2006 (2) TMI 149
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....relates to the disallowance of excise duty liabilities to the tune of Rs. 58,75,999/- for the assessment year 1986-87 and Rs. 44,58,378/- for the assessment year 1987-88 by invocation of the provisions of section 43B of the Income-tax Act, 1961 ("the Act"). 3. Both these appeals were admitted by an order dated July 14, 2003, and the following substantial question of law was framed: "Whether, on the facts and in the circumstances, of the case, the Tribunal was right in law in holding that the bank guarantee furnished by the assessee, which was taken by the assessee by depositing certain amount in bank fixed deposit as margin, did not tantamount to actual payment and so section 43B is applicable?" 4. The assessee-firm is a processing house carrying on the business of dyeing and printing of cloth, entirely on job work basis. The grey cloth is supplied by the merchants, i.e., the owners of the cloth and after dyeing and printing, the same is returned to the respective merchants for which labour charges are recovered. The assessee also collected excise duty from the merchants on the cloth processed for them by way of separate debit note and the same was credited to the excise accoun....
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....he bank guarantee to the excise authorities. 7. The Supreme Court ultimately decided the matter in favour of the Excise Department and the Department realised the excise duty directly from the bank authorities by encashing the fixed deposits. 8. It is in the back drop of the aforesaid facts, that the issue involved in the present case is required to be considered. 9. In relation to both the assessment years the original assessments were completed on February 2, 1987, under section 143(3) of the Act for the assessment year 1986-87 and under section 143(1) of the Act for the assessment year 1987-88 on a total income of Rs. 2,58,195/- respectively. 10. Vide order dated March 14, 1989, made under section 263 of the Act, both the assessments were set aside by the Commissioner of Income-tax, Surat, with a direction to carry out fresh assessments after taking into consideration the applicability of section 43B of the Act with regard to the outstanding liabilities of excise duty appearing in the balance-sheet of the assessee under the head "Sundry creditors". 11. The Assessing Officer, accordingly framed the fresh assessments making additions of Rs. 58,75,999/- and Rs. 44,98,378/- for....
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....ent compliance with the requirements of section 43B of the Act. 15. It was submitted that the Tribunal had erred in not appreciating the fact that the bank guarantee had been furnished in terms of the directions of the Supreme Court and that, therefore, the same was required to be treated as "actual payment" falling within the purview of section 43B of the Act. That, by placing fixed deposits equivalent to the bank guarantee with the bank, the assessee had not utilised or enjoyed the sum so deposited. It was urged that in view of the order of the Supreme Court, it was not possible for the assessee to make payment of the amount towards excise duty and that by providing bank guarantee, there was substantial compliance with the provisions of section 43B of the Act. That, "actually paid" does not have to be construed literally. That the same means readily available and that by virtue of the bank guarantee the funds were readily available with the Department. It was submitted that the interpretation put by the Tribunal resulted in undue hardship to the assessee as the assessee has placed a large amount with the bank towards bank guarantee and was deprived of the use of the same and at ....
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....arantee is only a security or a guarantee given by the bank to pay the disputed amount of excise duty collected by the assessee, in the event of the excise department succeeding in the pending litigation, and that furnishing of bank guarantee for payment of the entire disputed amount of excise duty/additional excise duty collected by the assessee in the relevant years cannot be considered equivalent to actual payment of duty in the relevant years. The Tribunal noted that it is an admitted fact that the interest income earned on the fixed deposits belonged to the assessee and that therefore, giving the bank guarantee on the basis of the fixed deposits made with the bank cannot be regarded as actual payment of excise duty in the relevant years under consideration because the assessee continues to own the said fixed deposits. That, the Excise Department is entitled to encash the bank guarantee only in the event of their succeeding in the pending litigation before the Supreme Court. That, unless such contingency, viz. success of the Revenue in the pending litigation takes place, the assessee continues to be the owner of the fixed deposits and the interest income earned thereon. In fact....
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....itigation cannot therefore be regarded as actual payment of tax or duty in terms of section 43B of the Act." 20. Reliance was placed upon the decisions of the apex court in the case of Oswal Agro Mills Ltd. v. Asst. Collector of Central Excise [1994] 2 SCC 546 as well as in the case of Somaiya Organics (India) Ltd. v. State of U. P. [2001] 251 ITR 20 (SC); [2001] 5 SCC 519 for the proposition that the amount of disputed tax or duty secured by a bank guarantee cannot be said to amount to actual payment to the Revenue. 21. Section 43B which relates to certain deductions to be only on actual payment, has, originally been inserted by the Finance Act, 1983. Section 43B as is relevant for the purpose of the present appeals, as it stood at the relevant time, reads as under: "43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of (a) any sum payable by the assessee by way of tax or duty 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....
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....ns with a non obstante clause. The same, therefore, has an overriding effect over the other provisions of the Act. In view of the non obstante clause contained in section 43B, the deduction which is otherwise allowable under the Act in respect of sums payable by the assessee by way of tax or duty under any law for the time being in force, can be allowed in computing the income referred to in section 28 of the Act only in that previous year in which such sum is actually paid, regardless of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him. 24. The expression employed in the section is "actually paid". In view of the non obstante clause contained in the section, it is not permissible to refer to the expression "paid" as defined under section 43(2) of the Act or under any other provision of the Act. Hence, the plain meaning of the words "actually paid" is required to be taken into consideration. The word "actual" has been defined as something real in opposition to constructive or speculative, "Actually" means really, truly in fact. Therefore, the plain meaning of the expression" actual....
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....llector of Central Excise [1994] 2 SCC 546 was called upon to decide as to whether it can be said that furnishing of a bank guarantee for all or part of the disputed excise duty pursuant to an order of the court is equivalent to payment of the amount of excise duty. The Supreme Court answered the question in the negative and held as follows: "For the purposes of securing the Revenue in the event of the Revenue succeeding in proceedings before a court, the court, as a condition of staying the demand for the disputed tax or duty, imposes a condition that the assessee shall provide a bank guarantee for the full amount of such tax or duty or part thereof. The bank guarantee is required to be given either in favour of the principal administrative officer of the court or in favour of the Revenue authority concerned. In the event that the Revenue fails in the proceedings before the court the question of payment of the tax or duty, the amount of which is covered by the bank guarantee, does not arise and, ordinarily, the court, at the conclusion of its order, directs that the bank guarantee shall stand discharged. Where the Revenue succeeds the amount of the tax or duty becomes payable by....