Section 43B deduction requires actual payment of the assessee's own statutory liability; MODVAT credit and recoverable sales tax were disallowed.

Section 43B allows deduction only for tax, duty, cess or fee actually paid by the assessee as its own statutory liability. Unutilised MODVAT credit representing excise duty paid by suppliers on inputs did not amount to actual payment by the assessee, and the proviso did not apply because the excise liability on finished goods arose later. The amount kept in a sales tax recoverable account was likewise not irretrievably paid as tax payable by the assessee, since it was available for set-off against future liability. Both amounts were held not deductible under section 43B, and the disallowances were upheld against the assessee.

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Issues: (i) Whether unutilised MODVAT credit of excise duty lying in the assessee's account at the end of the relevant accounting year was allowable as a deduction under section 43B of the Income-tax Act, 1961; (ii) Whether the amount shown in the sales tax recoverable account was allowable as a deduction under section 43B of the Income-tax Act, 1961.

Issue (i): Whether unutilised MODVAT credit of excise duty lying in the assessee's account at the end of the relevant accounting year was allowable as a deduction under section 43B of the Income-tax Act, 1961.

Analysis: Section 43B permits deduction only where a sum payable by the assessee by way of tax, duty, cess or fee is actually paid. The credit under the MODVAT scheme represented excise duty paid by the suppliers on raw materials and inputs and merely enabled the assessee to set off duty payable on its finished products. The assessee was not the person on whom the excise duty liability on the inputs was fastened, and the unutilised credit could not be equated with actual payment by the assessee. The proviso to section 43B also did not apply, because the relevant liability to pay excise duty on the finished goods arose only in the subsequent period.

Conclusion: The unutilised MODVAT credit was not deductible under section 43B and the disallowance was in law, against the assessee.

Issue (ii): Whether the amount shown in the sales tax recoverable account was allowable as a deduction under section 43B of the Income-tax Act, 1961.

Analysis: The sales tax paid on raw materials was carried in a separate recoverable account and was available for set-off against the assessee's liability on sale of the finished goods. It was not a sum irretrievably paid as tax payable by the assessee in the sense required by section 43B. The treatment of the amount as recoverable, and not as final expenditure, negatived the claim for deduction.

Conclusion: The sales tax recoverable amount was not deductible under section 43B and the disallowance was against the assessee.

Final Conclusion: Both questions were answered in favour of the Revenue, and the assessee's appeals failed.

Ratio Decidendi: A deduction under section 43B is available only for a sum actually paid by the assessee as its own statutory liability; unutilised MODVAT credit and amounts kept in a recoverable set-off account do not satisfy that requirement.

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