TMI Blog1996 (4) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... to the conversion unit for producing biscuits and delivering them back to the assessee-company, and the conversion charges would be paid at an agreed rate. The conversion unit had to pay the Central Excise duty at the time of delivery of the biscuits to the assessee, and the same would be reimbursed by the assessee in accordance with the agreement. Thus, the assessee was liable to discharge the Central Excise obligations of the conversion unit. (b) The excise duty is payable on the assessable value as computed under section 4 of the Central Excises and Salt Act, 1944. In support of the assessable value, the assessee has to file a price-list with the Excise authorities for their approval. While the assessment would be completed as per the price-list, if the said price-list meets the approval of the Excise authorities, if the price-list was not acceptable to the Excise Department due to any dispute, it would be approved provisionally, and during the tendency of the dispute, assessee would be permitted to clear the goods on payment of the duty as worked out by the assessee on a provisional basis, subject to the assessee executing a bond under Rule 9B of the Central Excise Rules for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.88 1984-85 Rs. 1,20,65,983.23 1985-86 Rs. 62,69,269.31 --------------------- Total: Rs. 4,19,55,363.42 --------------------- Subsequently, the High Court disposed of the writ petition without going into the merits of the case and directed the Conversion Unit to seek redressal through the appellate avenues available under section 35 of the Central Excise and Salt Act, 1944. (d) Thereafter, the Asstt. Collector issued a show-cause notice to the Conversion Unit asking it to show cause why the duty should not be determined and demanded on the basis of the price at which the assessee sold the biscuits in the market under section 4 of the Central Excise and Salt Act, 1944. The Conversion Unit again submitted that Central Excise Duty is payable only on the basis of the conversion charges paid by the assessee for the manufacture of biscuits and not on the basis claimed by the Department. Rejecting the contention of the Conversion Unit, the Assistant Collector by his order dated 22-101986 held that the Central Excise duty should be levied on the basis of the prices at which the goods were sold in the market by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific' order after comparing the prices of M/s. Super Food Products and other manufacturers of the same locality/town/city during the relevant assessment period. The Assistant Collector has accordingly passed a fresh order dated 27-4-1992 holding that M/s. Super Food Products is found to be closest to the assessee in comparison of other biscuit manufacturers existing at the relevant time, and hence the prices of products manufactured by M/s. Super Food Products are found comparable and that the assessable values of the products manufactured by the assessee can be fixed based on comparison with the prices of M/s. Super Food Products. He accordingly directed the Superintendent of Central Excise to confirm/raise the demand based on the price-lists which were approved by the Assistant Collector on 23-3-1990, but which were set aside by the Collector of Central Excise (Appeals) on 16-7-1991. (g) In pursuance of the order of the Assistant Collector dated 27-4-1992, the Superintendent of Central Excise-had made final assessment of R.T. 12s for the period from 29-7-1982 to 30-9-1985 for Conversion Unit-I and for the period from 29-12-1983 to 30-9-1985 for Conversion Unit-II on 18/19- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it Loss Account for the year 1991-92 even though the Superintendent of Central Excise is yet to determine the Central Excise duty liability in your case. We assure you that we will abide by the agreement entered with you under which we have undertaken to discharge all Central Excise duty liabilities levied on you on account of biscuits manufactured on our behalf. In particular, we hereby undertake to pay the Central Excise duty liability of Rs. 1,66,62,866 or any part thereof if the Superintendent of Central Excise determines on the basis of Asstt. Collector order dated 27-4-1992 that the Central Excise duty liability of Rs. 1,66,62,866 or any part thereof is payable by you." (j) However, while computing the total income for the assessment year 1992-93 for income-tax purposes, the assessee excluded the amount of Rs. 1,66,62,866 so written back. In the note appended to the computation of total income enclosed to the return for the assessment year 1992-93, the reasons for exclusion of the write back of the contractual liability are enumerated, in the following manner: "The Superintendent of Central Excise is yet to pass an order determining the exact quantum of balance of sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this reduction of excise duty liability in the case of Conversion Unit has come into existence when the Collector of Central Excise (Appeals) passed an appellate order dated 16-7-1991, directing to follow the case of M/s. Super Food Products in the case of Conversion Unit also, which direction was followed by the Asstt. Collector of Central Excise and Superintendent of Central Excise, and as such, he held that the order of the Collector of the Central Excise (Appeals) dated 16-71991 in effect brought about the actual reduction