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

For deciding these two 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 also trades in spares and components of the vehicles. It acquires exiceable 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 unutilised 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 Account2. 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/-. 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. An appeal to ITAT met the same fate. The ITAT took the view that the advance payment of Excise Duty which represented unutilised MODVAT credit without incurring the liability of such payment is not an allowable deduction under Section 43B. 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 filed3. The two questions which were answered by the High Court in favour of the Revenue which were subject matter of this appeal are question Nos.(ii) and (iii) as framed by the High Court are to the following effect:(ii) 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 remained unutilised by 31 st March, 1999 i.e. the end of the relevant accounting year ?(iii) 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 ?

Court's reasoning:
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.