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Maruti Udyog Ltd. Versus Commissioner of Income Tax, Delhi

2017 (12) TMI 590 - DELHI HIGH COURT

Allowable deduction under Section 43B - Disallowance of the amount deposited by the Appellant in its Central Excise Personal Ledger Account (PLA) before 31st March 2000, i.e. the end of the relevant accounting year - Held that:- The Court is of the view that the above decision of this Court in the Assessee’s own case for AYs 1995-96 and 1996-97 [2012 (12) TMI 671 - DELHI HIGH COURT] covers the issue in favour of the Assessee - For the purpose of claiming benefit of deduction of the sum paid agai .....

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y High Court in Cartini India Limited v. Assistant Commissioner of Income Tax [2007 (2) TMI 192 - BOMBAY High Court] that “as per the new provision of Section 145A of the Income-tax Act, 1961, the unutilized MODVAT credit had to be included in the closing stock of raw material and work in progress, whereas the excise duty paid on unsold finished goods had to be included in the inventory of finished goods.” However, Section 145A of the Act is prospective and does not apply to the AY in question. .....

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cannot be allowed to go back and forth on the above plea. There has to be consistency. Thirdly, balance sheet of the Assessee for AY 1999-00 shows that the turnover for the year was over ₹ 8,000 crores. The corresponding sum claimed as deduction representing the unutilized MODVAT credit is not very significant in comparison. - Decided against the Assessee. - Disallowance in respect of Sales Tax Recoverable account, under Section 43B - Held that:- In view of the ITA’s finding on questi .....

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ration since the same has been adjusted against the liability incurred on sales in this year.” The ITAT’s direction that the AO should allow the alternate claim after verification if such claim had not been allowed in the preceding year is affirmed. - Consumption of raw materials by the Assessee - Held that:- The Court answers Questions (iv) to (viii) in the affirmative, i.e. in favour of the Assessee and against the Revenue, by holding that: - (a) the ITAT erred in remanding the questio .....

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e in fact did not claim the expenditure in any of the earlier AYs. Thus the above expenditure is in the nature of a revenue expenditure and not a capital one. See Binani Cement v. CIT (2015 (3) TMI 849 - CALCUTTA HIGH COURT) - ITA No. 31/2005 - Dated:- 7-12-2017 - S. MURALIDHAR & PRATHIBA M. SINGH JJ. Appellant Through : Mr. S. Ganesh, Senior Advocate with Ms. Kavita Jha, Mr. S. Sukumaran, Mr. Anand Sukumar, Mr. Bhuwan Dhoopar, Ms. Roopali Gupta and Mr. Bhupesh Pathak, Advocates. Respondent .....

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e Court had framed as many as nine substantial questions of law. Question (i) 3. Question (i) reads as under: Whether the ITAT erred in law in confirming the disallowance of the amount of ₹ 3,27,83,128/- deposited by the Appellant in its Central Excise Personal Ledger Account (PLA) before 31st March 2000, i.e. the end of the relevant accounting year, even though the Assessee has already incurred liability of excise duty of ₹ 12.27 crores? Facts relevant to Question (i) 4. The Assesse .....

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tomobiles from the Appellant s factory. 5. As of 31st March 1999, which was the last day of the accounting year relevant to the AY in question, a sum of ₹ 3,27,83,128 stood as balance in the PLA of the Appellant for vehicles. This amount has yet to be appropriated towards excise duty payable by the Assessee. According to the Assessee, as of this date, i.e. 31st March 1999, the excise duty liability already incurred in respect of the automobiles that stood manufactured and were lying in sto .....

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1999 was ₹ 60.31 crores which formed part of the executing stock and on which the excise duty was nearly ₹ 12.31 crores. Assessment order and subsequent appeals 7. The Assessing Officer ( AO ), in the undated assessment order received by the Assessee on 2nd April 2002, disallowed the above balance in the PLA as deduction on the ground that the Assessee had not enhanced its profit by the said amount and that the said amount would be allowed as deduction only if it had been debited to .....

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cise dues . It was further observed that the amount in PLA balance was not an expense since the goods were to be still manufactured and Section 43B cannot convert a pure and simple advance into an item of expenditure . 9. The Assessee then carried the matter in appeal before the ITAT. In the impugned order dated 11th October 2004, the ITAT held that advance payment of excise duty without incurring the liability in respect of such payment is not allowable as deduction under Section 43B. Section 4 .....

