TaxTMI 
TaxTMI 
2014 (10) TMI 323
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....consisting of Excise Duty demand of Rs. 31,19,52,341 and interest thereon of Rs. 12,69,19,426. The CIT further observed that Assessee Company has not deducted tax on these payments/liability as per the provisions u/s 194C. As there was failure to deduct tax u/s 194C on payments amounting to Rs. 43,88,73,031, the said amount should have been disallowed u/s 40(a)(ia) and added to the total income of Assessee. The CIT therefore considered that the assessment order passed u/s 143(3) dated 27.11.2008 was erroneous in so far as it relates to the above issue and as such prejudicial to the interest of revenue. The CIT therefore asked Assessee to show cause as to why the assessment for the Asst Year 2006-07 should not be revised suitably after taking into consideration the above point. 4. In response to the notice issued u/s 263 as above, Assessee Company appeared before the CIT-III on various dates and submitted detailed written submissions explaining the nature and details of the transactions with the four OCM's in North Eastern States and the facts and circumstances leading to the impugned payment/liability of Excise Duty and interest to an extent of Rs. 43,88,73,031. Assessee Compa....
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....any with a request to pay the excise duty and interest liability demanded from them. In view of the extreme hardship faced by the contract manufacturers in paying the excise demands and in line with what the other major cigarette manufacturers had done, Assessee Company agreed to pay bear the entire principal amount of Excise Duty of Rs. 31,19,52,342 and paid the same directly to the Excise Department during the year ending 31.03.2006. Assessee Company also made a provision for the interest of Rs. 12,69,19,426, in its books of accounts for the year ending 31st March,2006. 4.2. Assessee company explained all the above facts and circumstances of the case to the Commissioner of Income Tax-Ill, Hyderabad and submitted as follows : i) that the impugned Extraordinary liability towards excise duty and interest accepted by Assessee company is not in consideration of "job work charges" or "other payments" due under the contract for manufacture of cigarettes entered into with the four OCM's. ii) that the impugned liability is not in consideration of any work done by the OCM's. iii) the impugned liability for excise duty and interest agreed to by the company is discharge of a new ....
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....nce the impugned excise duty is in respect of business of manufacturing carried on by the contract manufacturers and not that of Assessee company. Further the business under reference was not carried on by the contract manufacturers during the previous year under consideration which is one of the condition u/s 37(1) of the Act; b) No deduction is allowable in respect of discontinued business and the onus of proving the allowability of deduction u/s. 37(1) is on Assessee; c) The deduction is not allowable in view of the decision laid down by the Gujarat High Court in the case of CIT vs. Navsari Cotton & Silk Mills Limited (1982) (135 ITR 546); d) The expenditure incurred by way of payment of excise duty has not resulted in any benefit or advantage to the company and even after a decade in 2011, Assessee has failed to show any business advantage derived from this company by helping them in huge payments. In other words, it has not derived any business after the payment. 5.3. Alternatively, the CIT held that the impugned claim of excise duty and interest is in the nature of manufacturing charges liable for deduction of tax at source u/s.194 C. The CIT held that as the assesee has ....
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...., as stated by the Ld. CIT in the order itself. It was also submission that assessee has agreed to pay the amount for commercial expediency in order to protect the brand value of Assessee products since s manufactured assessee's branded products. It was further submitted that amounts are paid directly to the Excise Department on the notice received from them and therefore, question of TDS does not arise as the amounts are paid to the Government. He countered the arguments raised by the Ld. CIT and pleaded for restoration of A.O. order. 8. Learned D.R. however, supported the orders of Ld. CIT and stated that A.O. has not made any enquiry with reference to this particular liability and referred to the notes to the accounts to submit that it is not assessee's liability but OCMs liability. Therefore, amount is not allowable. He also submitted that provisions of TDS are applicable. Therefore, Ld. CIT direction is to be upheld. 9. We have considered the rival contentions and perused the order of Ld. CIT. Even though A.O. made an enquiry about the amount claimed in the course of assessment, we are of the opinion that this issue is not examined in its correct perspective by the A.O. Firs....
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....ract manufacturing agreements after this date. As seen from the agreements placed on record, assessee has in fact gave its machinery also on lease to the said company. Prima facie, it seems that assessee got the cigarettes d under the guise of those four companies. Consequent to withdrawal of the benefits retrospectively, there was a challenge to the said notifications and Hon'ble Supreme Court in the case of RC Tobacco P. Ltd., and another etc., vs. Union of India and others in Transfer Case (Civil) 27 of 2004 dated 19.09.2005 upheld the retrospective withdrawal of the benefits by way notifications and amendment to the provisions. Consequently, the OCMs who were supposed to have enjoyed the excise duty benefits have become liable to pay the excise duty. However, the transactions are so arranged that excise duty was paid first and then claim as refund later. There is evidence on record that assessee was providing funds to the OCMs for payment of excise duty which as and when refunded were passed to Assessee company/ or to the bank who provided loans as per arrangement. Consequent to the withdrawal of the notification, those assessees have become liable to pay the excise duty and si....
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....he benefit of exemption but had levied and retained the excise duty on the cigarettes manufactured by the petitioners for the customers of the large companies. The petitioners who were admittedly in group A have refuted this and contend that their relationship with the large cigarette companies was on a principal to principal basis and that under their agreements they alone would be liable to pay the excise duty now demanded by the respondents under Section 154. We are not in a position to determine the disputes raised. However we cannot lose sight of the fact that although excise duty like other indirect taxes may be passed on to the customer of the goods under the law as it now stands, it is the manufacturer of the excisable goods to whom the excise authorities will look for payment. How the manufacturer will adjust its liability with its customers does not concern the respondents nor can they be asked to recover their dues from persons who may have ultimately taken on the responsibility to pay the excise duty as a result of an agreement with the manufacturer. (See in this connection State of Rajasthan vs. J.K. Udaipur Udyog Ltd. (2004) 7 SCC 673, 692. Furthermore having upheld....
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....e State Sales Tax Act do not exist here. What we are considering in this case is a positive statutory mandate directing the consequences of the withdrawal of the exemption notifications. For the reasons stated we dismiss the transferred writ petitions without any order as to costs 10.1. As can be seen from the above findings of Honourable Supreme Court, assessee company is one such company who entered into agreements with those four companies which merely fronts for assessee company. The main intention is to enjoy the excise duty benefit which was not passed-on to the customers. Admittedly, since the benefit was not passed-on to the customers, in a way, there is an undue enrichment occurred in the hands of Assessee. Considering these aspects, whether the amounts were paid as compensation or whether amounts are paid for business expediency or against the notice issued by Excise Department to Assessee, the fact is that ultimate liability is that of assessee company. In that view, assessee's claim of entire amount being paid directly to the Excise Department is to be accepted. There is no dispute, considering the judgement of Hon'ble Supreme Court in its correct perspective, that ult....