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TMI Blog1994 (11) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... ity as the prawns purchased, despite the intermediate process of cleaning and peeling performed on them. The assessing authority disallowed the claim for deduction of the provision on the ground that the assessee's apprehension of liability was " baseless ", in the light of the decision of this court in Deputy CST v. Neroth Oil Mills Co. Ltd. [1982] 49 STC 249. The Commissioner of Income-tax (Appeals) refused to interfere with the disallowance, relying on an added ground that the Sales Tax Department had not made any demand on the assessee so far, and that if such demand were made at any time, the assessee could claim the deduction as and when the amount was paid. The Appellate Tribunal affirmed the view of the Commissioner on the grounds stated by him, namely, that there could be no apprehension by the assessee, of any liability for purchase tax, in the light of the decision in Neroth Oil Mills Co. Ltd.'s case [1982] 49 STC 249 (Ker) and that no demand had yet been made for the amount. The Tribunal also noted that the Supreme Court had subsequently in Sterling Foods v. State of Karnataka [1986] 63 STC 239, held that by the cleaning, deveining and peeling, prawns do not cease to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er question No. 2 against the assessee and question No. 3 against the Revenue. We shall now take up the first question for consideration, on which the dispute between the parties really centred. There is no dispute that the assessee purchases prawns and then exports them, after carrying out some intermediate processing as referred to in Neroth Oil Mills Co. Ltd.'s case [1982] 49 STC 249 (Ker). The question whether this process carried out by purchasers and exporters of prawns amounted to a process of manufacture as to make the exported commodity,distinct and different from the prawns purchased, for the purpose of section 5(3) of the Central Sales Tax Act, was considered for the first time by this court in Neroth Oil Mills Co. Ltd.'s case [1982] 49 STC 249 (Ker), the decision in which was rendered on August 20, 1981, but reported afterwards in 1982. This court took the view that prawns purchased locally, and cleaned, peeled, processed and packed as prawns for sale by export outside India, were not commercially different from the prawns purchased and, therefore, the purchases were fictionally in the course of export and exempt by virtue of section 5(3) of the Central Sales Tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1986] 63 STC 239) later. Divergence of even judicial opinion thus existed on the point. The position of law was thus fluid and indeterminate. Even the decision in Neroth Oil Mills Co. Ltd.'s case [1982] 49 STC 249 (Ker), was the subject of appeal to the Supreme Court at the instance of the State. The assessee's provision for payment of purchase tax in its accounts has to be viewed in this background. Having regard to the controversy then raging and the view taken by the assessing authorities in Kerala and elsewhere, the assessee had every reason to apprehend that it will be made liable for payment of the purchase tax during, the year in question, though no assessment and no demand had yet been made for the year. It was stated before us by counsel for the assessee that a provisional assessment had been made on it in similar circumstances for the month of August, 1976, on February 16, 1977, treating it as not entitled to the exemption under section 5(3) of the Central Sales Tax Act in the view that the commodity exported was not the same as the prawns purchased. Counsel in fact produced a copy of the provisional assessment order for our perusal. Counsel also pointed out that asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment Year 1971-72. In arriving at this decision, the Full Bench relied on an earlier Division Bench ruling in L. J. Patel and Co. v. CIT [1974] 97 ITR 152 (Ker), a case relating to a demand for central excise duty. The assessee in that case was following the mercantile system of accounting and had been made liable for payment of excise duty in the year 1952. But he was contesting the liability, and eventually paid the amount in 1962. He claimed deduction in the year in which the payment was made. The Division Bench held that the deduction could be claimed only in the year 1952, relying on the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. Kedarnath's case [1971] 82 ITR 363 (SC) was a case in which the assessee who followed the mercantile system of accounting incurred a liability for tax on sales effected by it during the calendar year 1954, corresponding to the assessment year 1955-56. The amount was paid only later. The assessee claimed deduction of the amount in the assessment for 1955-56. The Income-tax Officer rejected the claim on the ground that the assessee had contested its liability in appeal, and that, it had made no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ukharji J., speaking for the Bench, in the decision CIT v. Century Enka Ltd. [1981] 130 ITR 267 (Cal). The assessee was informed in the year 1969 by the Assistant Collector of Central Excise that it was liable to excise duty on the production of polymer chips. The assessee disputed the liability on certain grounds, but the Assistant Collector affirmed his stand of its liability to pay the duty. The liability was not, however, quantified, and no demands raised or served. The assessee made a provision in its accounts for the excise duty arising in the years 1971-72 and 1972-73, and claimed the same as business expenditure, the assessee following the mercantile system of accounting. The claim was upheld as an accrued liability, after an elaborate discussion of the cases on the point. The decision of the Allahabad High Court in CIT v. J. K. Synthetics Ltd. [1983] 143 ITR 771 is apposite. The assessee made a provision for payment of excise duty in the assessment year 1967-68, though the dispute regarding the liability was pending in the High Court. The High Court decided in favour of the assessee, but the Central Excise Department took the matter up in appeal to the Supreme Court, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of the Central Sales Tax Act. So far as this court is concerned, the law was laid down for the first time only on August 20, 1981, a few days prior to the end of the accounting year on August 31, 1981. But the matter did not rest there as the State took up the matter in appeal to the Supreme Court where it is pending. The Karnataka High Court had evidently taken a different view, and the matter stood settled only by the decision in Sterling Foods' case [1986] 63 STC 239. In this background, it cannot for a moment, be contended that the assessee acted fancifully or unreasonably in making the provision. It had every reason to entertain a reasonable apprehension about its liability. As a prudent businessman, the assessee was bound to make such provision as failure to make the provision and claim, would have disentitled it from making the claim in any future year, if ultimately it turned out that the payment had to be made. The three statutory authorities have relied on the fact that this court had in Neroth Oil Mills Co. Ltd.'s case [1982] 49 STC 249 and the Supreme Court five years later in Sterling Foods' case [1986] 63 STC 239, had rendered decisions which strike at the liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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