[2017] l l. S.C.R. 84

COMMISSIONER OF INCOME TAX II

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.

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.

3. The High Courts of .Delhi and of Punjab & Haryana were G justified in taking the view that the advane 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

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.

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

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

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 proccduie 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

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)

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.