed (irrespective of the previous year in whichthe liability to pay such sum was incurred by the assesseeaccording to the method of accounting regularly employedby him) only in computing the income referred to in Section28 of that previous year in which such sum is actually paidby him :

Provided that nothing contained in this section shall apply inrelation to any sum which is actually paid by the assessee onor before the due date applicable in his case for furnishingthe return of income under sub-section (1) of section 139inrespect of the previous year in which the liability to pay suchsum was incurred as aforesaid and the evidence of suchpayment is furnished by the assessee along with such return.

...”

11. The untilised MODVAT credit on 31.03.1999 to the credit ofthe assessee was Rs.69,93,00,428/-. The MODVAT credit wasaccumulated to the account of the assessee due to payment of ExciseDuty on raw materials and inputs which were supplied to it by the suppliersand reflected in the invoices by which raw materials and inputs weresupplied. There is no denial to the fact that the appellant was entitled toutilise this credit in payment of Excise Duty to which the assessee wasliable in payment of Excise Duty on manufacture of its products. Whenwe analyse provision of Section 43B of the Act the provision indicatesthat deduction thereunder is to be allowed on fulfilment of the followingconditions:

“a. there should be an actual payment of Excise Duty whether“by way of tax, duty, cess or fee, by whatever name”; b.such payment has to be “under any law for the time being inforce”;

c.the payment of such sum should have been made by theassessee; A

B

C

D

EF

G

H

Ad.irrespective of the method of accounting regularly employedby the assessee, deduction shall be allowed while computingthe income tax for the previous year “in which sum is actuallypaid” by the assessee; e.the expression “any such sum payable” refers to a sum forBwhich the assessee incurred liability in the previous year eventhough such sum might not have been payable within thatyear under the relevant law.”

12. The fulfillment of the above statutory conditions is necessaryfor allowing deduction under Section 43B. We have to examine the factsCof the present case to find out as to whether all the conditions which arenecessary for permissible deduction under Section 43B are present hereor not.

13. The crucial words in Section 43B(a) are “any sum payable bythe assessee by way of tax, duty, cess or fee...”. We need to examine asto whether unutilised credit under MODVAT Scheme was sum payableDby the assessee.

14. The Excise Duty is levied under the Central Excise Act, 1944and collected as per the Central Excise Rules, 1944. The assessee inreference to the Central Excise Rules, 1944 is Assessee as defined inRule 2(3) which is to the following effect:-E

“Rule 2(3). “assessee” means any person who is liablefor payment of duty assessed and also includes any produceror manufacturer of excisable goods or a registered person ofa private warehouse in which excisable goods are stored;”

15. The taxable event is manufacture and production of excisableFarticles and payment of duty is relatable to date of removal of sucharticle from the factory. The manufacture of the raw materials or inputswhich have been used by the appellant are the excisable items withinthe meaning of Central Excise Rules, 1944. The Excise Duty is leviableon the manufacturer of raw materials and inputs. The supplier of rawGmaterials or inputs includes the Excise Duty paid on such articles in hissale invoices. The appellant when purchases raw materials and inputsfor manufacture of vehicles it maintains a separate account containingthe Excise Duty as mentioned in sale invoices. The credit of such ExciseDuty paid by the appellant is to be given to the appellant by virtue ofRule 57A to 57F of Central Excise Rules, 1944 as it then existed. The H

appellant was fully entitled to discharge his liability to pay Excise Dutyon vehicles manufactured by adjusting the credit of Excise Duty earnedby it as per MODVAT scheme. The liability to pay Excise Duty is notfastened on two entities as per the scheme of Central Excise Act andCentral Excise Rules. It is the manufacturer of raw materials and inputswhich are used by appellant who has statutory liability to pay ExciseDuty. The appellant is not assessee within the meaning of Central ExciseAct, 1944, with reference to raw materials and inputs manufactured bythe entities from which appellant had purchased the raw materials andentities.

16. As per Section 43B(a) of Income Tax Act, deduction is allowedon “any sum payable by the assessee by way of tax, duty, cess or fee.”The credit of Excise Duty earned by the appellant under MODVATscheme as per Central Excise Rules, 1944 is not sum payable by theassessee by way of tax, duty, cess. The scheme under Section 43B is toallow deduction when a sum is payable by assessee by way of tax, dutyand cess and had been actually paid by him.

