Court rules on sales tax liability and accounting provision for assessment year.

The court ruled in favor of the Revenue regarding the liability to pay sales tax on the refund received by the assessee. However, the court sided with the assessee on the issue of the provision made in the accounting period relevant to the assessment year 1976-77, stating that since no sales tax was payable as per the court's decision and no actual payment was made, the provision was not chargeable to tax. Consequently, the court rejected the revenue's claim, settling the matter in favor of the assessee.

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Issues:
Liability to pay sales tax on refund received and provision made in accounting period relevant to Assessment Year 1976-77.

Analysis:
1. The first part of the question pertains to the liability to pay sales tax on the refund received by the assessee during the relevant year. The court referred to the decision in Polyflex (India) Pvt. Limited v. Commissioner of Income Tax [2002] 257 ITR 343 (SC) and agreed that this liability is chargeable to tax. Therefore, the answer to this part was in favor of the Revenue.

2. Moving on to the second part of the question, regarding the liability to pay sales tax on the provision made in the accounting period relevant to the assessment year 1976-77, the court considered the assessee's adoption of the mercantile system of accounting. Initially, there was a dispute over the sales tax on ice cream sold by the assessee, which was later resolved by a judgment of the Supreme Court. Despite the provision made by the assessee during the pendency of the appeal, the court held that since no sales tax was payable as per the court's decision and no actual payment was made, there was no requirement for the provision. The court cited the decision in Kedarnath Jute Manufacturing Co. Limited v. Commissioner of Income Tax [1971] 82 ITR 363 to emphasize that the liability for sales tax arises upon the sale of a commodity subject to tax, even if enforcement is pending. The court also referred to the Allahabad High Court and Supreme Court decisions supporting the deduction of such liabilities in the accounts. Therefore, the court ruled in favor of the assessee, stating that the provision made was not chargeable to tax.

3. Consequently, the court answered the second part of the question in the negative, favoring the assessee and rejecting the revenue's claim.

4. The reference was disposed of accordingly, settling the issue of the liability to pay sales tax on the refund received and provision made during the relevant accounting period for Assessment Year 1976-77.

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