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of this Act, a deduction otherwise allowable under this Act in respect of - (a) any sum payable by the Assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or (b) any sum payable by the Assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or (c) any sum referred to in clause (ii) of sub-Section (1) of Section 36, or (d) any sum payable .....

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e liability to pay such sum was incurred by the Assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) or clause (e) which is actually paid by the Assessee on or before the due date applicable in his case for furnishing the .....

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w clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date. Explanation 1-For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day .....

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t have been payable within that year under the relevant law. Explanation 3 - For the removal of doubts it is hereby declared that where a deduction in respect of any sum referred to in clause (c) or clause (d) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) in which the liability to pay such sum was incurred by the Asse .....

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y of April, 1996, or any earlier assessment year) in which the liability to pay such sum was incurred by the Assessee, the Assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. Explanation 4-For the purposes of this section,- (a) public financial institutions shall have the meaning assigned to it in Section 4A of the Companies Act, 1956 (1 of 1956); (aa) scheduled bank shall .....

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finance for industrial projects and eligible for deduction under clause (viii) of sub-section (1) of Section 36. 12. Circular No.550 was issued by the Central Board of Direct Taxes (CBDT) clarifying the background position to the introduction of the Explanation 2 to Section 43B of the Act. The said Circular reads thus: Amendment of Provisions Relating to Certain Deductions to be allowed only on Actual Payment 15.1 Under the existing provisions of section 43B of the Income-tax Act, a deduction f .....

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e of furnishing the return under section 139(1) of the Income-tax Act, in respect of the Assessment Year to which the aforesaid previous year relates. This proviso was introduced to remove the hardship caused certain taxpayers who had represented that since the sales tax for the last quarter cannot be paid within the previous year, the original provisions of section 438 will unnecessarily involve disallowance of the payment for the last quarter. 15.2 Certain courts have interpreted the provision .....

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payable in the financial year to which it relates. This is against the legislative intent and, therefore, by way of inserting an Explanation it has been clarified that the words any sum payable , shall means any sum, liability for which has been incurred by the taxpayer during the previous year irrespective of the date by which such sum is statutorily payable. Assessee s submissions on Question (i) 13. It was asserted by the Assessee before the ITAT that since the amount deposited by it in the .....

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spect, stated as under: In any case, without prejudice to the foregoing, even if the contention of the learned counsel for the Revenue is accepted, then also it is submitted that the entire balance in the PLA of ₹ 3.34 crores ought to be allowed, as the Assessee had on 31st March, 1999, manufactured motor vehicles of value of ₹ 60.31 crores (page 63/A) which motor vehicles were held as part of the dosing stock, and on which liability for excise duty to the tune of ₹ 12.31 crore .....

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ch liability had been incurred as on 31st March 1999 but which had not been paid as on that date, worked out to ₹ 12,27,93,785 which was paid subsequently on or before 19th May 1999. The Assessee s own case for AYs 1995-96 & 1996-97 16. The question framed also arose in the Assessee s own case for the AYs 1995-96 and 1996-97 before this Court in Commissioner of Income Tax v. Maruti Suzuki India Limited (2013) 255 CTR 140 (Del). One of the questions addressed by this Court in the said a .....

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The deduction claimed by the Assessee must be otherwise allowable under the other provisions of the Act. (b) The deduction must relate to any sum payable by way of tax, duty, cess or fee. (c) The Assessee must have incurred liability in respect of such tax, duty, etc. On fulfilling these conditions, the Assessee s claim can be allowed in the year in which actual payment is made, notwithstanding the year in which liability is incurred. The term liability to pay such sum was incurred by the Asses .....

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d cannot remove the goods manufactured by it, unless sufficient amounts are kept in credit: ...and the Assessee shall periodically made credit in such account-current, by cash payment into the treasury, so as to keep the balances, in such account-current sufficient to cover the duly due on the goods intended to be removed at any time, and every such Assessee shall pay the duty determined by him for consignment by debit to such account-current before removal of the goods The revenue s contention .....

