2015 (9) TMI 864 - SC - Income Tax

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 ... Claim of sales tax on the excise duty component of the goods purchased - appellant-assessee had directly deposited the excise duty payable on the goods and had claimed and received the deductions under the said head - claim of deduction in the revised return - HC decided case against assessee - Held that:- High Court had exceeded its jurisdiction in recording a finding with regard to the authenticity of the Agreement dated 18.12.1991. If the Agreement dated 18.12.1991 is to be treated as a part of the record of the assessment proceedings, undoubtedly, a liability had been cast upon the assessee insofar as the sales tax payable on the excise duty component is concerned. It is not in dispute that the mercantile system of accounting was in vogue in the assessee company. In the revised return filed by the assessee deduction of the amounts claimed by M/S. Mc Dowell & Co. Ltd. on sales tax was reflected. That the original return filed by the assessee did not reflect the aforesaid figures is not difficult to understand. At the time when the said return was filed (29.09.1982) the liability of M/S. Mc Dowell & Co. Ltd., disclaimed by the said Company, was yet to be determined. After the said claim of M/S. Mc Dowell & Co. Ltd. was negatived by the Andhra Pradesh High Court (06.12.1982) and during the pendency of the appeals before this Court M/S. Mc Dowell & Co. Ltd. had issued a letter dated 07.05.1983 to the assessee intimating that in the event the decision of the Supreme Court is adverse to M/S. Mc Dowell & Co. Ltd. the sales tax element will be collected by Mc Dowell from the assessee. It is thereafter that the revised return was filed on 27.08.1984. The liability of M/S. Mc Dowell & Co. Ltd. attained finality with the decision of the Constitution Bench M/s Mc Dowell and Company Limited Vs. Commercial Tax Officer [1985 (4) TMI 64 - SUPREME Court] . We are of view that the assessee is entitled to the benefit of deduction of the sales tax payable on the excise duty component in the assessment years in question. We, therefore, set aside the order of the High Court and restore the order of the Appellate Commissioner and the learned Tribunal deciding the said issue in favour of the assessee 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.