17. Furthermore, the deductions under Section 43B is allowableonly when sum is actually paid by the assessee. In the present case, theExcise Duty leviable on appellant on manufacture of vehicles was alreadyadjusted in the concerned assessment year from the credit of ExciseDuty under the MODVAT scheme. The unutilised credit in the MODVATscheme cannot be treated as sum actually paid by the appellant. Theassessee when pays the cost of raw materials where the duty isembedded, it does not ipso facto mean that assessee is the one who isliable to pay Excise Duty on such raw material/inputs. It is merely theincident of Excise Duty that has shifted from the manufacturer to thepurchaser and not the liability to the same.

18. We thus, conclude that the unutilised credit under MODVATscheme does not qualify for deductions under Section 43B of the IncomeTax Act.

19. Shri Ganesh has relied on judgment of this Court in EicherMotors Ltd. and another versus Union of India and others, (1999)2 SCC 361, and submits that facility of credit is as good as tax paid,hence, it be accepted that by payment of Excise Duty although which ispart of sale invoice issued by manufacturer or producer of raw materialor inputs, the payment by appellant was Excise Duty which qualified fordeduction under Section 43B.

A

B

C

D

E

F

G

H

A20. In Eicher Motors Ltd. and another, the challenge to thevalidity of scheme as modified by introduction of Rule 57F of CentralExcise Rules, 1944 was under consideration. According to Section 57-F(4A) of Central Excise Rules, 1944, credit which was lying unutilisedon 16.03.1995 with the manufacturers, stood lapsed, Rule 57-F(4-A)has been extracted in paragraph 2 of the judgment which is to the followingBeffect: - A

“2. The relevant Rule reads as follows:

“57-F. (4-A) Notwithstanding anything contained insub-rule (4), or sub-rule (1) of Rule 57-A and the notificationsCissued thereunder, any credit of specified duty lying unutilisedon the 16th day of March, 1995 with a manufacturer oftractors, falling under Heading No. 87.01 or motor vehiclesfalling under Heading No. 87.02 and 87.04 [or chassis ofsuch tractors or such motor vehicles under Heading No.87.06] of the Schedule to the Central Excise Tariff Act, 1985D(5 of 1986) shall lapse and shall not be allowed to be utilisedfor payment of duty on any excisable goods, whether clearedfor home consumption or for export:

Provided that nothing contained in this sub-rule shallapply to credit of duty, if any, in respect of inputs lying inEstock or contained in finished products lying in stock on the16th day of March, 1995.”

21. This Court in reference to 57-F(4-A) took the view that rightto credit had become absolute at any rate when the input is used in themanufacture of the final products. This court held that the scheme soughtto be introduced cannot be made applicable to the goods which hadalready come into existence in respect of which the earlier Scheme wasapplied. Following observations have been made by this Court in paragraph5 of the above judgment:- F

“As pointed out by us that when on the strength of theRules available, certain acts have been done by the partiesconcerned, incidents following thereto must take place inaccordance with the Scheme under which the duty had beenpaid on the manufactured products and if such a situation issought to be altered, necessarily it follows that the right, whichhad accrued to a party such as the availability of a scheme,is affected and, in particular, it loses sight of the fact that the G

H

Statutes

provision for facility of credit is as good as tax paid till tax isadjusted on future goods on the basis of the severalcommitments which would have been made by the assesseesconcerned. Therefore, the Scheme sought to be introducedcannot be made applicable to the goods which had alreadycome into existence in respect of which the earlier Schemewas applied under which the assessees had availed of thecredit facility for payment of taxes. It is on the basis of theearlier Scheme necessarily that the taxes have to be adjustedand payment made complete. Any manner or mode ofapplication of the said Rule would result in affecting the rightsof the assessees.”

22. The observations in the above paragraph that facility of creditis as good as tax paid till tax is adjusted on future goods were made incontext of 57-F(4-A) of Central Excise Rules,1944.

23. The above observation cannot be read to mean that paymentof Excise Duty by the appellant which was component of sale invoicepurchasing the raw material/inputs by the appellant is also payment ofExcise Duty on raw material/inputs.

24. By payment of component of Excise Duty as included in saleinvoice is benefit which is given to appellant by virtue of credit asenvisaged in statutory scheme of Rule 57-A to 57-I of Central ExciseRules, 1944. The above judgment thus in no manner supports thesubmissions of the appellant for the purposes of the present case.

