COMMISSIONER OF INCOME TAX II versus M/S MODJPON LTD.
[2017] 11 S.C.R. 84, Supreme Court of India, 2017
Outcome: Dismissed (Dismissed)
Segment: Issues
A 
B 
c 
D 
E 
F 
G 
H 
[2017] l l. S.C.R. 84 
COMMISSIONER OF INCOME TAX II 
v. 
M/S MODJPON LTD. 
·· 1 (Civil Appeal No. 19763 of 2017) 
NOVEMBER 24, 2017* 
[RAN.JAN GOGOi AND NAVIN SINHA, JJ.] 
income Tax Act, 1961: 
s.43B - Deduction under - Entitlement - Jn respect of excise 
duty paid in advance in the Personal ledger Account (PLA) - Held: 
Upon deposit in the PLA. the amount of such deposit stands credited 
to the revenue v.1ith the assessee having no domain over the amount(s) 
deposited - Therefore, advance deposit of central excise duty 
constitutes ac/ual payment of duty within the meaning of s.43B and 
hence assessee is entitled lo the benefit of deduction of the said 
amount - Central Excise Act, 1944 - Central Excise Rules, 1944 -
1:173G 
Dismissing the appeals, the Court 
HELD: 1. The present challenge is entertainable so long 
as it discloses a substantial question of law or an issue impacting 
public interest or the same has the potential of recurrence in 
future. The Revenue cannot be shut out from the present 
proceedings merely because of its acceptance of the practice of 
accounting adopted by the assessee or its acceptance of the 
decision of th~ two High Courts in question. An adjudication of 
the question(s) arising cannot be refused merely on the above 
basis.(Para 8.1189-C-DJ 
2.1 Deposit of Central Excise Duty in the PLA is a statutory 
requirement. The Central Excise Rules, 1944, specify a distinct 
procedure for payment of excise duty Ieviable on
manufactured 
goods. It is a procedure designed to bring in orderly conduct in 
the matter of levy and collection of excise duty when both 
manufacture and clearances are a continuous process. Debits 
against the advance deposit in the PLA have to be made of 
amounts of excise duty payable on excisable goods cleared during 
the previous fortnight. The deposit once made is adjusted against 
* Judgment incorporating therein subsequent order dated 23/:!/2018 passed by a Bench 
of Hon 'ble Mr. JU5tice Ranjan Gogoi and Hon 'ble Mrs. Justice R. Banumathi. 
84
COMMISSIONER OF INCOME TAX II v. M/S MODlPON LTD. 
85 
the duty payable on removal and the balance is kept in the account 
A 
for future clearances/removal. No withdrawal from the account is 
permissible except on an application to be filed before the 
Commissioner who is required to record reasons for permitting 
an assessee to withdraw any amount from the PLA. Sub-rules 
(3), (4), (5) and (6) of Ruic l 73G indicates a strict and vigorous 
B 
scrutiny to be exercised by the central excise authorities with 
regard to manufacture and removal of excisable goods by an 
assessce. The self removal scheme and payment of duty under 
the Act and the Rules clearly shows that upon deposit in the PLA 
the amount of such deposit stands credited to the Revenue with 
the assessee having no domain over the amount(s) deposited. 
C 
[Para 9][89-E-H; 90-A] 
Radhasoami Satsang v. C.I. T. (1992) 193 ITR 32 HSC); 
C.I.T v. Excel Industries Ltd. (2013) 358 lTR 295 {SC): 
C.K. Gangadharan and A111: i: C.l.T. (2008) 8 SCC 739: 
[2008] 11 SCR 52 - referred to. 
.2.2 Having regard to the object bt'llind the. enactment of 
Section 43B, it would be consistent to hold that the legislative 
intent would be achieved by giving benefit of deduction to an 
assessce upon advance deposit of centra1 excise duty 
notwithstanding the fact that adjustments from such deposit arc 
made on subsequent clearances/removal effected from time to 
time. [Para 11][90-E-Fi 
C.I.T v. Maruti Suzuki India Ltd. (2013) 212 Taxman
603 (Del.); Punjab & Hcu:vana High Court in C.I.T v. 
Happy Forgings Ltd. !TA No. 590 of 2007 decided by 
the Punjab & Haryana High Court ori 11.07.2008; 
C.l. T. v. Raj and San Deeps Ltd. (2007) 293 !TR 12; 
C.I.T. v. Pandavapura Sahakara Sakkare Karkhane Ltd. 