of liability. He accordingly added the sum of Rs. 1,66,62,866 to the income returned by the assessee while completing the assessment under section 143(3), by the order of assessment dated 22-3-1995 for the assessment year 1992-93. (l) Aggrieved by the addition of Rs. 1,66,62,866 made by the Assessing Officer, the assessee preferred appeal before the CIT(A) contending, inter alia, that the write-back resulted neither in the accrual of income nor in remission or cessation of liability and that the provisions of section 41(1) were not attracted as there was no remission or cessation of the liability either in fact or in law. The CIT(A) finding no merit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is own volition. He submitted that in order to bring a case under section 41(1), it has to be shown by the Department that there has been remission or cessation of the liability, and the remission of a liability occurs only when the creditor voluntarily gives up the claim and cessation of a liability arises only when it ceases to exist in the eye of law or all intents and purposes. In view of this legal position, he disputed the conclusions drawn by the lower authorities that the unilateral act of the debtor is sufficient to bring about the cessation of the liability. Inviting our attention to the note appended to the return of income, which is extracted in para-2(j) hereinabove, he submitted that the assessee has clarified that after the determination of the actual liability in the hands of the Conversion Unit, such determined excess excise liability would be included in the computation of total income under section 41(1). He further submitted that by writing a letter to the Conversion Unit on 4-5-1992, on finalisation of Balance-sheet, relevant portion of which is extracted in para 2(i) of this order, the assessee has affirmed that it would discharge the Central Excise duty liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle of general law was superseded by section 41(1) which expressly made the amount remitted taxable as the deemed income of the year of remission. In this view of the matter, he submitted that while in general law remission or cessation of trading liability does not constitute income, it becomes taxable only by virtue of the deeming provisions of section 41(1) of the Income-tax Act. Hence, according to him, such remission or cessation of liability, even though it is shown as profit in the books of account cannot be assessed as income under general law, without invoking the provisions of section 41(1) of the IT Act. He submitted that it has been consistently held by various Courts that for assessing the remission or cessation of trading liability, the entries in the books of account are not relevant, and provisions of section 41(1) only should be applied. In this connection, he invited our attention to the provisions of section 41(1) and submitted that the said provisions have no reference at all either to the books of account and entries therein with regard to the remission or cessation of liability or the system of accounting followed by the assessee, and they refer only to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Excise (Appeals). In these circumstances, it cannot be said that the date of order of the Collector of Central Excise (Appeals), viz., 16-7-1991 is crucial for determination of the date of remission or cessation of liability, even if any, since the said order has not brought about any finality with regard to the assessee's liability to the Conversion Unit on account of Central Excise. In this view of the matter, he submitted that the lower authorities were not justified in holding that the order of the Collector (Appeals) dated 16-7-1991 having been passed during the previous year relevant to this appeal, the liability written back has correctly been assessed in the year under appeal. 6. He further submitted that pursuant to the order of the Collector of Central Excise (Appeals) dated 16-7-199 1, the Assistant Collector passed fresh order on 27-4-1992 stating that the prices of biscuits manufactured by M/s. Super Food Products are found to be comparable and that the assessable value of the products manufactured by the Conversion Unit can be fixed based on the comparison with the prices of M/s. Super Food Products. He accordingly directed the Superintendent to confirm/raise t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing written submissions and data-sheet furnishing, various details with regard to the point in dispute before us. He also filed a another paper-book furnishing copy of the agreement dated 30-6-1982 between the assessee and the Conversion Unit, relevant provisions of Central Excise Act, copy of order of the Superintendent of Central Excise dated 18/19-5-1993 duly typed for legibility; and copy of the decisions of the Delhi Bench of the Tribunal in Jay Engg. Works Ltd. v. IAC [1994] 50 TTJ (Delhi) 551. 