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well as the revenue; it would also have led to problems of storage of goods, and slow down their supply and distribution. The Rule makers pragmatically directed that sufficient amounts ought to be maintained in the account, to cover the removals. Therefore, at any given point of time, there had to be an excess in the account, if the Assessee were to remove the goods. Each clearance mentions the quantum of goods, and the duty amount, which is apparently reconciled at the end of the period, and s .....

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tedly, the amount of customs duty of ₹ 3,56,451 was paid by the Assessee in March, 1987, and therefore, in terms of Section 43B it is deductible only in the year in which it is actually paid, i.e., for the assessment year 1987-88, irrespective of the year in which the Assessee incurred the liability on the basis of the method of accounting regularly adopted by him and, therefore, in view of the clear provisions of law, the deduction cannot be allowed in the assessment year 1988-89. In our .....

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9, is contrary to the prescription of law. Section 43B in clear terms provides that the deduction claimed by the Assessee in respect of any sum paid by way of tax, duty, cess or fee, shall be allowed only in computing the income referred to in Section 28 of that previous year in which it was actually paid, irrespective of the previous year in which the liability was incurred for the payment of such sum as per the method of accounting regularly employed by the Assessee. For the purpose of claimin .....

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.L. Gupta (supra) which was affirmed by this Court in the Assessee s own case for AYs 1995-96 and 1996-97. Furthermore, the decision in Modipon (supra) has been upheld by the Supreme Court in its decision dated 24th November 2017 in C.A. No.19763 of 2017 arising out of S.L.P.(C) No.29816 of 2011. Decision on Question (i) 19. The Court is of the view that the above decision of this Court in the Assessee s own case for AYs 1995-96 and 1996-97 covers the issue in favour of the Assessee. 20. For all .....

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aterials and inputs that went into the manufacture of automobiles. The purchase price paid by the Assessee for raw material/inputs included excise duty. To the extent that such excise duty had been paid as part of the purchase price, the Assessee was entitled to MODVAT credit in terms of Rule 57A of the CE Rules. The excise duty paid by the Assessee was kept in a separate account, maintained as the RG23 register. 23. The Assessee could utilize this separate account/credit for payment of excise d .....

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the car is worth ₹ 200 and excise duty is payable at the rate of 10% thereon, at the time of clearance of such car from the factory gate, the Assessee can utilize MODVAT credit of ₹ 10 towards part payment of ₹ 20 custom duty while making direct payment of the remaining amount. 24. The controversy that arose was that as of 31st March 1999, the unutilized MODVAT credit stood, in the Assessee s books of accounts, at ₹ 69,93,00,428. This amount, having been paid by the Asse .....

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essee, referred to Rule 57A to Rule 57I of the CE Rules and submitted that the liability to pay excise duty, although primarily on the manufacturer of the raw material, is passed on to the purchaser (in this case, the Assessee) and therefore, becomes the liability of the Assessee at the time of clearance of the raw material. He also referred to clause (e) of the first proviso to Section 11B (2) which envisages the refund of the excise duty being made not to the manufacturer but to the buyer to w .....

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a deduction as long as the parameters of Section 43B of the Act are satisfied. He emphasized that the said amount constitutes excise duty paid by the Assessee under any law for the time being in force namely, the CE Act. 27. Mr. Ganesh submitted that there could be a situation where an advance is paid to the manufacturer of the raw material by the Assessee which may have an excise duty component. However, till such time as there is a completed transaction of purchase, the liability does not aris .....

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the MODVAT credit amounts to payment of excise duty as was emphasized by the Supreme Court in Eicher Motors Limited v. Union of India (1999) 2 SCC 361. He also relied upon the decision of the Supreme Court in Collector of Central Excise, Pune v. Dai Ichi Karkaria Limited (1999) 7 SCC 448. On the question of valuation of closing stock being inclusive of excise duty paid thereon, Mr. Ganesh submitted that this would make no difference to the liability of deduction of the excise duty paid under Se .....

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30. Mr. Ruchir Bhatia, learned senior standing counsel appearing for the Revenue, on the other hand, submitted that it was not in dispute that the Assessee was entitled to the claim of duty paid by it to the manufacturer of the raw materials/inputs under Rule 57A to Rule 57I of the CE Rules. It is also not in dispute that the Assessee was entitled to utilize MODVAT Credit towards payment of excise duty leviable on the final products manufactured by it. Mr. Bhatia further submitted that the liab .....

