TaxTMI 
TaxTMI 
2002 (8) TMI 249
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....ts customers/clients, who were liable to pay the Central Excise Duty to the Central Excise Department, and for this reason the provisions contained in section 43B of the Act were not applicable to the case of the assessee; disregarding the relevant provisions contained in the Central Excise Act more particularly subsection (4) of section 4 of the Central Excise Act under which the assessee had liability in law to pay the Central Excise to the Central Excise Department and for this reason, the provisions contained in section 43B of the Act were fully applicable to the case of the assessee. It may also be mentioned that the interpretation made by the CIT(A) would lead to an absurd situation, where neither the customers/clients nor the assessee would be covered under the provisions contained in the section 43B of the Act. and thus, the legislative intention in enactment of the section 43B would get frustrated. 3. The ld. CIT(A) has erred on facts and in law in treating that making of the FDR was sufficient to discharge the assessee's liability so far as payment of excise duty is concerned and in such set of circumstances, the CIT(A) has erred on facts and in law to hold that the se....
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....orities on the ground that as a processor of grey cloth on job work basis, the assessee is merely an agent of the merchant owner and therefore no liability on account of excise duty can be levied under the Central Excise Duty and Salt Act, 1944 and rules made thereunder. However, since the excise authorities did not accept the contention, the assessee along with other processors of grey cloth continued to collect the excise duty from the merchants on the full value of the cloth and job charges. The assessee along with other processors of grey cloth filed a writ petition before the Hon'ble Supreme Court. The Supreme Court passed the interim order on 3-2-1984 as under: "Pending notice, the respondents, their servants and agents are restrained from levying and recovering the disputed portion of duty of excise i.e. duty on the difference between the ultimate price charges from the customer and the value of the processing work done by the petitioners on the condition that the petitioners shall furnish bank guarantee to the full extent in regard to the aforesaid difference to the satisfaction of the respondents. The Bank guarantee shall be furnished by the petitioners within four week....
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....nbsp; 1939780 refund --------- ---------- ---------- 4820207 10696306 15194684 Amount placed in fixed deposit 4160000 9810000 14570810 &nb....
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....t year and the guarantee has been given to the excise authorities for equivalent amount. These fixed deposits have been encashed by the excise authorities for realising outstanding liabilities against the assessee. 5. The issue governing the applicability of section 43B for the assessment years under appeal would have to be considered in the backdrop of the aforesaid factual perspective. The assessee pleaded before the revenue authorities that it was merely acting as an agent of the merchant owner and the excise duty, insofar as it relates to the value of grey cloth, represents the liability of the merchant owner and not the assessee. The assessee is liable to pay the excise duty only with reference to the value of the job work done while processing the grey cloth and this portion of the excise duty has been duly paid in the assessment years under appeal. Referring to the Excise Rules 174 and 174A as well as the notification issued by the excise authorities thereunder the assessee pleaded that merchant owners who give the grey cloth to the assessee for processing are the manufacturers liable to levy of excise duty and the assessee merely acts as an agent for collection of the ex....
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.... of the Hon'ble Supreme Court, this would amount to actual payment by the assessee in terms of the provisions of section 43B. We are inclined to follow our earlier decision and uphold the impugned order of the ld. CIT(A). 7. It is an established rule of interpretation of statutes. that the words of a statute are to be understood in the sense in which they best harmonise with the subject of the enactment and the object which the legislature has in view. Their meaning is found not so much in a strict grammatical or etymological propriety of language, nor even in its popular sense, as in the subject or in the occasion on which they are used and the object to be obtained. Section 43B of the Income-tax Act, 1961 was inserted w.e.f. 1-4-1984 to discourage tax payers who did not discharge their statutory liability of payment of excise duty etc. for long periods of time but claimed deduction in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. This provision has been interpreted by the Hon'ble Supreme Court in its celebrated decision in the case of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677....
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....s rendered by various benches of the Tribunal on the issue of applicability of section 43B to the unpaid excise liabilities against which bank guarantee has been provided by the assessee. The first decision which may be noticed has been rendered by Delhi Bench of the Tribunal in the case of Purolator India Ltd. v. IAC [1990] 34 ITD 286 wherein the Tribunal held in favour of the revenue. The facts are however distinguishable in material particulars from that of assessee's case. In this case the dispute pertain to levy of excise duty on certain manufacturing expenses incurred by the assessee company as a manufacturer. The Delhi High Court granted stay of recovery of the disputed amount of excise duty on the condition that the assessee shall furnish the bond of the value of the duty leviable on the post manufacturing expenses and also furnish a bank guarantee to the extent of 25% of such duty each time it desires to clear the manufactured goods from its factory. On these facts the Delhi Bench of the Tribunal held that furnishing of a bond and bank guarantee to the extent of 25% of the duty would not amount to payment in terms of section 43B and hence the unpaid excise duty is hit by t....
