Supreme Court reinstates deduction of sales tax on excise duty component for appellant-assessee

The Supreme Court allowed all appeals, setting aside the High Court's order and reinstating the decision in favor of the appellant-assessee regarding the entitlement to the deduction of sales tax on the excise duty component for the relevant assessment years 1982-83, 1984-85, and 1985-86. The Court held that the appellant-assessee followed a mercantile system of accounting, reflected the deduction in the return, and that the manufacturer-seller was liable for sales tax on the excise duty component, as confirmed by a previous Supreme Court decision.

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Issues:
Challenge against the common order passed by the High Court of Karnataka regarding the entitlement of the appellant-assessee to the benefit of deduction of sales tax on the excise duty component of goods purchased.

Analysis:
1. The High Court's order was challenged due to the reversal of conclusions of the Appellate Commissioner and the Income Tax Appellate Tribunal regarding the deduction of sales tax on the excise duty component. The issue revolved around the appellant-assessee's entitlement to this deduction for the assessment years 1982-83, 1984-85, and 1985-86. The manufacturer-seller, M/S. Mc Dowell & Co. Ltd., did not include the excise duty element in its turnover, leading to a dispute over the liability of sales tax on this component.

2. The appellant-assessee had directly deposited the excise duty and claimed deductions under the agreement with M/S. Mc Dowell & Co. Ltd. The manufacturer denied liability for sales tax on the excise duty component, but subsequent legal proceedings confirmed their liability. The assessing officer initially refused the deduction, but the Appellate Commissioner granted it based on an agreement dated 18.12.1981 between the parties.

3. The Agreement dated 18.12.1981 played a crucial role in the case, as it outlined the buyer's obligation to reimburse sales tax and other charges to the seller in case of government demands. The Appellate Commissioner's view, supported by the Tribunal, favored the appellant-assessee. However, the High Court raised concerns about the agreement's authenticity and enforceability, leading to the dispute reaching the Supreme Court.

4. The Supreme Court found that the High Court exceeded its jurisdiction by questioning the authenticity of the Agreement dated 18.12.1981 without a specific question on it. The Court noted that the appellant-assessee followed a mercantile system of accounting and had reflected the sales tax deduction in the revised return. The liability of M/S. Mc Dowell & Co. Ltd. for sales tax was confirmed by a Supreme Court decision, supporting the appellant-assessee's entitlement to the deduction.

5. In conclusion, the Supreme Court allowed all appeals, setting aside the High Court's order and reinstating the Appellate Commissioner and Tribunal's decision in favor of the appellant-assessee. The judgment clarified the appellant's entitlement to the deduction of sales tax on the excise duty component for the relevant assessment years.

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