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chaser and not the liability to pay the same. 31. Mr. Bhatia submitted that the decision in Dai Ichi Karkaria (supra) does not lay down that the purchaser of the raw material/inputs is the person liable to pay excise duty for the purpose of Section 43B of the Act. Mr. Bhatia pointed out that on payment of excise duty to the supplier of raw material, the Assessee has two options. The first is to treat the excise duty as a part of the cost of the raw material and debit the entire amount to the pur .....

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ad current liabilities in the books of accounts. Thereafter, unutilized MODVAT credit under the head current assets is set off against this liability of excise duty payable. According to him, both options are mutually exclusive. If the excise duty paid is taken to the P&L account as expenditure there can be no claim by the Assessee as to MODVAT credit. The amount cannot, in accounting principles, be debited simultaneously to two different accounts, i.e. assets as well as expenditure. Mr. Bha .....

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evious year in which the payment of excise duty is paid on the final product by utilising the MODVAT credit. Analysis and reasons 32. An analysis of Section 43B of the Act reveals that for the deduction thereunder to be allowed, the following conditions are required to be satisfied: (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 shoul .....

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ection 43B of the Act. Tax payable could be in the form of excise duty on the raw material/inputs purchased by the manufacturer. The second kind of payment could be of excise duty that is payable by manufacturer on the final product at the time of clearance of such final products from the factory. 34. In Eicher Motors (supra), a challenge was raised to the validity of Rule 57F (4A) of the CE Rules under which credit which was lying unutilised as of 16th March 1995 with the manufacturers stood la .....

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ne by the parties concerned, incidents following thereto must take place in accordance with the Scheme under which the duty had been paid on the manufactured products and if such a situation is sought to be altered, necessarily it follows that the right, which had accrued to a party such as the availability of a scheme, is affected and, in particular, it loses sight of the fact that the provision for facility of credit is as good as tax paid till tax is adjusted on future goods on the basis of t .....

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er to its seller, as contended by the Revenue, or is it the price of raw material minus the excise duty thereon which has been paid by the seller and for which the manufacturer is entitled to credit under the MODVAT scheme to be utilized against the payment of excise duty on products manufactured by him, including the intermediate product, as contended by the manufacturer. The Supreme Court analysed the entire MODVAT scheme, in particular Rules 57A to 57I, and observed as under: 18. It is clear .....

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been illegally or irregularly taken, in which event it stands cancelled or, if utilised, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no corelation of the raw material and the final product; .....

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he said payment of excise duty which has any MODVAT credit in the books of accounts, a reference may be made first to the AS-2 issued by the ICAI, para 7 of which reads as under: Costs of Purchase 7. The costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Trade discounts, rebates, duty drawbacks and other .....

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d out of MODVAT/CENVAT Credit Receivable (inputs) Account to the account maintained for payment / provision for excise duty on final product. In this case, the purchase cost of the inputs would be net of the specified duty on inputs. Therefore, the inputs consumed and the inventory of inputs would be valued on the basis of purchase cost net of the specified duty on inputs. The debit balance in MODVAT/ CENVAT Credit Receivable (Inputs) should be shown on the assets side under the head advances . .....

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te account where appropriate accounting entries will be made to adjust the excise duty paid out of the said account. It is clear that the debit balance in MODVAT/CENVAT Credit Receivable (Inputs) has to be shown on the assets side, under the head advances . According to the accrual concept of accounting (mercantile system), credit is taken even after the documents evidencing payment of specific duty on inputs are received later than the physical receipt of the goods. 40. Mr. Bhatia is right in p .....

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l hard oil, edible oils etc. The Assessee entered into agreements with other entities for the purchase of imported palm stearin fatty acid ( imported material ) from the said importers. In terms of the said agreement, the imported material was to be purchased by the Appellant at landed cost, i.e. CIF price, customs duty, clearing charges, etc. and 3% of the total cost. Under Clause 11 of the agreements, any liability arising after the sale of the imported material in respect of customs duty, exc .....