25. Next judgment relied by Shri Ganesh in Collector of CentralExcise, Pune and others versus Dai Ichi Karkaria Ltd. and others;(1999) 7 SCC 448. In the above case, this Court had occasion to considerSection 4 of Central Excise Act, 1944, which provides for valuation ofraw material covered by MODVAT Scheme. Referring to Rule 57-A(1)and Rule 57-F(1), this Court laid down following in paragraph 18, 19 and20: - “18. It is clear from these rules, as we read them, that amanufacturer obtains credit for the Excise Duty paid on rawmaterial to be used by him in the production of an excisableproduct immediately it makes the requisite declaration andobtains an acknowledgment thereof. It is entitled to use thecredit at any time thereafter when making payment of ExciseDuty on the excisable product...

A

B

C

D

E

F

G

H

A

19. It is, therefore, that in the case of Eicher MotorsLtd. vs. Union of India, this Court said that a credit under theMODVAT Scheme was as good as tax paid.

20. With this in mind, we must now determine whetherthe Excise Duty paid on the raw material should form part ofBthe cost of the excisable product for the purposes of Section4(1)(b) of the Act read with Rule 6 of the Valuation Rules.”

26. In the above case, this Court held that in determining the costof the excisable product covered by MODVAT Scheme under Section4(1)(b) of the Act read with Rule 6 of the Valuation Rules, the ExciseCDuty paid on raw material covered by MODVAT Scheme is not to beincluded. The question which was answered in the above case wasentirely different to one which has arisen in the present case.

27. This Court as noted above in the above case has laid downthat credit for the Excise Duty paid for the raw material can be used atDany time when making payment of Excise Duty on excisable product.The user of such credit is at the time of payment of Excise Duty on theexcisable product i.e. at the time when appellant is to pay Excise Dutyon its manufactured vehicle.

28. The judgment of this Court in Berger Paints India Ltd. versusECommissioner of Income Tax, 2004 (266) ITR 99, has also beenreferred to. The assessee company in the above case had claimed thatunder Section 43B of the Income Tax Act, it was entitled to deduction ofthe entire sum being the duties actually paid during the relevant previousyears. The appellant in the year in question had incurred expenditure onaccount of customs and Excise Duty aggregating to Rs.5,85,87,181/-Fwhich was duties debited to the profit and loss account of the companyfor the relevant previous year. In assessment proceedings the company’sclaim that it was entitled to deduct the entire sum of Rs.5,85,87,181/-being the duties actually paid during the relevant year was accepted.The Commissioner of Income Tax initiated proceedings under SectionG263 of the Act claiming that Assessing officer had wrongly allowed theclaim for deduction. The Commissioner held that assessing officerincorrectly relied on judgment of Gujarat High Court in Lakhan PalNational Ltd. versus ITO (1986) 162 ITR 240, ITAT also. ITATreferred a question to the High Court. The High Court answered thequestion in favour of Revenue against which the appeal was filed. TheH

relevant facts have been noticed in the judgment of this Court in followingwords: - “...In the assessment proceedings of the assessment year 1984-85, the Inspecting Assistant Commissioner of Income-tax allowedthe appellant-assessee’s claim that it was entitled to deduct theentire sum of Rs.5,85,87,181/- being the duties actually paid duringthe relevant year previous to the assessment year 1984-85. TheCommissioner of Income-tax initiated proceedings under section263 of the Act on the ground that the Assessing Officer hadwrongly allowed the claim for deduction of an amount ofRs.98,25,833/- towards customs and Excise Duty paid during theprevious year but credited to the profit and loss account in closingstock of goods under the provisions of Section 43B. the assesseerelied upon the judgment of the Gujarat high Court in LakhanpalNational Ltd. Vs. ITO[1986] 162 ITR 240[hereinafter referredto as “Lakhanpal National Ltd.’s case”] in support of its claim.The Commissioner of Income-tax took the view that the GujaratHigh Court’s decision was distinguishable on facts and, therefore,made an order under section 263 of the Act disallowing the claimof the assessee. On appeal to the Tribunal, the Tribunal held thatthe Gujarat high court’s judgment in Lakhanpal National Ltd.’scase [1986] 162 ITR 240 was distinguishable and confirmed theorder of the Commissioner of Income-tax. On an application madeunder section 256(1) of the Act at the instance of the appellant-assessee, the Tribunal, inter alia, referred the following questionof law for the opinion of the High Court (see [2002] 253 IT 738,739):

“Whether, on the facts and in the circumstances of thecase, the Tribunal was right in law in rejecting the assessee’sclaim for deduction of the excise and customs duties ofRs.98,25,833 paid in the year of account and debited in theprofit and loss account, on the ground that the crediting of theprofit and loss account by the value of the closing stock, whichincluded the aforesaid duties, did not have the effect of wipingout the debit to the profit and loss account?”

