TMI Blog1970 (3) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... angli, Madhavnagar and Ichalkaranji. The officers of the Central Excise were of the view that the cloth purchased in the above manner was in fact manufactured by the weavers on behalf of the assessee-firm. As excise duty was levied on cotton fabrics, the Superintendent, Central Excise, Sangli, by a demand notice issued under rule 9(2) of the Central Excise Rules, 1944, and addressed to the assessee-firm, called upon it to pay the excise duty in the sum of Rs. 14,95,252 within 10 days from the date of the notice. The assessee-firm was informed that in respect of the cotton fabrics manufactured on its behalf and detailed in the attached sheet it had failed to pay duty as laid down in rule 9(1) of the Central Excise Rules, 1944. In respect of the amount demanded by the above notice, the assessee-firm made entries in its books as of November 11, 1958, debiting the above sum as excise duty payable and crediting the excise duty payable account. By its attorneys' letter, dated September 18, 1958, the assessee-firm made diverse contentions regarding the firm being not liable to pay the duty demanded under the above notice and called upon the Assistant Collector, Central Excise, to cancel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the notice in respect of the same cotton fabrics as were mentioned in the prior notice of demand, dated September 5, 1958, on the same ground as mentioned in the prior notice. In the second paragraph of the particulars of demand mentioned in the notice it was stated that the prior notice of demand dated September 5, 1958, may be treated as cancelled and the demand made by the notice dated December 22, 1958, may be treated as served in lieu of the demand made by the prior notice. On the facts mentioned above, before the tax authorities the contention of the assessee-firm was that it had maintained its books of account in accordance with the mercantile system. The demand for the sum of Rs. 14,95,252 was during the accounting year expiring on November 11, 1958. The demand was for crystallized ascertained liability and that liability was statutory liability enforceable in accordance with the provisions in the Excise Act and the Rules. In the result, in the assessment year 1959-60, the debit in the above sum of Rs. 14,95,252 was justly liable to be allowed as expenses. This contention was rejected by the Income-tax Officer as also by the Appellate Assistant Commissioner and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehemently objected to the demand and had taken proceedings seeking to get the order of demand reversed. Even so, the assessee claimed that the above sum was deductible allowance in computing his income for the assessment year 1955-56 on the ground that he was keeping his accounts on the mercantile basis and a legal liability to pay the amount had accrued in the accounting year 1954-55 when he received the demand notice. The tax authorities disallowed the claim for expenses. The court reversed the findings of the tax authorities and in that connection the court took notice of the fact that the assessee had preferred appeals to the Collector of Central Excise and to the Board of Central Revenue for cancellation of the demand. The court took notice of the contention made on behalf of the assessee that " unless and until the demand was actually cancelled by a competent authority he was legally compellable to pay the amount demanded. His failure to pay would only keep him in peril of coercive proceedings being launched against him ". The question that arose was mentioned as : " The true question to be considered in this case is whether the assessee had incurred an enforceable legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have substituted its own estimate, but that would not convert the statutory liability into an unascertained liability, particularly as it was admitted that the assessee's accounts were properly maintained. " As already stated, as regards the law applicable to the facts of the case, there is no dispute between the parties. Mr. Joshi relied upon the case of H. Ford Co. Ltd. v. Commissioners of Inland Revenue, where having regard to the facts before it, the court held that the sum in question was not an admissible deduction in computing the profits of the accounting period ending on September 30, 1920, being contingent liability only. The main dispute between the parties centres round the true effect of the statements in the letter dated October 22, 1958, addressed by the Assistant Collector to the assessee-firm, the reply, dated October 31, 1958, and the notice of demand, dated December 22, 1958. The submission on behalf of the assessee was that the claim made by the first notice of demand, dated September 5, 1958, was for an ascertained amount of excise duty in the sum of Rs. 14,95,252 and the demand was legally enforceable and continued to be so enforceable till the end o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable. In connection with these conventions, it has appeared to us that the letter dated October 22, 1958, does not have the effect as submitted by Mr. Joshi. In this connection, the following contents of the letter are important : " ....... the demand for duty of Rs. 14,95,252, at standard rate served on you by Superintendent, Sangli, can be reviewed and duty only under compounded levy system can be charged in your case, as a special case, provided you agree to pay such duty under compounded levy system instead of duty at standard rate which is ordinarily due to Government... " It is quite clear from the above quoted contents of the letter that duty levied in the sum of Rs. 14,95,252 and the demand, therefore, was not withdrawn or cancelled. An offer was made to levy excise duty at a different rate, i.e., under compounded levy system, but in that connection, the specific condition indicated was that the assessee should agree to pay duty calculated on the basis of the compounded levy system. The condition which is stated has the effect of conveying to the assessee-firm that if this condition was not agreed to, there was no question of withdrawing and/or cancelling the demand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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