8. The learned Departmental Representative on the other hand, strongly supporting the orders of the lower authorities, submitted that while the liability of the conversion unit is statutory, the liability of the assessee is only a contractual one. Though in the normal circumstances, it is not an income assessable to tax, because of provisions of section 41(1), it is deemed to be income. He submitted that it is a case of remission of liability and not cessation of liability. Relying on the decision of the Calcutta High Court in the case of Kesoram Industries Cotton Mills Ltd. v. CIT [1992] 196 ITR 845, the learned Departmental Representative submitted that where an assessee treats a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractual liability to the Conversion Unit on account of Central Excise Duty. Even the decision of the Calcutta High Court in the case of Ashoka Marketing Ltd. relied upon by the learned Departmental Representative, is distinguishable from the facts of the case on hand, since, as per the learned counsel for the assessee, the Collector (Appeals), remitted the matter to the Assistant Collector for de novo consideration and passing fresh speaking and specific order in accordance with the discussion in his order of 16-7-1991, and as such the order of the Collector (Appeals) dated 16-7-1991 was not the end of the matter, and f further proceedings were expected to be initiated de novo by the Assistant Collector concerned. Even the decision of the Bombay High Court in Bennett Coleman Co. Ltd.'s case has no application to the facts of this case, since according to the learned counsel for the assessee, that case relates to unilateral expression of intention of debtor not to treat amount the recovery of which is barred by limitation, as a liability. He submitted that even in that case it is specifically held that in cases where the recovery has not become barred by operation of law bilater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Central Excise (Appeals) passed an appellate order dated 16-7-1991 wherein he has given a direction to follow the case of M/s. Super Food Products in the case of Conversion Unit also, which were followed by the Asstt, Collector of Central Excise and Superintendent of Central Excise, and as such the order of the Collector of Central Excise (Appeals) dated 16-7-1991 in essence and in effect brought about the actual reduction of liability. Let us examine the validity of these grounds, which led to the impugned addition being made by the Assessing Officer and sustained by the CIT (Appeals) in the impugned orders. 11. To bring to tax any income as deemed income in terms of section 41(1), there must be remission or cessation of liability in respect of the said amount. At this juncture we may refer to the provisions of section 41(1) of the Act, which reads as follows- "(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jor events occurring after the Balance Sheet date, viz., 31-3-1992, should be taken into account and incorporated in the financial statements, the outstanding liability was written back to the Profit Loss Account, for the year ended 31-3-1992. It is this unilateral write back in the Profit Loss Account, that has basically resulted in the lower authorities concluding that the remission or cessation of the liability has taken place in the previous year relevant to this appeal. Whether such unilaterally made entries in the books of account, can be said to amount in cessation or remission of liability, has come up for consideration before the Bombay High Court in the case of Bennett Coleman Co. Ltd. and it was held in that case as follows:- "It cannot be accepted that cessation of liability can take place only as a bilatreal act. It will depend on the facts of each case. There may be cases where the liability is not barred by operation of law. In such cases, for the cessation of liability, a bilateral act of the parties will be necessary. However, in cases where the recovery, has become barred by limitation by operation of law, unilateral expression or intention of the debtor n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Conversion Unit-reaffirming its commitment to the Conversion Unit with regard to the Central Excise liability, despite write back of the same in its books of account. We have already extracted the relevant portion of the said letter in para-2(i) hereinabove. Even the note appended to the statement of income appended to the return for the year under appeal clarifies the position of the assessee in this behalf. As such, despite the write-back of the liability and transfer of the same to the Profit and Loss Account, the assessee has made its mind abundantly clear by its letter dated 4-5-1992 addressed to the Conversion Unit and in the note appended to the return, that it has no intention to disclaim the liability towards its Conversion Unit on account of Central Excise duty as and when ultimately determined. 13. Similarly, in the case of Kedarnath Jute Mfg. Co. Ltd., the Hon'ble Supreme Court considering the deductibility of the sales tax liability with regard to sales made during the accounting period, despite assessee's failure to make entries in the books of account, held as follows- "Whether the assessee is entitled to a particular deduction or not will depend on the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., the Hon'ble Bombay High Court, considering the provisions of section 10(2A) and section 13 of the IT Act, 1922 held as follows- "Held, that, in order that an amount may be deemed to be income under section 10(2A), there must be a remission or cessation of the liability in respect of that amount. The mere fact that more than three years had elapsed since the accrual of the liability and that the debts had become unenforceable against the assessee under the general law does not constitute cessation of the trading liability within the meaning of section 10(2A). A mere entry of credit in the accounts in respect of the amount would also not bring about