The High Court by its judgment dated September 24, 2001,in I.T.R.No.213 of 1993 (see [2002] 253 ITR 738), answered thequestion referred in favour of the Revenue and against theassessee.”

A

BC

D

E

F

G

H

A29. This Court in Berger Paints Ltd. (Supra) upheld the view ofassessing officer and decided the question in favour of the assessee.This Court held that the Commissioner of Income Tax has incorrectlydistinguished the judgment of Lakhan Pal National Ltd. Case.

30. As noted above in the above case, the claim of the assesseeBwas that entire sum of Rs.5,85,87,181/- was the duties actually paidduring the relevant previous year. The above was not a case for unutilisedMODVAT credit, hence, the said case cannot be held to lay down anyratio with respect to allowable deduction under Section 43B in respectof unutilised MODVAT credit.

C31. Now coming to the second question i.e. with regard todisallowance of Rs.3,08,79,171/- in respect of Sale tax recoverableamount,the High Court in paragraph 52 of the judgment has noticedrelevant facts in above reference in following words: - “52. The facts are the Assessee pays sales tax on theDpurchase of raw materials and computers used in themanufacture of cars. Though, the sales-tax paid is part of thecost of raw material, the Assessee debits the purchases net ofsales tax; the sales tax paid is debited to a separate accounttitled ‘Sales-tax Recoverable A/c”. Under the HaryanaGeneral Sales Tax Act 1973, the Assessee cold set off suchEsales-tax against its liability on the sales of the finished goodsi.e. cars. Whenever the goods are sold, the tax on such salesis credited to the aforesaid account.”

32. The High Court had rightly answered the above question infavour of the Revenue relying on its discussion with respect to QuestionFNo.1. The sales tax paid by the appellant was debited to a separateaccount titled ‘Sales Tax recoverable account’. The assessee could haveset off sales tax against his liability on the sales of finished goods i.e.vehicles. We do not find any infirmity in the view of the High Courtanswering the above question.G33. The next submission which has been advanced by Shri Ganeshis on the first proviso to Section 43B. It has been submitted that Returnfor the assessment year in question was to be filed before 30.09.1999and unutilised credit in fact was fully utilised by 30.04.1999 itself. It issubmitted that since the unutilised credit was utilised for payment ofExcise Duty on the manufactured vehicles, the said amount ought toHhave been allowed as permissible deduction under Section 43B.

34. The proviso to Section 43B provides that nothing contained inthe Section shall apply in relation to any sum which is actually paid byassessee on or before due date applicable in his case for furnishing thereturn in respect of the previous year in which the liability to pay suchsum was incurred. The crucial words in the proviso to Section 43B are“in respect of the previous year in which the liability to pay such sumwas incurred”. The proviso takes care of the situation when liability topay a sum has incurred but could not be paid in the year in question andhas been paid in the next financial year before the date of submission ofthe Return. In the present case, there was no liability to adjust the unutilisedMODVAT credit in the year in question since had there been liability topay Excise Duty by the appellant on manufacture of vehicles, theunutilised MODVAT credit could have been adjusted against the paymentof such Excise Duty. In the present case, the liability to pay Excise Dutyof the assessee is incurred on the removal of finished goods in thesubsequent year i.e. year beginning from 01.04.1999 and what we areconcerned with is unutilised MODVAT Credit as on 31.03.1999 on whichdate the asseessee was not liable to pay any more Excise Duty. Hence,present is not a case where appellant can claim benefit of proviso toSection 43B. The submissions of Shri Ganesh on proviso to Section 43Balso does not support his claim.

35. In view of the foregoing discussions, we are of the view thatHigh Court has correctly answered both the questions against theassessee-appellant and in favour of the Revenue. Consequently, theappeals are dismissed.

Divya Pandey

Appeals dismissed.

AB

CD

E

F

G

H