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ed additional customs duty. A stay was granted for the balance 85% subject to furnishing of bank guarantees by the importers in favour of the Customs Department. In terms of the agreement between the appellant and the importers, the appellant provided counterguarantees for the bank guarantees provided by the importers for the unpaid disputed amount of 85% of the additional customs duty. 41.3 As far as the Appellant therein was concerned, the unpaid additional customs duty pertaining to the previ .....

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41.4 After the CIT (A) also dismissed the appeal of the Appellant holding that the liability would arise only when the Supreme Court gave a verdict in favour of the Customs Department, the Appellant went before the ITAT. Rejecting the Appellant s appeal, the ITAT held that there was no actual payment and the liability was covered only by the bank guarantee which had not yet been appropriated or encashed and the same is still in the ownership of the Appellant and therefore, the claim for deducti .....

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t petitions were pending before the Supreme Court, the Appellant therein would have no obligation to pay any amount as the condition precedent for the Appellant to pay disputed amount would not be satisfied. The liability of the Appellant to pay the additional customs duty was contingent upon the importers being called upon to pay the same. Reference was made by this Court to the decision of the Supreme Court in Rotork Controls India P. Ltd. v. CIT [2009] 314 ITR 62 (SC) where three conditions w .....

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ry liability . Answering the said question in the negative, this Court observed: Although the Assessee is obliged to pay the additional customs duty as and when the importers are called upon to pay the same, nonetheless, it cannot be considered as a statutory liability because the same is not imposed on the Assessee by virtue of any statute. Customs duty is an incident of import of goods and an importer is obliged to pay the same under the Customs Act. Therefore, the liability to pay the additio .....

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is supplied) 41.7 The Court clarified that Section 43B of the Act would apply only in cases of statutory liability and held that: This provision would have no application insofar as the assessee is concerned, as the liability to pay the amount of additional customs duty on behalf of the importers as and when they are called upon to discharge the same is, clearly, a contractual liability and not a statutory liability. Therefore, the question whether the said liability should be considered as dedu .....

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t September 2017, an affidavit dated 6th November 2017 has been filed by the Assessee pointing out that out of the total amount of unutilized MODVAT credit of ₹ 69,93,00,428, an amount of ₹ 15,73,38,110 pertains to goods already consumed and which were, therefore, not includable in the closing stock of raw materials and inputs as on 31st March 1999. It is pointed out that this was noted by the CIT (A) in para 9.16 of the appellate order and that this finding was not questioned by the .....

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ectly to the Customs Department on the import of raw materials, components and the inputs. This, according to the Assessee, is borne out by the RG-23 (Part-II) Register maintained by the Assessee and verified and audited from time to time by the excise authorities. It is asserted that the said amount has actually been paid by the Appellant to the customs authorities (and not to the Appellant s suppliers) and therefore, this amount should also be allowed under Section 43B of the Act. 44. The Cour .....

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mpugned order, the ITAT has accepted the alternate contention of the Assessee that unutilized MODVAT credit of an earlier year which has been adjusted in the year in question should be allowed as a deduction in as much as such adjustment would have to be treated as an actual payment of excise duty. In view of the Court agreeing with the ITAT on the non-allowability of unutilized MODVAT credit as a deduction under Section 43B of the Act for the AY in question, this Court also agrees with the ITAT .....

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ntend that it should now be allowed to be treated as unutilized MODVAT credit as part of the closing stock. An attempt was then made by Mr. Ganesh to contend that the amount of excise duty paid by the Assessee should be treated as expenditure and allowed under Section 37 of the Act as business expenditure. As rightly pointed out by Mr. Bhatia, the Assessee appears to have followed an exclusive method of valuation of stock as opposed to an inclusive stock valuation method. Such a plea was not tak .....

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ould not arise at all. 47. It may be noted that after the insertion of Section 145A of the Act, with effect from 1st April 2010, an Assessee must now necessarily follow the inclusive method of valuation of stock. It was explained by the Bombay High Court in Cartini India Limited v. Assistant Commissioner of Income Tax [2007] 291 ITR 355 (Bom) that as per the new provision of Section 145A of the Income-tax Act, 1961, the unutilized MODVAT credit had to be included in the closing stock of raw mate .....

