TMI Blog2011 (2) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 33,01,199/- made by the AO u/s 43B read with section 43(2), thereby disallowing the deduction claimed on account of adjustment of MODVAT credit against the liability. 2. In the assessment proceedings, the assessee was requested to submit the evidence of payment of excise duty on finished goods. It was submitted that the liability has been adjusted through MODVAT credit in April and May, 2005. The adjustment is as goods as the payment of excise duty. Since the adjustment has been made prior to due date of filing of the return of income u/s 139(1), it was claimed that the amount is deductible in computing the income. In this connection, the AO noted that the liability to pay excise duty arises even if goods are lying in the bonded warehouse in the light of the provisions contained in section 145A. No comment has been made on this issue in form no. 3CD. The word paid is defined in section 43(2) to mean actually paid or incurred according to method of accounting on the basis of which profits and gains are computed under the head profits and gains of business or profession . Further, it is noted that unexpired MODVAT credit available to the assessee on the last date of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, 2005, which is as good as payment of liability as per decision in the case of Glaxo Smithkline Healthcare Ltd. (supra). He referred to paragraph no. 54 of the decision in this behalf. Thus, it is argued that since the liability stood paid completely by May, 2005, the assessee is entitled to deduct the amount as it has been paid before the due date of filing of the return u/s 139(1). For the sake of facility, paragraph no. 54 of the decision is reproduced below:- 54. The forceful argument of the ld. counsel appearing for the assessee is on the basis of the Supreme Court decision in the case of Eicher Motors (supra). The argument of the ld. counsel is that the Supreme Court has held that the facility of Modvat credit is as good as tax paid. He argued that the unexpired Modvat credit available to an assessee is to be treated as good as central excise duty paid by the assessee on account. But we find that the context in which the observation was made by the Supreme Court has to be noted of. The observation of the Supreme Court had been made in a case where the assessee had set off the Modvat credit against the demand of excise duty. When the unexpired Modvat credit is set off a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained in section 145A is reproduced below:- 145A Notwithstanding anything to the contrary contained in section 145, the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession shall be- (a) in accordance with the method of accounting regularly employed by the assessee; and (b) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation- For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment. 5.1 Section 43(2) defines certain terms relevant to income from profits and gains of business or profession. Sub-section (2) defines the word paid to mean actually paid or incurred according to method of accounting. The definition reads as under:- (2) paid means actually paid or incurred according to the method of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. 5.3 The question is-whether, adjustment of MODVAT credit towards central excise liability amounts to actual payment? The Special Bench of the Tribunal, while dealing with this issue, considered the decision in the case of Eicher Motors Ltd. v. Union of India, (1999) 106 ELT 3 (SC). On the basis of this decision, the argument of the ld. counsel was that MODVAT credit is as good as tax paid. The Tribunal mentioned that the observations of the Supreme Court had been made in a case where the assessee had set off the MODVAT credit against the demand of excise duty. When the unexpired MODVAT credit is set off against the excise duty payable and thereby the liability has been extinguished or reduced, the Supreme Court held that setting off of MODVAT credit is as good as duty paid. The above observation becomes operative only when the unexpired MODVAT credit has actually been set off against the central excise duty payable by the assessee. However, unexpired MODVAT cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge of duty/liability only in respect of those final products in the manufacture of which such inputs were used. Thus, it was claimed that there was a nexus between the inputs and the final products. In 1995-96 budget MODVAT scheme was liberalized/simplified and the credit earned on any input was allowed to be utilized for payment of duty on any final product manufactured within the same factory irrespective of whether such inputs were used in its manufacture or not. The experience showed that credit accrued on inputs is less than the duty liable to be paid on the final products and thus the credit of duty earned on inputs gets fully utilized and some amount has to be paid by the manufacturer by way of cash. Prior to 1995-96 budget, the excise duty on inputs used in the manufacture of tractors, commercial vehicles varied from 15% to 25%, whereas the final products were attracted excise duty of 10% or 15% only. The value addition was also not of such a magnitude that the excise duty required to be paid on final products could have been exceeded the total input credit allowed., Since the excess credit could not have been utilized for payment of the excise duty on any other product ..... X X X X Extracts X X X X X X X X Extracts X X X X
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