2003 (11) TMI 302 - AT - Income Tax

Tribunal Rules Excise Duty Paid in Advance Non-Deductible if Goods Not Received Within Fiscal Year per Section 43B.

Deputy Commissioner Of Income-Tax. Versus Cwc Wines (P.) Ltd.

Deputy Commissioner Of Income-Tax. Versus Cwc Wines (P.) Ltd. - ITD 089, 001, TTJ 083, 001, 268 ITR (AT). 23 Issues Involved:1. Whether countervailing duty is different from excise duty.2. Whether the duty is paid by the appellant for importing goods or on behalf of the principal manufacturer.3. Whether it is a statutory obligation or a component of the purchase price.4. When the liability for countervailing duty crystallizes.5. Applicability of section 43B to the present facts.Summary:Issue 1: Whether countervailing duty is different from excise dutyThe CIT(A) concluded that countervailing duty is distinct from excise duty and is borne by the purchaser inside the State rather than the manufacturer outside the State. This was based on the purpose of countervailing duty, which is to keep the price of products manufactured outside the State competitive with those manufactured inside the State.Issue 2: Whether the duty is paid by the appellant for importing goods or on behalf of the principal manufacturerThe CIT(A) determined that the countervailing duty is paid by the purchaser himself and not on behalf of the manufacturer. This was supported by the fact that the wholesaler who procures products from both local and outside manufacturers has to pay the duty to ensure price parity.Issue 3: Whether it is a statutory obligation or a component of the purchase priceThe CIT(A) observed that while countervailing duty forms a component of the purchase price, it is a statutory obligation that should be allowed when incurred, independent of the purchase price. This was supported by the Supreme Court decision in CIT v. Maharashtra Sugar Mills Ltd [1971] 82 ITR 452.Issue 4: When the liability for countervailing duty crystallizesThe CIT(A) held that the liability crystallizes at the time of applying for the permit and making the payment, not at the time of receipt of goods. This is because the payment is a statutory liability required for the import permit, independent of the actual purchase.Issue 5: Applicability of section 43B to the present factsThe CIT(A) concluded that the deduction for countervailing duty is allowable under section 37 read with section 43B, as it is a statutory obligation paid during the year of account. The CIT(A) directed the assessing officer to allow the claim for the respective years.Tribunal's Decision:The Tribunal, however, disagreed with the CIT(A) and held that the excise duty paid in advance cannot be allowed as a deduction u/s 43B because the goods were not received during the year. The Tribunal emphasized that section 43B is not a permissive section for granting deductions but a prohibitory section to disallow deductions for unpaid liabilities. The Tribunal also noted that excise duty is a business expense directly related to the acquisition of stock-in-trade and should be allowed as a deduction only in the year in which the related stock is received and reflected in the trading account. The Tribunal's decision was influenced by the jurisdictional High Court's ruling in Gopi Krishna Granites India Ltd. v. Dy. CIT [2001] 251 ITR 337 (AP), which emphasized that a deduction under section 43B can only be allowed when the liability for the payment has accrued in the relevant previous year.