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....r the merchant manufacturers and the provisions of section 43B were not applicable in the facts of the case. 10. Before the Calcutta Bench of the Tribunal in Dun lop India Ltd. v. Ass ft. CIT [1992] 41 ITD 582 the disputed excise duty liability pertained to business of manufacture of tyres and tubes carried on by the assessee. It was held that section 43B would apply even if the liability has been stayed by the High Court against the bonds executed by the assessee. This was again the case of a manufacturer who collected excise duty from the customers whereas payment thereof was not made to the excise authorities during the year under question. The decision would therefore not help the revenue. 11. We may now mention the decision of Ahmedabad Bench of the Tribunal in the case of Asstt. CIT v. Krishna Textiles [1996] 59 ITD 523 which has been rendered in the year 1996. This decision has been duly considered and distinguished in the subsequent decision of the Tribunal in Shanti Dyeing & Finishing Works' case which is being relied upon by us in support of assessee's case. In this case even though the assessee was a processor of cloth supplied by the merchant manufacturer, yet the....
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....Minister are as under:-- "Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, for long period of time. For the purpose of their income-tax assessments, they nonetheless claim the liability as deduction even as they take resort to legal action, thus depriving the Government of its dues while enjoying the benefit of non-payment. To curb such practices I propose to provide that irrespective of the method of accounting followed by the taxpayer, a statutory liability will be allowed as a deduction in computing the taxable profit only in the year and to the extent it is actually paid." 6. In this context, I have also gone through the Memo explaining the provisions of Finance Act, 1983. Para 60 of the same contains as under:- "60. Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, etc. for long periods of time, extending sometimes to several years. For the purpose of their inc....
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....s under appeal because this was not "actually paid" within the meaning of section 43B. 9. For the reasons aforesaid, in my view, the expression "actual payment" as appearing in section 43B of the Income-tax Act, 1961 is to be strictly construed as interpreted by this Tribunal in Krishna Textiles' case. Hence, furnishing of bank guarantee by the assessee did not tantamount to making "actual payment" of excise duty within the meaning of section 43B to the excise authorities. Therefore, I reverse the order of CIT (Appeals) and restore the order of the Assessing Officer. 10. In the result, the Revenue's appeals are allowed. ORDER UNDER SECTION 255(4) OF INCOME-TAX ACT As there is a difference of opinion between the Members of the Bench, who heard these two appeals, the following point of difference, common for both the appeals, is referred to the Hon'ble President, ITAT for the opinion of the Third Member: "Whether in the facts and circumstances of the case claim of the assessee for deduction of excise duty liabilities, Rs. 58,75,999 for assessment year 1986-87 and Rs. 44,58,378 for assessment year 1987-88 are hit by the mischief of section 43B?" THIRD MEMBER ORDER ....
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....10-1990 in ITA No. 180/Ahd. and state as to what bearing the said judgment will have on the point in issue. His attention was also drawn to the judgment in the case of Plastic Products Engg. Co. and other relevant decisions. The learned counsel submitted that the question of law referred to the Hon'ble Gujarat High Court in the case of Shri Ambica Mills Co. Ltd. was as under: "Whether, the Appellate Tribunal is right in law and on facts in not treating the trading receipts of Rs. 3,17,79,885 on account of additional excise duty as trading receipts and in directing the ITO to delete the same?" 5. The findings were given by the Hon'ble Gujarat High Court with reference to the aforesaid question of law referred to the High Court for their esteemed opinion. The Hon'ble Gujarat High Court has held that the additional Excise Duty collected by the assessee is trading receipt and is accordingly liable to tax. The question in the present case is that even if the collections of additional Excise Duty is treated as trading receipt, the same is allowable as deduction under section 43B as the assessee had furnished bank guarantee for the full amount pursuant to the directions of the Hon'b....
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.....J. Joice-AM) "It has been laid down by the Apex Court in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 and Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615 that sales-tax collected constitutes a trading receipt in the hands of the seller who collects it from the customers and pays to the Government, but the trader shall be entitled to claim deduction in respect of such realisation or part thereof as and when he pays it to the Government or to the purchaser. The same principle has been enunciated in respect of excise duty collected from the customers by the manufacturers or producers of goods and it has been clearly laid down that excise duty so collected forms part of the trading receipt of the assessee vide Jonnalla Narashimaharao & Co. v. CIT [1993] 200 ITR 588/68 Taxman 340 (SC) and CIT v. T. Naggi Reddy [1993] 202 ITR 253 (SC). The decision of the Supreme Court in the case of Jonnalla Narashimaharao & Co. has been followed by the Gujarat High Court in the case of Navjivan Udyog Mandir (P.) Ltd. v. CIT [1974] 207 ITR 40. In view of the binding ratio of these decisions the Assessing Officer was justified in treating the excise duty collected as a trading....