198 ITR 690 (Kar.); C.I.T. v. Nizam Sugar Factory Ltd. 
253 ITR 68 (AP) - approved. 
D 
E 
F 
3. The High Courts of .Delhi and of Punjab & Haryana were 
G 
justified in taking the view that the advan~e deposit of central 
excise duty constitutes actual payment of duty within the meaning 
of Section 43B of Income Tax Act and, therefore, the assessee is 
entitled to the benefit of deduction of the said amount. [Para 
12][90-G-H; 91-A] 
H
86 
A 
B 
c 
D 
E 
SUPREME COURT REPORTS 
[2017] t l S.C.R. 
Case Law Reference 
(1992) 193 lTR 321 (SC) 
referred to 
Para 6 
(2013) 358 ITR 295 (SC) 
referred to 
Para 6 
(2013) 212 Taxman 603 (Del.) 
approved 
Para 6 
(2007) 293 ITR 12 
approved 
Para 6 
[2008) 11 SCR 52 
referred to 
Para 6 
198 ITR 690 (Kar.) 
approved 
Para 10 
253 ITR 68 (AP) 
approved 
Para 10 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 19763 
of2017. 
From the Judgment and Order dated 27.01.2011 of the High Court 
of Delhi at New Delhi in IT A No. 768 of 2004 
WITH 
C. A. Nos. 19767, l 9768, 19769 and l 9770 of2017. 
K. Radha Krislman, Sr. Adv .. H. R. Rao, Ritesh Kumar, S. A. 
Haseeb, Ms. Anil Katiyar, Ad vs. for the Appellant. 
Ajay Vohra, Sr. Adv .. V. P. Gupta, Jagdish Kumar Chawla,Anunab 
Kumar, U. Ji\. Rana, Himanshu Mehta. Avirat Kumar, Mis. Gagrat and 
Co., Advs. for the Respondent. 
The Judgment of the Court was delivered by 
RANJAN GOGOi, J. I. Leave granted in all the Special Leave 
F 
Petitions. 
2. four of the present appeals involve the same asscsscc, i.e., 
Mis Modipon Ltd. and arc in respect of the Assessment Years l 993-
1994, 1996-1997. 1997-1998 and 1998-1999 respectively. The fifth appeal 
is in case of another asscssec, i.e., Paharpur Cooling Towers Ltd. and 
G 
pertains to the Assessment Year 1996-1997. 
H 
3. The question involved in all the appeals is the same and may be 
formufoted as hereunder: 
"Whether the assessee is entitied to claim deduction under Section 
43B of
the Income Tax Act, 1961 in respect of the excise duty
COMMISSIONER OF INCOME TAX II v. M/S'.MODIPON LTD. 
87 
[RANJAN GOGOi, J.] 
paid in advance in the Personal Ledger Account ("PLA" for 
A 
short)?" 
4. Before delving into the question formulated one significant fact 
common to the appeals involving the assesscc-Modipon Ltd. may be 
noted. From the Assessment Year I 984-1985 (from which assessment 
year Section 43B of the Income Tax Act, I 961 came into force), the 
asscsscc has been claiming deduction under the aforesaid provision of 
the Income Tax Act in respect of the balance amount in the PLA at the 
end of each accounting year and the assessee had been adding back the 
same amount as part of the taxable income in the immediately succeeding 
accounting year in order to avoid double dedu,ction. The aforesaid practice 
· consistently adopted by the assessee had been all along accepted by the 
Revenue from the Assessment Year 1984-1985 up to the Assessment 
Year 1998-1999 except for the four assessment years under 
.consideration. 
5. Shri K. Radha Krishnan, learned senior counsel for the Revenue 
has urged that though levy of excise is on manufacture of excisable 
goods, actual payment of duty is at the stage of removal. The advance 
duty paid in the PLA is adjusted/debited from time to time, against 
clearances/removal made by the assessee. Unless such clearances/ 
removal arc made and excise duty is debited from the advance deposit 
there is no actual payment of duty so as to entitle an assessee to the 
benefit of
deduction under Section 43B of the Income Tax Act \v,hich 
contemplates deduction only against actual payment as distinguished from 
accrual ofliability. It is urged on bchalfofthc Revenue that the amount 
in deposit is akin to a loan and u.nder the provisions of Central Excise 
Rules, part or whole of the said amount can be refunded to the assessee. 