a remission or cessation of the liability. Section 10(3A) was not therefore applicable and the amount was not liable to be assessed as income of the accounting year in which the credit entry was made. Though section 13 provides that income, profits and gains under section 10 or section 13 are to be computed in accordance with the method of accounting regularly employed by the assessee, that does not mean that what it shown as the liability in the books of account of the assessee or what has been shown as income in the books of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities. In para-19 of the said order of the Collector (Appeals), the appeals were disposed of in the following manner- "19. In view of the findings as above, I remand back all these 9 cases to the concerned jurisdictional Assistant Collectors for de novo proceedings for passing a speaking and specific order as discussed above." From the above order and direction of the Collector (Appeals), it cannot be said that the order of the Collector (Appeals)has determined the actual liability of the Conversion Unit towards Central Excise duty or cessation in respect thereof. When the Collector (Appeals) merely remanded the matter to the concerned Assistant Collector for de novo proceedings for passing speaking and specific order' it cannot be said that the order of the Collector (Appeals) is the end of the matter, since de novo proceedings in accordance with the directions of the Collector (Appeals) were expected to be initiated by the Assistant Collector, to whom the matter was remanded. For that matter, even the consequent order of the Assistant Collector dated 27-4-1992, on the basis of which entries in the books of account have been made to write-back the liability, cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Taxes setting aside the ex parte assessment order, and as such the said appellate order having become final, the sales tax demand raised originally of Rs. 17,78,867, was no longer in existence and had ceased to exist. As such, it was held that the Assessing Officer was fully justified in bringing to tax the said amount for assessment under section 41(1) in the assessment year 1974-75. In the facts of the case on hand, further proceedings in pursuance of the order of the Collector of Central Excise (Appeals), by way of de novo proceedings were expected to be taken up, and as long as the ultimate liability of the Conversion Unit towards Central Excise Liability is not determined and the bonds and bank guarantees upon such determination of the ultimate liability are not released for the excess provided for if any, it cannot be said that the proceedings have reached finality, and the statutory liability of the Conversion Unit and the contractual liability of the assessee ceased to exist. In this view of the matter, the ratio laid down in the case of Ashoka Marketing Ltd., has no application to the facts of the case before us. 18. Interpreting the provisions of section 41(1) for dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure in the past'. In the context in which there words occur, no other meaning is possible. Considering the facts and circumstances of that case, the Hon'ble Gujarat High Court held as follows:- "Held, that, in view of the tendency of the review or revisional proceedings, the assessee's claim for refund of the excise duty was in jeopardy. In other words, there was no final decision on the question whether or not the assessee was entitled to claim refund of excise duty of Rs. 1,81,427. In was only when the review or revisional proceedings were dropped on April 30, 1976, that the assessee became finally entitled to claim refund of Rs. 1,81,427. The year of account of the assessee was the financial year and therefore, the refund of excise duty of Rs. 1,81,427 was not includible in the assessee's total income for the assessment year 1974-75 under section 41(1)." 19. The Calcutta High Court in the case of Sugauli Sugar Works (P.) Ltd. held that section 41(1) of the Act, treats as income what had earlier been allowed as a deduction. It creates a liability to tax only in those cases where an allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount which was provided for was in fact not necessary and it was an excess provision. Even these observations of the Hon'ble High Court in the case of Keshoram Industries Cotton Mills Ltd., cannot come to the aid of the Revenue, because, as already noted above neither the assessee nor the Conversion Unit forfeited the liability of the assessee towards Central Excise Duty liability that may ultimately be determined in the hands of the Conversion Unit, and notwithstanding the write-back in the books of account, the assessee reaffirmed its commitment and undertook to fulfil its obligation with regard to Central Excise liability, in its letter to the Conversion Unit dated 4-5-1992. This letter of the assessee to the Conversion Unit and the note appended to the return of income clearly discharge the onus that lay on the assessee to prove that the liability under the contract has not ceased, and continued to subsist throughout the previous year relevant to this appeal. 22. Considering totality of facts and circumstances of the case and the legal position that emerges from the above discussion we are of the considered opinion that there was neither cessation nor remission of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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