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....icatory Explanation of the Government's intention all along. Further, the Supreme Court's stay was not absolute but conditional, that is subject to furnishing of bank guarantee which the assessee by its contention wanted to treat as equivalent to paid. If the excise duty was not "payable" as contended by the assessee then how is it that he made a payment of the same (by bank guarantee). Lastly, there was no force in the assessee's argument that even if section 43B could be invoked and applied, the assessee was entitled to the deduction as per the first proviso to section 43B as furnishing of bank guarantee should be treated as actual payment in view of the ratio laid down by the Supreme Court in Asstt. Collector of Central Excise v. Dunlop India Ltd [1985] 154 ITR 172. Further, it was admitted by the assessee that it had not to keep the full amount as margin money with the bank for obtaining bank guarantee, and the bank allowed 50 per cent margin for fixed deposits in the case of certain bank guarantees. Therefore, under these circumstances, when the assessee had merely used funds by way of recovery of excise duty from the merchants and kept only a part of it as fixed deposit....
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....se of Dunlop India Ltd. [Hon'ble Shri V. Dongzathang-AM and Hon'ble Shri Vimal Gandhi-JM]. The relevant extracts from the Head Note are reproduced below: 'The entire amount of Rs. 1,647.64 lakhs was disputed liability covered by the expression "duty" as used in section 43B. It is settled law that liability to pay excise duty arises as soon as excisable goods are manufactured or produced. In many cases there is a dispute between the excise authorities and the manufacturers on the amount of excise duty payable on goods manufactured. The dispute is carried to Courts and stay orders are granted. The ad interim order of stay normally does not affect the nature and character of excise duty. In the present case, the lower authorities rejected the claim of the assessee and held that the amount of Rs. 1,647.64 lakhs was outstanding liability relating to Central excise duty. It was, therefore, for the assessee to show that excise duty liability was replaced by some other kind of liability. This had not been done. The assessee justified the claim that it was a liability incurred wholly on account of the view taken by the authorities under the Excise Act. The above view could be displace....
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....eople. Governments expenditure cannot be made on bank guarantees or securities. This judgment of the Hon'ble Supreme Court draws clear distinction between furnishing of bank guarantee and actual payment of tax and duty. Furnishing of bank guarantee cannot therefore be treated as equivalent to actual payment of tax or duty as contemplated in section 43B of the Act. 12. The learned Senior DR also relied upon the judgment of the Hon'ble Supreme Court in the case of Asstt. Collector of Central Excise v. Dunlop India Ltd. [1985] 154 ITR 172 in which the Hon'ble Supreme Court has held as under: "Governments are not run on mere bank guarantees. Very often some courts act as if furnishing a bank guarantee would meet the ends of justice. No governmental business or for that matter no business of any kind can be run on mere bank guarantees. Liquid cash is necessary for the running of a Government as indeed any other enterprises: 13. The learned Senior DR also relied upon the judgment of the Hon'ble Gujarat High Court in the case of Lakhanpal National Ltd. v. ITO [1986] 162 ITR 240 to support his contention that deduction in respect of tax or duty payable by the assessee can be allow....
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.... the basis of bank guarantee furnished. By keeping entries do not in any manner decide the allowability or otherwise of a particular deduction. The assessee by not showing the additional excise duty collected by them as trading receipt has claimed deduction in respect of that amount while computing its taxable income, though the same was not specifically debited in the P&L Account. Such deduction is not allowable in view of the clear provisions of section 43B of the Act. 15. The learned Senior DR submitted that the learned Judicial Member has rightly placed reliance on the judgment of the Hon'ble Gujarat High Court in the case of Plastic Products Engg. Co. for holding that the excise duty so collected by the assessee, though kept in a separate account is a trading receipt. The learned JM has also relied upon the decision of ITAT in the case of Krishna Textiles for supporting his conclusion that furnishing of bank guarantee by the assessee did not tantamount to making "actual payment" of excise duty to the Excise Department within the meaning of section 43B of the Income-tax Act. The interpretation of expression "actually paid" used in section 43B as made by the learned JM is the....
