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  • Case Law: Maruti Suzuki India Ltd vs. CIT (Supreme Court)
  • CIVIL APPEAL NO.11923 OF 2018
  • Court: Supreme Court
  • Date: 27/02/2020

QUESTIONS INVOLVED

Section 43B(a), deduction is allowed on "any sum payable by the assessee by way of tax, duty, cess or fee." The scheme of s. 43B is to allow deduction when the sum is actually paid.

  1. The credit of Excise Duty earned under MODVAT scheme is not sum payable by the assessee by way of tax, duty, cess. It is merely the incident of Excise Duty that has shifted from the manufacturer to the purchaser and not the liability to the same. Consequently, the unutilised credit under MODVAT scheme does not qualify for deduction u/s 43B.
  2. The sales tax paid by the appellant was debited to a separate account titled 'Sales Tax recoverable account' and is liable for disallowance u/s 43B.
Whether sum paid through MODVAT credit is not allowed as deduction u/s 43B

BRIEF FACTS OF CASE

For deciding this appeals it is sufficient to notice the facts in CA No.11923 of 2018 for Assessment Year 1999-­2000. The High Court by the impugned judgment has affirmed the views of Income Tax Appellate Tribunal on the questions which have been raised in this appeal. The Assessing Officer as well as the Commissioner of Income Tax (Appeals) has not accepted the claim of the appellant.

 

The appellant (hereinafter referred to as the "assessee") is engaged in the business of manufacturing automobiles, which are chargeable to Excise Duty under the Central Excise Act, 1994.

The assessment year in question is assessment year 1999­-2000. The assessee, a Company, has been engaged in manufacturing and sale of various Maruti Cars and trades in spares and components of the vehicles. It acquires excitable raw materials and inputs which are used in the manufacturing of the vehicles.

The assessee had also been taking benefit of MODVAT credit on the raw material and inputs used in the manufacturing. At the end of the Assessment year 1999­-2000 an amount of Rs.69,93,00,428/­ was left as unutilized MODVAT credit.

In the return it was claimed that the Company was eligible for deduction under Section 43B of the Income Tax Act as an allowable deduction. Similarly, the Company claimed deduction under Section 43B of an amount of Rs. 3,08,88,171/­ in respect of Sales Tax Recoverable Account.

AO DECISION: The Assessing Officer passed assessment order dated 28.03.2002. The Assessing Officer disallowed the claim of deduction of Rs.69,93,00,428/­ as well as Rs.3,08,99,171/­.

CIT(A) DECISION: Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax. The Commissioner of Income Tax also sustained the disallowance of the above two items.

ITAT DECISION: An appeal to ITAT met the same fate. The ITAT took the view that the advance payment of Excise Duty which represented unutilized MODVAT credit without incurring the liability of such payment is not an allowable deduction under Section 43B.

QUESTIONS INVOLVED

The two questions which were answered by the High Court in favour of the Revenue which were subject matter of this appeal are questioned Nos.(ii) and (iii) as framed by the High Court are to the following effect:

“(i) Whether the ITAT had committed an error of law in upholding the disallowance of the amount of Rs.69,93,00,428/­ which represented MODVAT credit of Excise Duty that still remained unutilized by 31 March 1999 i.e., the end of the relevant accounting year?

(ii) Whether the ITAT has committed an error of law in upholding the disallowance of Rs.3,08,99,171/­ in respect of Sales Tax Recoverable Account, under Section 43B of the Income-tax Act?”

 

DECISION OF DELHI HIGH COURT

The assessee filed an appeal under Section 260A of the Income Tax Act in the High Court. The High Court answered question Nos.(ii) and ((iii) relating to the above noted disallowance in favour of the Revenue.

Aggrieved by the judgment of the High Court, these appeals have been filed.

DECISION OF HON'BLE SUPREME COURT

SECTION 43B. Certain deductions to be only on actual payment.­

Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—

(a) any sum payable by the assessee by way of tax, duty, cess, or fee, by whatever name called, under any law for the time being in force, or

(b)any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or

(c)any sum referred to in clause (ii) of sub­section (1) of section 36, or

(d)any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or

(e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank[or a co­operative bank other than a primary agricultural credit society or a primary co­operative agricultural and rural development bank] in accordance with the terms and conditions of the agreement governing such loan or advances, or

(f)any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, or

(g)any sum payable by the assessee to the Indian Railways for the use of railway assets, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him :

Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub­section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.

PLEASE NOTE THAT: The Finance Act, 2021 has amended provisions of Section 43B of the Income Tax Act, 1961, it provides that the assessee must deposit outstanding balance or amount of any tax, duty, cess, or fee, by whatever name called, under any law for the time being in force within due date as may be prescribed under respective acts or otherwise deduction under provisions of Section 43B not available.

The utilised MODVAT credit on 31.03.1999 to the credit of the assessee was Rs.69,93,00,428/­. The MODVAT credit was accumulated to the account of the assessee due to payment of Excise Duty on raw materials and inputs which were supplied to it by the suppliers and reflected in the invoices by which raw materials and inputs were supplied. There is no denial to the fact that the appellant was entitled to utilize this credit in payment of Excise Duty to which the assessee was liable in payment of Excise Duty on manufacture of its products.

The proviso to Section 43B provides that nothing contained in the Section shall apply in relation to any sum which is actually paid by assessee on or before due date applicable in his case for furnishing the return in respect of the previous year in which the liability to pay such sum 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 sum was incurred”. The proviso takes care of the situation when liability to pay a sum has incurred but could not be paid in the year in question and has been paid in the next financial year before the date of submission of the Return. In the present case, there was no liability to adjust the unutilised MODVAT credit in the year in question since had there been liability to pay Excise Duty by the appellant on the manufacture of vehicles, the unutilized MODVAT credit could have been adjusted against the payment of such Excise Duty.

In the present case, the liability to pay Excise Duty of the assessee is incurred on the removal of finished goods in the subsequent year i.e., year beginning from 01.04.1999 and what we are concerned with is unutilised MODVAT Credit as on 31.03.1999 on which date the asseessee was not liable to pay any more Excise Duty. Hence, present is not a case where appellant can claim benefit of proviso to Section 43B. The submissions of Shri Ganesh on proviso to Section 43B also does not support his claim.

In view of the foregoing discussions, we are of the view that High Court has correctly answered both the questions against the assessee­ appellant and in favour of the Revenue. Consequently, the appeals are dismissed.

DISCLAIMER: The article produced above is only for information of readers. Please go through original order of the court for more clarifications and understandings.

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Published by

FCS Deepak Pratap Singh
(Manager Compliance -SBI General Insurance Co. Ltd.)
Category Income Tax   Report

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