TMI Blog1991 (1) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 28(1) of the Customs Act, 1962 known as 'Less Charge Demand Notices' inviting objections from the assessee as to why a sum of Rs. 27,02,757 may not be recovered from the assessee. Assessee was informed that if no oral or written representation was received within 15 days from the date of receipt of the notice, it would be presumed that the assessee has admitted the correctness on the demand. Assessee has filed objections within the permissible time and has accordingly not admitted the correctness of the notices issued by the Assistant Collector of Customs. It is admitted case of the assessee that no demand notice or any order under section 28(2) of the Customs Act, 1962 has been received by the assessee so far in respect of the amount of Rs. 27,02,757. Assessee's claim is that the system of accounting followed being mercantile, it is entitled to deduction in respect of the less charge demand notices. On the basis of notices issued by Assistant Collector of Customs under section 28(1) as the demand pertained to the goods cleared during the accounting year relevant to assessment year in appeal. Shri Dinodia relied upon the decision of the Allahabad High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here that for assessment year 1978-79, similar claim had been allowed by CIT(A) whereas for assessment year 1980-81 the claim was disallowed and the Tribunal dismissed the appeal of the assessee on the ground as not pressed. 4. According to the learned D.R. Shri Amitabh Kumar the decisions in respect of sales-tax and excise duty would not be applicable to the facts of this case as the claim, relates to customs duty, which is payable at the time of clearance of goods. In the case of sales-tax, the liability arises as and when the sales take place and in the case of excise duty, the duty is payable as and when the goods are removed from the factory godowns. In the case of customs duty, the obligation to pay is at the time of clearance on the basis of assessment made by the customs authority. Whereas under the Sales-tax Act as well as Excise Act, there is obligation upon the assessee to pay the tax in accordance with law voluntarily, under the Customs Act, assessee's obligation arises only on quantification of the duty. It was accordingly pleaded that for the customs duty unless quantification is done, the assessee has no obligation to pay. The learned D.R. pointed out that despite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities and demand issued. The third possibility of assessee's becoming liable to pay sales-tax is when an assessment is re-opened and extra demand created. Whereas in the case of first eventuality, i.e., where the amount becomes payable voluntarily on the basis of the returns, assessee would be entitled to claim a deduction of the liability for the purposes of income-tax assessment in that year provided the books of accounts are maintained on mercantile basis. In the case of second eventuality, i.e., when an assessment is made and demand is created, assessee would be entitled to a deduction in the year the demand is received notwithstanding the fact that assessee has disputed the demand or has taken steps for getting the demand wiped out by way of appeals, etc. Same is the case where the demand is created by way of re-assessment under the provisions of sales-tax law. This position becomes abundantly clear when we peep deep into the decision of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. The Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. quoted with approval the decision of the Calcutta High Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till the quantification is effected by assessment proceedings, the liability for payment of tax is independent of the assessment. It is significant that in the present case, the liability had even been quantified and a demand had been created in the sum of Rs. 1,49,776 by means of the notice dated21st November, 1957, during the pendency of assessment proceedings before the Income-tax Officer and before the finalisation of the assessment. It is not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum of liability, etc. An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed. It can again not be disputed that the liability to payment of sales-tax had accrued during the year of assessment even though it has to be discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation to pay the duty. Even if the demand of duty is disputed by the assessee and the order of the customs authorities challenged, assessee following mercantile system of accounting would be entitled to deduction on the basis of assessment made by the customs authorities notwithstanding the dispute. In this case the customs authorities have quantified the duty payable by the assessee and on being satisfied that the assessee was entitled to release of goods, assessee was allowed to lift the goods. There is another eventuality under which assessee becomes liable to pay more duty than assessed at the time of release of goods. Section 28 of the Customs Act, 1961 empowers the customs authorities to collect short recoveries, if any, made at the time of clearance. For this purpose a show-cause notice is issued to the assessee inviting objections for the proposed action. If the assessee does not object to the proposed action within specified period notified in the said notice, the Assistant Collector of Customs is empowered to presume admission of the demand. In such eventuality assessee becomes liable to pay the amount mentioned in the demand and the customs authorities are empowered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of duty. As is evident from the above provision of Customs Act the liability of the assessee would arise only on the determination of the liability under section 28(2) of the Customs Act, 1962 or on the expiry of the time specified in the notices issued under section 28(1) without assessee filing any objection in this regard. Assessee is seeking deduction on the basis of notices issued under section 28(1) of the Customs Act, 1962 on the ground that the liability to pay customs duty has accrued during the year the show-cause notices have been received. We are unable to accept this contention of the assessee as it is evident from the provisions of the Customs Act and the foregoing discussion that assessee has no obligation to pay the duty specified in notices issued under section 28(1) unless the demand was accepted by not filing objections within the period of 15 days allowed in the notices or a demand was created by virtue of section 28(2) of the Customs Act, 1962. Even after the expiry of about a decade from the date of notices, assessee's liability to pay a sum of Rs. 27,02,757 to the Customs Authorities has not crystallized. The liability to pay should be real and not mere hy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the assessee to pay the demand subsists and accordingly it qualifies for deduction under section 37(1), it was pleaded. 7. We have given our careful consideration to the rival contentions. The demand has been created during the year relevant to assessment year in appeal. We have held above that the liability to pay arises as and when demand is created by the customs authorities or at the time of expiry of the period specified in the notice issued under section 28(1) without assessee having filed any objection to the proposed demand. The Assistant Collector of Customs has found that assessee had collected full duty from its customers on the original price without revising the assessable value as per price notification dated 19th February, 1977 and only 75% of the duty so collected had been paid to the Government. The Assistant Collector accordingly directed the assessee to pay a sum of Rs. 52,930. It is evident from the facts stated above that assessee has collected the amount of customs duty at full value from the customers in March 1979 and part of it had not been paid to the customs authorities. The demand has been created during the accounting year relevant to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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