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....excise duty collected by the assessee from the customers would form part of its trading receipts. Reference may further be made to the recent decision of the Hon'ble Supreme Court in the case of Jonnalla Narasimharao & Co. v. CIT [1993] 112 CTR (SC) 126 : [1993] 200 ITR 588 (SC) and CIT v. T. Naggi Reddy [1993] 115 CTR (SC) 418 : [1993] 202 ITR 253 (SC)." 18. The Hon'ble Supreme Court in the case of KCP. Ltd. has held that if a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the Assessing Authority from treating it as trading receipt. It is the nature and quality of the receipt and not the head under which it is credited in the account books which is decisive. The Hon'ble Supreme Court in the aforesaid judgment has held that the amount in excess of levy price collected and retained by the assessee in separate account in accounting year relevant to assessment year 1972-73 which amount was transferred to Sugar Equalisation Fund in 1997, the amount so collected represents trading receipt realised in ordinary business activities and its retention in separate account and subsequent transfer to Sugar Equalisation Ac....
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....n of the Supreme Court and the balance was covered by a bank guarantee. In other words, the amount which appeared as a liability in the books of the respondent on 31-12-1982 was either payable to the Excise Department or refundable to the customers from whom it had been collected that being a question to be decided after the outcome of the final litigation. This however was not a case where the assessee had no intention to make the payment either to one or the other. It is also apparent that the amount collected as additional Excise Duty was not available to the respondent for use in its business since 50% of the amount was paid as a result of the direction of the Hon'ble Supreme Court and the balance was covered by a bank guarantee which meant that funds to that extent stood deposited in the bank and were not available for use. The decisions of the Supreme Court relied upon by the ITO and those referred to by the ld. DR would accordingly not be applicable," It is clear from the aforesaid facts that the Tribunal granted the aforesaid relief mainly on account of the fact that the amount collected as Additional Excise Duty was not available to the assessee for use in its business ....
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....positing equivalent amount in fixed deposits with the banks amounts to "actual payment" of such duty so as to qualify for grant of deduction under section 43B of the Act. The learned representatives of both sides have cited various judgments to support their respective contentions. The judgment of Hon'ble Gujarat High Court in the case of Shri Ambica Mills Co. Ltd. on identical facts supports the view expressed by the learned Judicial Member. Apart from this, after giving a deep and thoughtful consideration to the entire relevant material and after a careful reading of all other relevant judgments cited by the learned representatives of both sides, I am of the considered opinion that furnishing of bank guarantee for payment of entire disputed amount of Excise Duty / Additional Excise Duty collected by the assessee in the relevant years cannot be considered equivalent to "actual payment" of duty made in the relevant years. Furnishing of bank guarantee is only a security or a guarantee given by the bank to pay the disputed amount of Excise Duty collected by the assessee in the event of Revenue succeeding in the pending litigation. Furnishing of such bank guarantee has been ordered by....
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....ctual payment of tax or duty available for meeting the Government expenditure/for public purposes. 22. The Hon'ble Supreme Court in the case of Allied Motors (P.) Ltd. referred to the clauses of Memorandum explaining the provisions in Finance Bill, 1983 and the Budget Speech explaining the reasons which necessitated insertion of section 43B in Income-tax Act. It has been observed that section 43B was clearly aimed on curbing the activities of those tax payers, who did not discharge their liabilities of payment of Excise Duty etc. for long period of time but claimed deduction in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that section 43B was inserted. A plain reading of section 43B clearly indicates that deduction in respect of tax or duty under any law would be allowed in computing the income only in that previous year in which such sum is actually paid by the assessee. The Hon'ble Gujarat High Court in the case of Lakhanpal National Ltd. has held that in view of specific language of section 43B, there is no scope for any doubt that such amount of tax or....
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....an order of the court is equivalent to payment of the amount of the excise duty. In our view, the answer is in the negative. For the purposes of securing the revenue in the event of the revenue succeeding in proceedings before a court, the court, as a condition of staying the demand for the disputed tax or duty, impose a condition that the assessee shall provide a bank guarantee for the full amount of such tax or duty or part thereof. The bank guarantee is required to be given either in favour of the principal administrative officer of the court or in favour of the revenue authority concerned. In the event that the revenue fails in the proceedings before the court the question of payment of the tax or duty, the amount of which is covered by the bank guarantee, does not arise and, ordinarily, the court, at the conclusion of its order, directs that the bank guarantee shall stand discharged. Where the revenue succeeds the amount of the tax or duty becomes payable by the assessee to the revenue and it is open to the revenue to invoke the bank guarantee and demand payment thereon. The bank guarantee is security for the revenue, that in the event the revenue succeeds its dues will be rec....