2006 (2) TMI 149 - HC - Income Tax

Disallowance of excise duty liabilities - Furnishing of bank guarantee towards payment of excise duty liabilities - the bank guarantee furnished by the assessee, which was taken by the assessee by depositing certain amount in bank fixed deposit as margin, did not tantamount to actual payment and so section 43B is applicable? - HELD THAT - The expression employed in the section 43, is actually paid . In view of the non obstante clause contained in the section, it is not permissible to refer to the expression paid as defined u/s 43(2) of the Act or under any other provision of the Act. Hence, the plain meaning of the words actually paid is required to be taken into consideration. The word actual has been defined as something real in opposition to constructive or speculative, Actually means really, truly in fact. Therefore, the plain meaning of the expression actually paid means that the sum should have been actually paid to the coffers of the Revenue, i.e., really paid, and not constructively. Importing any other meaning, as is sought to be canvassed by the learned advocate for the appellant, would amount to doing violence to the plain meaning of the statute. When the words of the statute are clear and unambiguous there is no need to adopt any other meaning or provision of the Act. A bank guarantee is in the nature of a security or a guarantee, which imposes an obligation on the bank to make payment in terms of the bank guarantee, upon the happening of a contingency on the occurrence of which the guarantee becomes enforceable. In the facts of the present case, by furnishing the bank guarantees pursuant to the order of the Supreme Court, the appellants had merely created a right in favour of the Excise Department to enforce the payment of excise duty in the event of their succeeding in the pending litigation. The same is not equivalent to actual payment of tax or duty by way of which funds would be available for meeting the Government expenditure, etc. The apex court in the case of Oswal Agro Mills Ltd. v. Asst. Collector of Central Excise 1994 (2) TMI 57 - SUPREME COURT was called upon to decide as to whether it can be said that furnishing of a bank guarantee for all or part of the disputed excise duty pursuant to an order of the court is equivalent to payment of the amount of excise duty. It can be said that the bank guarantee had been furnished by the appellants towards excise duty liabilities, though pursuant to directions of the Supreme Court, primarily to avoid making payment of excise duty to the Department. Hence, in view of the principles enunciated by the apex court in Somaiya Organics (India) Ltd. v. State of U. P. 2001 (4) TMI 84 - SUPREME COURT , it cannot be said that the furnishing of bank guarantee towards payment of excise duty liabilities amounts to actual payment as envisaged by the provisions of section 43B of the Act. Thus, there cannot be said to be any infirmity in the view taken by the Tribunal. The question is answered accordingly. The appeals are, accordingly, dismissed with no order as to costs.

Summary

Issues Involved:

1. Disallowance of excise duty liabilities under Section 43B of the Income-tax Act, 1961.
2. Whether furnishing a bank guarantee amounts to "actual payment" under Section 43B.

Issue-wise Detailed Analysis:

1. Disallowance of Excise Duty Liabilities under Section 43B of the Income-tax Act, 1961:

The core issue in these appeals revolves around the disallowance of excise duty liabilities amounting to Rs. 58,75,999/- for the assessment year 1986-87 and Rs. 44,58,378/- for the assessment year 1987-88. The disallowance was made by invoking Section 43B of the Income-tax Act, 1961. The assessee, a processing house engaged in dyeing and printing of cloth, collected excise duty from merchants, which was credited to a separate excise account. The dispute arose over whether the excise duty collected, but not paid to the government, could be deducted under Section 43B. The original assessments were set aside by the Commissioner of Income-tax, Surat, directing fresh assessments considering the applicability of Section 43B. The Assessing Officer added the excise duty liabilities to the income, as they were not paid to the government, thereby invoking Section 43B, which allows deductions only on actual payment.

2. Whether Furnishing a Bank Guarantee Amounts to "Actual Payment" under Section 43B:

The substantial question of law framed was whether the bank guarantee furnished by the assessee, backed by fixed deposits, could be considered as "actual payment" under Section 43B. The assessee argued that the bank guarantee, which divested them of funds, should be treated as actual payment, especially since it was furnished under the Supreme Court's directions. On the contrary, the Revenue contended that furnishing a bank guarantee does not equate to actual payment, as Section 43B mandates actual payment to the government's coffers.

The Tribunal held that furnishing a bank guarantee is merely a security for potential payment and not actual payment of excise duty. The Tribunal noted that the interest income from the fixed deposits continued to belong to the assessee, indicating that ownership of the funds had not transferred to the government. The Tribunal emphasized that actual payment occurs only when the funds reach the government's coffers and are available for public purposes.

The Tribunal relied on the Supreme Court's decision in Oswal Agro Mills Ltd. v. Asst. Collector of Central Excise, which clarified that a bank guarantee is not equivalent to payment of excise duty. The Constitution Bench in Somaiya Organics (India) Ltd. v. State of U.P. further affirmed that furnishing a bank guarantee does not amount to actual payment.

Conclusion:

The High Court upheld the Tribunal's view, stating that the plain meaning of "actually paid" in Section 43B means real payment to the government, not constructive or speculative. The court concluded that furnishing a bank guarantee does not amount to actual payment of excise duty under Section 43B. Therefore, the appeals were dismissed, affirming that the disallowance of excise duty liabilities under Section 43B was justified. The court emphasized that the purpose of Section 43B is to ensure that government dues are paid in cash and available for public expenditure, and furnishing a bank guarantee does not fulfill this requirement.