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ernate plea made before it by the Assessee by allowing deduction in respect of the unutilized MODVAT credit of the earlier AY, the Court is not inclined to disagree with the reasoning and conclusion of the ITAT. The assessee cannot be allowed to go back and forth on the above plea. There has to be consistency. Thirdly, balance sheet of the Assessee for AY 1999-00 shows that the turnover for the year was over ₹ 8,000 crores. The corresponding sum claimed as deduction representing the unutil .....

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The treatment of advance payment of sales tax, as far as Section 43 B, is concerned is no different from the treatment of MODVAT credit under the excise law. It is not in dispute, therefore, that in principle the answer to question (ii) will govern question (iii) as well. 52. The facts are the Assessee pays sales-tax on the purchase of raw materials and computers used in the manufacture of cars. Though, the salestax paid is part of the cost of raw material, the Assessee debits the purchases net .....

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that no deduction can be allowed in terms of Section 43 B of the amount standing to the credit of the 'Sales-tax Recoverable A/c is also hereby upheld. 54. Incidentally, here again the ITAT accepted the Assessee s alternate plea, in para 37 of the impugned order, that the amount representing advance payment of sales-tax in preceding year should be allowed deduction in the year under consideration since the same has been adjusted against the liability incurred on sales in this year. The ITAT .....

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de to the Appellant s assessable income on account of alleged excessive consumption of raw materials and inputs? (v) Whether the said direction given by the ITAT is not directly contrary to and irreconcilable with the evidence and material on record and, therefore, perverse? (vi) Has not the ITAT grossly erred in totally disregarding in evidence and materials on record which render the said remand order passed by the ITAT entirely unnecessary and superfluous? (vii) Whether the ITAT erred grossly .....

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tions (iv) to (viii) 57. All of the above-stated questions relate to the issue of consumption of raw materials by the Assessee. As explained by the Assessee, for the manufacture of automobiles, the Assessee is required to purchase about 12,000 different items of raw materials, components and inputs. For the purpose of payment of excise duty thereon, the Assessee was required to maintain certain statutory records in terms of the CE Act and the CE Rules, i.e. RG23A Part I and II. As already notice .....

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n the factory were made on the basis of standard quantities as indicated in the engineering bill of materials formulated by the Assessee s engineering department in respect of each type of automobile manufactured by the Assessee. The Assessee states that the standard quantities of raw materials/inputs shown as having been utilised for consumption, were less than the actual quantities of raw materials/inputs issued for consumption in the process of manufacture because of unavoidable wastages, bre .....

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ts, it was found to be less than the inventories as per the RG23A records. 60. According to the Assessee, the above position was from 1986 to February 1999 when the MODVAT scheme was first introduced. Its officers succeeded in effecting a complete reconciliation to the extent of ₹ 1111 crores in respect of the period 1986-1999. According to the Assessee, there thus remained a net difference between the RG23A inventory of raw materials/inputs and the actual physical inventory of raw materia .....

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tember 2001 in which the amount of excise duty equivalent to the MODVAT credit taken on the said raw materials and inputs was computed at ₹ 108.39 crores and demanded from the Assessee by exercising the power under the proviso of Section 11A (1) of the Central Excise Act. The SCN also proposed to levy interest and penalty from the Assessee as well as its directors/officials. 61. Mr. Ganesh explained that with a view to avoiding the coercive steps as proposed in the SCN, the Assessee, on ad .....

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axable income, the entire amount of ₹ 643.34 crores as excessive consumption of raw materials and components. After the CIT (A) dismissed its appeal, the Assessee went before the ITAT which held as under: (a) The Assessee did not maintain a proper stock register. (b) In the absence of the stock register, the Assessee 's trading result as par its books of account could be rejected. (c) Though the RG23A Register can be considered to be a stock register, the RG23A maintained by the Assess .....

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above conclusion, the ITAT overlooked the fact that the opening stock as on 1st April 1998 had also been physically verified by the Assessee as reflected in its balance sheet and the audit report and the said amount has also been accepted by the AO as such. The ITAT specifically noted the fact that the closing stock had been physically verified as on 28th February 1999 and that, therefore, there was no dispute with regard to the closing stock figure as on 31st March 1999 which was arrived at aft .....

