Case: MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG LTD.) Vs. COMMISSIONER OF INCOME TAX DELHI

actually paid during the relevant year previous to the assessment year 1984-85. The Commissioner of Income-tax initiated proceedings under section 263 of the Act on the ground that the Assessing Officer had wrongly allowed the claim for deduction of an amount of Rs.98,25,833/- towards customs and Excise Duty paid during the previous year but credited to the profit and loss account in closing stock of goods under the provisions of Section 43B. the assessee relied upon the judgment of the Gujarat high Court in Lakhanpal National Ltd. Vs. ITO[1986] 162 ITR 240[hereinafter referred to as Lakhanpal National Ltd.s case] in support of its claim. The Commissioner of Income-tax took the view that the Gujarat High Courts decision was distinguishable on facts and, therefore, made an order under section 263 of the Act disallowing the claim of the assessee. On appeal to the Tribunal, the Tribunal held that the Gujarat high courts judgment in Lakhanpal National Ltd.s case [1986] 162 ITR 240 was distinguishable and confirmed the order of the Commissioner of Income-tax. On an application made under section 256(1) of the Act at the instance of the appellant-assessee, the Tribunal, inter alia, referred the following question of law for the opinion of the High Court (see [2002] 253 IT 738, 739): Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in rejecting the assessees claim for deduction of the excise and customs duties of Rs.98,25,833 paid in the year of account and debited in the profit and loss account, on the ground that the crediting of the profit and loss account by the value of the closing stock, which included the aforesaid duties, did not have the effect of wiping out 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 the question referred in favour of the Revenue and against the assessee. 29. This Court in Berger Paints Ltd. (Supra) upheld the view of assessing officer and decided the question in favour of the assessee. This Court held that the Commissioner of Income Tax has incorrectly distinguished the judgment of Lakhan Pal National Ltd. Case. 30. As noted above in the above case, the claim of the assessee was that entire sum of Rs.5,85,87,181/- was the duties actually paid during the relevant previous year. The above was not a case for unutilised MODVAT credit, hence, the said case cannot be held to lay down any ratio with respect to allowable deduction under Section 43B in respect of unutilised MODVAT credit. 31. Now coming to the second question i.e. with regard to disallowance of Rs.3,08,79,171/- in respect of Sale tax recoverable amount,the High Court in paragraph 52 of the judgment has noticed relevant facts in above reference in following words: - 52. The facts are the Assessee pays sales tax on the purchase of raw materials and computers used in the manufacture of cars. Though, the sales-tax paid is part of the cost of raw material, the Assessee debits the purchases net of sales tax; the sales tax paid is debited to a separate account titled Sales-tax Recoverable A/c. Under the Haryana General Sales Tax Act 1973, the Assessee cold set off such sales-tax against its liability on the sales of the finished goods i.e. cars. Whenever the goods are sold, the tax on such sales is credited to the aforesaid account. 32. The High Court had rightly answered the above question in favour of the Revenue relying on its discussion with respect to Question No.1. The sales tax paid by the appellant was debited to a separate account titled Sales Tax recoverable account. The assessee could have set 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 Court answering the above question. 33. The next submission which has been advanced by Shri Ganesh is on the first proviso to Section 43B. It has been submitted that Return for the assessment year in question was to be filed before 30.09.1999 and unutilised credit in fact was fully utilised by 30.04.1999 itself. It is submitted that since the unutilised credit was utilised for payment of Excise Duty on the manufactured vehicles, the said amount ought to have been allowed as permissible deduction under Section 43B. 34. 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 manufacture of vehicles, the unutilised 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.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]11. The untilised 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 utilise this credit in payment of Excise Duty to which the assessee was liable in payment of Excise Duty on manufacture of its products15. The taxable event is manufacture and production of excisable articles and payment of duty is relatable to date of removal of such article from the factory. The manufacture of the raw materials or inputs which have been used by the appellant are the excisable items within the meaning of Central Excise Rules, 1944. The Excise Duty is leviable on the manufacturer of raw materials and inputs. The supplier of raw materials or inputs includes the Excise Duty paid on such articles in his sale invoices. The appellant when purchases raw materials and inputs for manufacture of vehicles it maintains a separate account containing the Excise Duty as mentioned in sale invoices. The credit of such Excise Duty paid by the appellant is to be given to the appellant by virtue of Rule 57A to 57F of Central Excise Rules, 1944 as it then existed. The appellant was fully entitled to discharge his liability to pay Excise Duty on vehicles manufactured by adjusting the credit of Excise Duty earned by it as per MODVAT scheme. The liability to pay Excise Duty is not fastened on two entities as per the scheme of Central Excise Act and Central Excise Rules. It is the manufacturer of raw materials and inputs which are used by appellant who has statutory liability to pay Excise Duty. The appellant is not assessee within the meaning of Central Excise Act, 1944, with reference to raw materials and inputs manufactured by the entities from which appellant had purchased the raw materials and entitiesIn the present case, the Excise Duty leviable on appellant on manufacture of vehicles was already adjusted in the concerned assessment year from the credit of Excise Duty under the MODVAT scheme. The unutilised credit in the MODVAT scheme cannot be treated as sum actually paid by the appellant. The assessee when pays the cost of raw materials where the duty is embedded, it does not ipso facto mean that assessee is the one who is liable to pay Excise Duty on such raw material/inputs. It is merely the incident of Excise Duty that has shifted from the manufacturer to the purchaser and not the liability to the same18. We thus, conclude that the unutilised credit under MODVAT scheme does not qualify for deductions under Section 43B of the Income Tax Act23. The above observation cannot be read to mean that payment of Excise Duty by the appellant which was component of sale invoice purchasing the raw material/inputs by the appellant is also payment of Excise Duty on raw material/inputs24. By payment of component of Excise Duty as included in sale invoice is benefit which is given to appellant by virtue of credit as envisaged in statutory scheme of Rule 57-A to 57-I of Central Excise Rules, 1944. The above judgment thus in no manner supports the submissions of the appellant for the purposes of the present caseThe question which was answered in the above case was entirely different to one which has arisen in the present case27. This Court as noted above in the above case has laid down that credit for the Excise Duty paid for the raw material can be used at any 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 the excisable product i.e. at the time when appellant is to pay Excise Duty on its manufactured vehicle30. As noted above in the above case, the claim of the assessee was that entire sum of Rs.5,85,87,181/- was the duties actually paid during the relevant previous year. The above was not a case for unutilised MODVAT credit, hence, the said case cannot be held to lay down any ratio with respect to allowable deduction under Section 43B in respect of unutilised MODVAT credit31. Now coming to the second question i.e. with regard to disallowance of Rs.3,08,79,171/- in respect of Sale tax recoverable amount,the High Court in paragraph 52 of the judgment has noticed relevant facts in above reference in following words: -52. The facts are the Assessee pays sales tax on the purchase of raw materials and computers used in the manufacture of cars. Though, the sales-tax paid is part of the cost of raw material, the Assessee debits the purchases net of sales tax; the sales tax paid is debited to a separate account titled Sales-tax Recoverable A/c. Under the Haryana General Sales Tax Act 1973, the Assessee cold set off such sales-tax against its liability on the sales of the finished goods i.e. cars. Whenever the goods are sold, the tax on such sales is credited to the aforesaid account32. The High Court had rightly answered the above question in favour of the Revenue relying on its discussion with respect to Question No.1. The sales tax paid by the appellant was debited to a separate account titled Sales Tax recoverable account. The assessee could have set 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 Court answering the above question34. 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 manufacture of vehicles, the unutilised 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.