2020 (2) TMI 376 - SC - Income Tax

Deduction u/s 43B disallowed - advance payment of Excise Duty which represented unutilised MODVAT credit without incurring the liability of such payment - HELD THAT - 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. - Decided in favour of revenue.

Summary

Issues Involved:

1. Whether the ITAT committed an error in upholding the disallowance of ?69,93,00,428 representing unutilized MODVAT credit of Excise Duty as of March 31, 1999.
2. Whether the ITAT committed an error in upholding the disallowance of ?3,08,99,171 in respect of the Sales Tax Recoverable Account under Section 43B of the Income Tax Act.

Detailed Analysis:

Issue 1: Disallowance of Unutilized MODVAT Credit

The appellant, engaged in manufacturing automobiles, claimed a deduction under Section 43B of the Income Tax Act for unutilized MODVAT credit amounting to ?69,93,00,428 as of March 31, 1999. The Assessing Officer, Commissioner of Income Tax (Appeals), and ITAT disallowed this claim, which was upheld by the High Court.

The Supreme Court examined the conditions under Section 43B, which allows deductions only on actual payment of tax, duty, cess, or fee. The court noted that the unutilized MODVAT credit did not constitute a sum payable by the assessee by way of tax or duty. The Excise Duty on raw materials and inputs was paid by the suppliers, not the appellant. The MODVAT credit merely provided a mechanism for adjusting the duty paid on inputs against the duty payable on final products. Hence, the unutilized credit did not qualify as an actual payment by the assessee and could not be deducted under Section 43B.

The court also rejected the appellant's reliance on the judgments in Eicher Motors Ltd. and Dai Ichi Karkaria Ltd., clarifying that these cases dealt with different contexts and did not support the appellant's claim for deduction of unutilized MODVAT credit.

Issue 2: Disallowance of Sales Tax Recoverable Account

The appellant claimed a deduction of ?3,08,99,171 for the Sales Tax Recoverable Account under Section 43B. The sales tax paid on raw materials was debited to a separate account and could be set off against the sales tax liability on finished goods.

The High Court, relying on its discussion regarding the MODVAT credit, disallowed this claim. The Supreme Court agreed, noting that the sales tax paid was not an actual liability incurred by the appellant in the relevant year but rather an amount recoverable against future sales tax liabilities. Thus, it did not qualify for deduction under Section 43B.

Proviso to Section 43B:

The appellant argued that the unutilized MODVAT credit was fully utilized by April 1999, before the due date for filing the return for the assessment year in question, and should be allowed as a deduction under the first proviso to Section 43B. The proviso allows deductions for sums actually paid by the due date for filing the return for the previous year in which the liability was incurred.

The court rejected this argument, stating that the proviso applies only when the liability to pay a sum has been incurred in the relevant year but paid in the next year before the return filing date. In this case, the liability to pay Excise Duty arose in the subsequent year (1999-2000), not in the year ending March 31, 1999. Therefore, the proviso did not apply, and the unutilized MODVAT credit could not be deducted.

Conclusion:

The Supreme Court upheld the High Court's decision, affirming the disallowance of both the unutilized MODVAT credit and the Sales Tax Recoverable Account. The appeals were dismissed, and the questions were answered in favor of the Revenue.