It is further submitted that under Rule 21 of the Central Excise Rules, 
1944, at any time before removal, the Commissioner or the other 
authorities prescribed therein may remit duty in respeci of manufactured 
goods lost or damaged or otherwise unfit for consumption or marketing. 
The amount of advance deposit, therefore, docs not represent ~~tual 
payment of duty so as to entitle an assessee to the benefit of deduction 
under Section 43B.Accordingly the orders oflhe High Courts challenged 
in the appeals are liable to interference. 
6. In reply, Shri Ajay Vohra, learned senior counsel appearing for 
the assessee has submitted that the practice followed by the assessee in 
claiming deduction for the balance amount in the PLA at the end of each 
B 
c 
D 
E 
F 
G 
H
88 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2017] ll S.C.R. 
accountmg year and adding back the same as part of the taxable income 
in the immediately ~ucceeding accountmg year really makes the dispute 
between the pa1ties academic as the revenue implication, in any event, 
is nil. Shri Vohra has submitted that the aforesaid practice has been 
accepted by the Rewenue for the Assessment Years l 984-1985 to l 998-
1999 except for the four assessment years in question. There is nu 
compelling reason to reopen the issue and, therefore, to maintain 
consistency the isstle may be resolved in favour ofthc assessec. Reliance 
in this regard has been placed on decisions of this Court in Radhasoami 
Satsang vs. C.I.T.' and C.l.T. vs. Excel Industries Ltd.2 Shri Vohra has 
further submitted that the very same issue had been decided in favour of 
the assessee by two High Courts i.e. Delhi High Court in C.I.T. vs. 
Maruti Suzuki India Ltd. 3 and Punjab & Haryana High Court in C.l.T. 
vs. Happy Forgings Ltd.' and C.l.T. vs. Raj and San Deeps Ltd.' There 
has been no appeal by the Revenue against any of the said decisions of 
the High Cow1s. Neither there is compelling good reason or public interest 
involved so as to reopen the issue. It is submitted that the decisions 
rendered by the Delhi and Punjab & Haryana High Courts. on merits, 
would commend for acceptance. Accordingly, it is submitted that, in the 
absence of strong compelling reasons, on the ratio of the decision in
C.K. Gangadharan and Anr. vs. C .I.T.6 the present appeals ought to not 
be entertained any further. 
7. On merits it has been submitted by Shri Vohra that under Section 
3 of the Central Excise Act, the event for levy of excise duty is the 
manufacture of goods though the duty is to be paid at the stage of removal 
of the goods. Pointing out the provisions of Rule I 73G of the Central 
Excise Rules, 1944 it is submitted that the advance deposit of central 
excise duty in a current account is a mandatory requirement from which 
adjustments are made, from time to time, against clearances effected. 
Though, sub-rule ( l )(A) contemplates refund from the current account, 
such refund can be granted only on reasons being recorded by the 
concerned authority i.e .. the Commissioner on the application filed by 
the assessce. Refund is not a matter of right. The amount deposited in 
'(1992) 193 !TR 321 (SC) 
'(2013) 358 ITR 295{SC) 
·' (2013) 212 Taxman 603 (Del.) 
<!TA No. 590 of 2001 decided by the Punjab & Haryana High Court on I t.07.2008 
'(2007) 293 !TR 12 
'(2008J 8 sec 739
COMMISSIONER OF INCOME TAX II v. M/S MODIPON LTD. 
89 
[RANJAN GOGOi, J.) 
the PLA is irretrievably lost to the assessee, it is argued. Payment of A 
central excise duty takes place at the time of deposit in the PLA, though 
the deposit is on the basis of an approximation and the precise amount of 
duty qua the goods removed is ascertained at the stage of removal/ 
clearances. The said facts, according to the learned counsel, would not 
make the deposit anything less than actual payment of duty. 
