Crystallised sales tax liability allowed as deduction when quantified and intimated in the relevant year

Under the mercantile system, sales tax liability ordinarily accrues when the relevant transaction is completed, but a deduction is allowed in the year in which the liability is actually quantified and intimated if it was not crystallised earlier. Here, the additional sales tax for earlier assessment years was determined only during the previous year relevant to assessment year 1978-79, and the assessee was informed of the liability at that stage. Because the amount could not reasonably have been anticipated earlier and was paid in the relevant year, the deduction was held allowable in assessment year 1978-79.

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Issues: Whether the assessee was entitled to deduction of additional sales tax liability in the assessment year 1978-79 when the liability related to earlier assessment years but was quantified and intimated only during the relevant previous year.

Analysis: Under the mercantile system, sales tax liability ordinarily accrues when the sale or purchase transaction is completed. On the facts found, however, the liability in question was not a normal and already crystallised sales tax burden for the earlier years. The assessment proceedings for sales tax were completed only during the previous year relevant to assessment year 1978-79, and the assessee was informed of the additional liability only at that stage. Since the liability could not have been anticipated earlier and was actually paid during the relevant year, the deduction was allowable in that year.

Conclusion: The assessee was entitled to claim the deduction in assessment year 1978-79, and the question was answered in the affirmative in favour of the assessee.

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