2020 (2) TMI 376 - SC - Income Tax

Supreme Court affirms disallowance of MODVAT credit and Sales Tax Recoverable Account.

MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG LTD.) Versus COMMISSIONER OF INCOME TAX, DELHI

MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG LTD.) Versus COMMISSIONER OF INCOME TAX, DELHI - [2020] 421 ITR 510 (SC), 2020 (372) E.L.T. 785 ... Issues Involved:1. Whether the ITAT committed an error in upholding the disallowance of Rs. 69,93,00,428 representing unutilized MODVAT credit of Excise Duty as of March 31, 1999.2. Whether the ITAT committed an error in upholding the disallowance of Rs. 3,08,99,171 in respect of the Sales Tax Recoverable Account under Section 43B of the Income Tax Act.Detailed Analysis:Issue 1: Disallowance of Unutilized MODVAT CreditThe appellant, engaged in manufacturing automobiles, claimed a deduction under Section 43B of the Income Tax Act for unutilized MODVAT credit amounting to Rs. 69,93,00,428 as of March 31, 1999. The Assessing Officer, Commissioner of Income Tax (Appeals), and ITAT disallowed this claim, which was upheld by the High Court.The Supreme Court examined the conditions under Section 43B, which allows deductions only on actual payment of tax, duty, cess, or fee. The court noted that the unutilized MODVAT credit did not constitute a sum payable by the assessee by way of tax or duty. The Excise Duty on raw materials and inputs was paid by the suppliers, not the appellant. The MODVAT credit merely provided a mechanism for adjusting the duty paid on inputs against the duty payable on final products. Hence, the unutilized credit did not qualify as an actual payment by the assessee and could not be deducted under Section 43B.The court also rejected the appellant's reliance on the judgments in Eicher Motors Ltd. and Dai Ichi Karkaria Ltd., clarifying that these cases dealt with different contexts and did not support the appellant's claim for deduction of unutilized MODVAT credit.Issue 2: Disallowance of Sales Tax Recoverable AccountThe appellant claimed a deduction of Rs. 3,08,99,171 for the Sales Tax Recoverable Account under Section 43B. The sales tax paid on raw materials was debited to a separate account and could be set off against the sales tax liability on finished goods.The High Court, relying on its discussion regarding the MODVAT credit, disallowed this claim. The Supreme Court agreed, noting that the sales tax paid was not an actual liability incurred by the appellant in the relevant year but rather an amount recoverable against future sales tax liabilities. Thus, it did not qualify for deduction under Section 43B.Proviso to Section 43B:The appellant argued that the unutilized MODVAT credit was fully utilized by April 1999, before the due date for filing the return for the assessment year in question, and should be allowed as a deduction under the first proviso to Section 43B. The proviso allows deductions for sums actually paid by the due date for filing the return for the previous year in which the liability was incurred.The court rejected this argument, stating that the proviso applies only when the liability to pay a sum has been incurred in the relevant year but paid in the next year before the return filing date. In this case, the liability to pay Excise Duty arose in the subsequent year (1999-2000), not in the year ending March 31, 1999. Therefore, the proviso did not apply, and the unutilized MODVAT credit could not be deducted.Conclusion:The Supreme Court upheld the High Court's decision, affirming the disallowance of both the unutilized MODVAT credit and the Sales Tax Recoverable Account. The appeals were dismissed, and the questions were answered in favor of the Revenue.