Utilisation of ITC excise duty with output tax, considered as actual payment and allowed as deduction u/s 43B of IT Act

The Calcutta High Court has ruled that when a company adjusts its excise duty payable on finished goods with its available Input Tax Credit (ITC) and pays the remaining balance, this constitutes an actual payment. Consequently, no disallowance can be made under Section 43B of the Income-tax Act, 1961, even if the full amount wasn't paid directly. This decision affirms that such adjustments are considered a valid form of payment for tax deduction purposes.

The Hon’ble Calcutta High Court in Principal Commissioner of Income Tax - 1, Kolkata v. M/s. Beekay Steel Industries Limited,[No.- ITAT/177/2021 IA No.GA/1/2021 and IA NO.GA/2/2021] has held that when the assessee adjusted excise duty payable on closing stock of finished goods with available input credit and paid the remaining amount after the said adjustment, would tantamount to actual payment and no disallowance could be made under section 43B of the Income-tax Act, 1961 (“the IT Act”).

Facts: 

M/s. Beekay Steel Industries Limited (“the Respondent”) received a Show Cause Notice (“SCN”) issued by the Revenue Department (“the Appellant”). The Respondent replied to the said notice. However, the Appellant vide Order dated July 17, 2017, rejected the claim of the Respondent, on the ground that the excise duty liability cannot be allowed as a deduction since it was not paid by the Respondent during the relevant year.

Subsequently, the Respondent challenged the “Order” passed by the Appellant by filing an appeal before the Income Tax Appellate Tribunal (“ITAT”), wherein, relief was granted to the Respondent and allowed the balance amount of excise duty paid after adjustment with the available input credit in the respective division and that would be tantamount to actual payment of excise duty under Section 43B of the IT Act.

Aggrieved by the ITAT Order, the Appellant has filed this appeal.

Issue:

Whether payment of excise duty after adjusting the same with Input Tax Credit (“ITC”) of excise duty would tantamount as actual payment and no disallowance could be made under section 43B of the IT Act?

Held:

The Hon’ble CalcuttaHigh Court in Appeal No.- ITAT/177/2021 IA No.GA/1/2021 and IA NO.GA/2/2021, held as under:

• Held as actual payment and no disallowance could be made under section 43B of the IT Act and Noted that, one of the units of the Respondent was engaged only in job work activity and therefore, not entitled for benefit of input credit and after taking note of the sum paid on the said account and the balance amount was adjusted with the available input credit in the respective division, which undoubtedly would tantamount to actual payment of excise duty.
• Affirmed the order passed by the ITAT.