1983 (3) TMI 78 - AT - Income Tax

Issues Involved:
1. Sales tax liability on the assessee.
2. Contingent liability and its deductibility.
3. Classification of purchases and their tax implications.
4. Applicability of the Supreme Court's decision.
5. Treatment of the bank guarantee as part of the sale price.

Issue-wise Detailed Analysis:

1. Sales Tax Liability on the Assessee:
The main point in this appeal is the sales tax liability. The assessee, an exporter, participated in export auctions conducted by the Coffee Board, which required exporters to make a contingency deposit or furnish a bank guarantee equivalent to the sales tax liability. The Supreme Court, in its judgment dated 15-4-1980, declared that there was no liability on the part of individual exporters towards sales tax and struck down the circular requiring such deposits or guarantees. Consequently, the ITO and the Commissioner (Appeals) held that the assessee is not entitled to deduct the claimed sales tax liability of Rs. 67,50,872 as no such liability existed.

2. Contingent Liability and Its Deductibility:
The assessee argued that the bank guarantee represented an ascertained liability, which should be deductible. However, the Supreme Court's decision clarified that there was no actual sales tax liability, and the requirement for a bank guarantee was merely a precautionary measure. The Commissioner (Appeals) and the Tribunal concluded that a contingent liability cannot be deducted as it is not an actual liability. This principle is supported by precedents such as Indian Molasses Co. (P.) Ltd. v. CIT and M.S.P. Senthikumara Nadar & Sons v. CIT.

3. Classification of Purchases and Their Tax Implications:
The assessee classified the sum of Rs. 67,50,872 into three categories:
1. Rs. 42,61,690 for purchases covered by export contracts at the time of auction.
2. Rs. 24,70,598 for purchases covered by export contracts at the time of payment and delivery.
3. Rs. 18,583 for export sales after the auction.

The Commissioner (Appeals) allowed the liability for Rs. 18,583 but disallowed the rest, stating that the Coffee Board did not demand sales tax but only a security deposit or bank guarantee, which was contingent and not an actual liability.

4. Applicability of the Supreme Court's Decision:
The Tribunal emphasized that the Supreme Court's decision in Consolidated Coffee Ltd. v. Coffee Board, which quashed the Coffee Board's circular, is declaratory of the law and applies retrospectively. This means the decision is binding from the inception of the law, not just from the date of the judgment. Therefore, there was no sales tax liability on the assessee for the assessment year 1979-80.

5. Treatment of the Bank Guarantee as Part of the Sale Price:
The assessee's contention that the bank guarantee should be treated as part of the sale price was rejected. The Tribunal noted that the Coffee Board never treated the amount as part of the sale price, and the circular clearly indicated it was a contingent liability. The assessee did not provide any evidence to show that the bank guarantee was part of the sale price. Therefore, the bank guarantee cannot be treated as sales tax liability or part of the sale price.

Conclusion:
The Tribunal upheld the decision of the lower authorities, concluding that there was no sales tax liability on the assessee amounting to Rs. 67,50,872. The appeal was dismissed, affirming that contingent liabilities are not deductible, and the bank guarantee cannot be treated as part of the sale price.

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