8. We have considered the submissions made on behalf of the 
pa1ties.~Notwithstanding the acceptance by the Revenue of the practice 
adopted by the asscssec-Modipon Ltd. in all the assessment years except 
for the ones under dispute as enumerated above and the absence of any 
challenge to the decisions of the Delhi and the Punjab & Haryana High 
Couits, the present challenge would still be entertainable so long as it 
discloses a substantial qncstion oflaw or an issue impacting public interest 
or the same has the potential of recurrence in future. The Revenue 
cannot be shut out from the present proceedings merely because of its 
acceptance of the practice of accounting adopted by the assessee or its 
acceptance of the decision of the two High Courts in question. An 
adjudication of the question(s) arising cannot be refused merely on the 
above basis. We will, therefore, have to proceed to answer the merits of 
the challenge made by the Revenue in the present appeals. 
9. Deposit
of Central Excise Duty in the PLA is a statutory 
requirement. The Central Excise Rules, 1944, specify a distinct procedure 
for payment of excise duty lcviable on manufactured goods. It is a 
proccdui·e designed to bring in orderly conduct in the matter oflevy and 
collection of excise duty when both manufacture and clearances arc.a 
continuous process. Debits against the advance deposit in the PLA have 
to be made of amounts of excise duty payable on excisable goods cleared 
during the previous fortnight. The deposit once made is adjusted against 
the duty payable on removal and the balance is kept in the account for 
future clearances/removal. No withdrawal from the account is 
pc1missiblc except on an application to be filed before the Commissioner 
who is required to record reasons for permitting an asscssee to withdraw 
any amount from the PLA. Sub-rules (3), (4), (5) and (6) of Rule 173G 
indicates a strict and vigorous scrutiny to be exercised by the central 
excise authorities with regard to manufacture and removal of excisable 
goods by an assessee. The self removal scheme and payment of duty 
under the Act and the Rules clearly shows that upon deposit in the PLA 
B 
c 
D 
E 
F 
G 
H
90 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2017] 1 l S.C.R. 
the amount of such deposit stands credited to the Revenue with the 
assessee having no domain over the amount(s) deposited. 
IO. In C.l.T. vs. Pandavapura Sahakara Sakkarc Karkhanc Ltd. 7 
and C.l.T. vs. Nizam Sugar Factory Ltd.' cited at the Bar, the High 
Courts of Karnataka and Andhra Pradesh respectively had occasion to 
consider as to whether the amounts credited to the Molasses Storage 
Fund out of the sale proceeds of molasses received by the asscssec 
constitute taxable income of the asscssee. Under the scheme, the 
assessee had n<il control over the amounts deposited in the fund and the 
assessee was also not entitled to withdraw any amount therefrom without 
the approval of the authorities. Further the amount deposited could be 
utilized only for the purpose specified. In those circumstances, the High 
Court held and in our view correctly, that the deposits made, though a 
part of the sale proceeds of the assessee, did not constitute taxable 
income at the hands of the assesscc. We do not see why the same 
imalogy would not be applicable to the case in hand. 
11. The Delhi High Court in the appeals arising from the orders 
passed by it has also taken the view that the purpose of introduction of 
Section 43B of the Income Tax Act was to plug a loophole in the statute 
which permitted deductions on an accrual basis without the requisite 
obligation to deposit the tax with the State. Resultantly, on
the basis of 
mere book entries an assessce was entitled to claim deduction without 
actually paying the tax to the State. Having regard to the object behind 
the enactment of Section 43B and the preceding discussions, it would be 
consistent to hold that the legislative intent would be achieved by giving 
benefit of deduction to an assessee upon advance deposit of central 
excise duty notwithstanding the fact that adjustments from such deposit 
are made on subsequent clearances/removal effected from time to time. 
12. Tbe above discussions, coupled with the pecnliar featnres of 
the case, noticed above i.e. consistent practice followed by the asscssee 
and accepted by the Revenue; the decisions of the two High Courts in 
favourofthc assessee which have attained finality in law; and no contrary 
view of any other High Court being brought to our notice, should lead us 
to the conclusion that the High Courts were justified in taking the view 
that the advance deposit of central excise duty constitutes actual payment 
of duty within the meaning of Section 43B of Income Tax Act and, 
'198 ITR 690 (Kar.) 
'253 ITR 68 (AP)

COMMISSIONER OF INCOME TAX II v. M/S MODIPON LTD. 
91 
[RANJAN GOGOi, J.] 
therefore. the asscssee is entitled to the benefit of deduction of the said 
A 
amount 
13. We, therefore. dismiss the appeals and affirm the orders of 
the High Courts of Delhi and Calcutta impugned in the present appeals. 
Kalpana K. Tripathy 
Appeals dismissed. 
B