Maruti Suzuki India Ltd. vs Commissioner of Income Tax, Delhi

Central Excise Act, 1944 – Statutory liability to pay Excise Duty – Appellant-assessee manufactures automobiles chargeable to Excise Duty under the 1944 Act – It acquires excisable raw materials & inputs which are used in manufacturing of vehicles – Held: Excise duty is levied under 1944 Act and collected as per 1944 Rules – Assessee in reference to the 1944 Rules is Assessee as defined in r.2(3) – Manufacture of the raw materials or inputs used by the appellant are the excisable items within the meaning of 1944 Rules – Liability to pay Excise Duty is not fastened on two entities as per the scheme of 1944 Act and 1944 Rules – It is the manufacturer of raw materials and inputs which are used by appellant who has statutory liability to pay Excise Duty – Appellant is not assessee within the meaning of 1944 Act, with reference to raw materials and inputs manufactured by the entities from which appellant had purchased the raw materials – Central Excise Rules, 1944 – r.2(3).

Dismissing the appeals, the Court

HELD: 1.1 Section 43B of the Act the provision indicates that deduction thereunder is to be allowed on fulfilment of the following conditions: (a) there should be an actual payment of Excise Duty whether “by way of tax, duty, cess or fee, by whatever name”; (b) such payment has to be “under any law for the time being in force”; (c) the payment of such sum should have been made by the assessee; (d) irrespective of the method of accounting regularly employed by the assessee, deduction shall be allowed while computing the income tax for the previous year “in which sum is actually paid” by the assessee; (e) the expression “any such sum payable” refers to a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. [Para 11][667 F-H; 668-A-B]

1.2 The crucial words in Section 43B(a) are “any sum payable by the assessee by way of tax, duty, cess or fee...”. The Excise Duty is levied under the Central Excise Act, 1944 and collected as per the Central Excise Rules, 1944. The assessee in reference to the Central Excise Rules, 1944 is Assessee as defined in Rule 2(3) which is to the following effect. The taxable event is manufacture and production of excisable articles and payment of duty is relatable to date of removal of such article from the factory. The manufacture of the raw materials or inputs which have been used by the appellant are the excisable items within the meaning of Central Excise Rules, 1944. The Excise Duty is leviable on the manufacturer of raw materials and inputs. The supplier of raw materials or inputs includes the Excise Duty paid on such articles in his sale invoices. The appellant when purchases raw materials and inputs for manufacture of vehicles it maintains a separate account containing the Excise Duty as mentioned in sale invoices. The credit of such Excise Duty paid by the appellant is to be given to the appellant by virtue of Rule 57A to 57F of Central Excise Rules, 1944 as it then existed. The appellant was fully entitled to discharge his liability to pay Excise Duty on vehicles manufactured by adjusting the credit of Excise Duty earned by it as per MODVAT scheme. The liability to pay Excise Duty is not fastened on two entities as per the scheme of Central Excise Act and Central Excise Rules. It is the manufacturer of raw materials and inputs which are used by appellant who has statutory liability to pay Excise Duty. The appellant is not assessee within the meaning of Central Excise Act, 1944, with reference to raw materials and inputs manufactured by the entities from which appellant had purchased the raw materials and entities. [Paras 13-15][668-D-H; 669-A-C]

1.3 As per Section 43B(a) of Income Tax Act, deduction is allowed on “any sum payable by the assessee by way of tax, duty, cess or fee.” The credit of Excise Duty earned by the appellant under MODVAT scheme as per Central Excise Rules, 1944 is not sum payable by the assessee by way of tax, duty, cess. The scheme under Section 43B is to allow deduction when a sum is payable by assessee by way of tax, duty and cess and had been actually paid by him. Furthermore, the deductions under Section 43B is allowable only when sum is actually paid by the assessee. In the present case, the Excise Duty leviable on appellant on manufacture of vehicles was already adjusted in the concerned assessment year from the credit of Excise Duty under the MODVAT scheme. The unutilised credit in the MODVAT scheme cannot be treated as sum actually paid by the appellant. The assessee when pays the cost of raw materials where the duty is embedded, it does not ipso facto mean that assessee is the one who is liable to pay Excise Duty on such raw material/inputs. It is merely the incident of Excise Duty that has shifted from the manufacturer to the purchaser and not the liability to the same. The unutilised credit under MODVAT scheme does not qualify for deductions under Section 43B of the Income Tax Act. [Paras 16-18][669-B-F]

1.4 The High Court had rightly answered the above question in favour of the Revenue relying on its discussion with respect to Question No.1. The sales tax paid by the appellant was debited to a separate account titled ‘Sales Tax recoverable account’. The assessee could have set off sales tax against his liability on the sales of finished goods i.e. vehicles. No infirmity is found in the view of the High Court answering the above question. The proviso to Section 43B provides that nothing contained in the Section shall apply in relation to any sum which is actually paid by assessee on or before due date applicable in his case for furnishing the return in respect of the previous year in which the liability to pay such sum was incurred. The crucial words in the proviso to Section 43B are “in respect of the previous year in which the liability to pay such sum was incurred”. The proviso takes care of the situation when liability to pay a sum has incurred but could not be paid in the year in question and has been paid in the next financial year before the date of submission of the Return. In the present case, there was no liability to adjust the unutilised MODVAT credit in the year in question since had there been liability to pay Excise Duty by the appellant on manufacture of vehicles, the unutilised MODVAT credit could have been adjusted against the payment of such Excise Duty. In the present case, the liability to pay Excise Duty of the assessee is incurred on the removal of finished goods in the subsequent year i.e. year beginning from 01.04.1999 and what the Court is concerned with is unutilised MODVAT Credit as on 31.03.1999 on which date the asseessee was not liable to pay any more Excise Duty. Hence, present is not a case where appellant can claim benefit of proviso to Section 43B. High Court correctly answered both the questions against the assessee-appellant and in favour of the Revenue. [Paras 32, 34 and 35][674-E-F; 675-A-E]

Eicher Motor Ltd. and Another v. Union of India and Others (1999) 2 SCC 361 : [1999] 1 SCR 295; Collector of Central Excise, Pune and Others v. Dai Ichi Karkaria Ltd. and Others (1999) 7 SCC 448 : [1999] 1 Suppl. SCR 360; Berger Paints India Ltd. v. Commissioner of Income Tax 2004 (266) ITR 99 – distinguished. Lakhan Pal National Ltd. v. ITO (1986) 162 ITR 240 – referred to.