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the Assessee in the AY ended 31st March 1999. The PwC Report was placed before the CIT (A) and was noticed by him in the order dismissing the Assessee s appeal and at that stage no error was pointed out by the Revenue regarding the calculations based on 33,198 cars actually manufactured by the Assessee in the AY in question. According to the PwC Report, the total consumption of raw materials in the AY worked out to ₹ 3729.47 crores as against the amount of ₹ 3714.80 crores reflected .....

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remand order by the ITAT, the matter again went before the AO who reiterated the earlier order. The CIT (A) also dismissed the Assessee s appeal. When the matter went before the ITAT, by an order dated 31st October 2008 it allowed the Assessee s appeal on the reasoning that the AO had exceeded his jurisdiction in undertaking the exercise of determining the actual consumption of raw materials and inputs. According to the ITAT, all that the ITAT had done in the earlier round (i.e. in the order da .....

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ITAT in fact misunderstood the scope of its earlier remand order dated 11th October 2004. Further the ITAT erred in declining to examine the matter only because its earlier order dated 11th October 2004 was pending in appeal before this Court. This despite the fact that there was no stay granted by this Court of the earlier order dated 11th October 2004 of the ITAT. 68. The net result is that the questions framed in the aforesaid appeal of the Revenue i.e. ITA 693 of 2009 on the above issues wil .....

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the Assessee to show that the derived figure of consumption of raw materials was correct. It is submitted that the mere fact that the Assessee had paid excise duty of ₹ 108.39 crores, in the proceedings before the Settlement Commission would not ipso facto mean that its claim of actual consumption of raw materials has been accepted by the Revenue. The order passed by the Settlement Commission accepting the Assessee s offer to pay the differential excise duty only meant that the Assessee i .....

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to pay excise duty of ₹ 108.39 crores. The acceptance of this by the Settlement Commission meant that the above figure as disclosed by the Assessee as being the actual consumption of raw materials was accepted by the Excise Department to be correct. The second logical conclusion is that the said order of the Settlement Commission concerned the total figure of consumption for a period of 13 years i.e. 1986 to 1999. It obviously could not lead to the entire amount of ₹ 643.34 crores be .....

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closed by the Assessee before the CIT (A). That has been accepted by the CIT (A) to be correct. 72. The Assessee is right in its contention that closing stock as on 31st March 1988 which has been accepted by the AO to be correct was in fact opening stock as on 1st April 1988. If the closing stock as determined by the PwC is correct, then the formula of opening stock plus purchases minus closing stock would give the figure as determined by PwC for the raw materials consumed during the AY in quest .....

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t form the basis of rejection of the Assessee s books of accounts. As rightly pointed out by the Assessee, although a separate stock register may not have been maintained, a physical verification of the stock on yearly basis was undertaken and was reflected in the balance sheet of the Assessee. In a large number of decisions, including Pandit Bros. v. CIT (1954)26 ITR 159 (P&H), Bombay Cycle Stores Co. Ltd v. CIT (1958) 33 ITR 13 (Bom) and Veeriah Reddiar (S) v. CIT (1960) 38 ITR 152 (Ker), .....

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h determination; (b) the direction given by the ITAT is directly contrary to and irreconcilable with the evidence and material on record; (c) the ITAT disregarded the PWHC report which is already on record; (d) the ITAT erred in rejecting the Assessee s books of accounts. Question (ix) 75. Question (ix) framed by the order dated 24th April 2006 reads as under: (ix) Has not the ITAT erred in law in failing to allow the software expenditure of ₹ 1,39,91,022 incurred by the Appellant as reven .....

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Software for civil engineering 45,000 6. Software for sales incentive monitoring 30,600 7. Software for designing titles for captive consumption 13,650 8. Software for keeping records of development Spare in production division 12,954 9. Software for bills of entry processing 12,000 Total 1,39,91,022 77. As regards ERP software, part payments were made in the financial years 1996-97 and 1997-98. The Assessee had engaged the services of M/s. Arthur Anderson and Associates for the implementation .....

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nstalled depending upon the need and exigency of the Assessee s business. The write-off of the said expenditure pursuant to the decision taken during the AY was not, therefore, a capital loss but only a revenue loss. 78. The ITAT disallowed the said expenditure on the ground that it had not been incurred in this year. It is submitted that the ITAT failed to note that the said expenditure was not claimed as such in any of the previous AY 1997-98 or 1998-99. The decision to write-off was taken dur .....

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