TMI Blog2002 (8) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... Duty to the Central Excise Department, and for this reason the provisions contained in section 43B of the Act were not applicable to the case of the assessee; disregarding the relevant provisions contained in the Central Excise Act more particularly subsection (4) of section 4 of the Central Excise Act under which the assessee had liability in law to pay the Central Excise to the Central Excise Department and for this reason, the provisions contained in section 43B of the Act were fully applicable to the case of the assessee. It may also be mentioned that the interpretation made by the CIT(A) would lead to an absurd situation, where neither the customers/clients nor the assessee would be covered under the provisions contained in the section 43B of the Act. and thus, the legislative intention in enactment of the section 43B would get frustrated. 3. The ld. CIT(A) has erred on facts and in law in treating that making of the FDR was sufficient to discharge the assessee's liability so far as payment of excise duty is concerned and in such set of circumstances, the CIT(A) has erred on facts and in law to hold that the section 43B is not applicable in the case of the assessee." 3. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k basis, the assessee is merely an agent of the merchant owner and therefore no liability on account of excise duty can be levied under the Central Excise Duty and Salt Act, 1944 and rules made thereunder. However, since the excise authorities did not accept the contention, the assessee along with other processors of grey cloth continued to collect the excise duty from the merchants on the full value of the cloth and job charges. The assessee along with other processors of grey cloth filed a writ petition before the Hon'ble Supreme Court. The Supreme Court passed the interim order on 3-2-1984 as under: "Pending notice, the respondents, their servants and agents are restrained from levying and recovering the disputed portion of duty of excise i.e. duty on the difference between the ultimate price charges from the customer and the value of the processing work done by the petitioners on the condition that the petitioners shall furnish bank guarantee to the full extent in regard to the aforesaid difference to the satisfaction of the respondents. The Bank guarantee shall be furnished by the petitioners within four weeks of each of the clearance or demands as the case be." In complia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: 1987-88 13-03-1987 Rs. 5215270 (Before the decision of Hon'ble Supreme Court). 1989-90 15-11-1988 Rs.12402490. From the above facts it would be seen that the differential excise duty attributable to the grey cloth for the assessment years 1986-87 and 1987-88 under appeal has been worked out at Rs. 5875999 and Rs. 4498378. These amounts have been placed by the assessee in the fixed deposit in the respective assessment year and the guarantee has been given to the excise authorities for equivalent amount. These fixed deposits have been encashed by the excise authorities for realising outstanding liabilities against the assessee. 5. The issue governing the applicability of section 43B for the assessment years under appeal would have to be considered in the backdrop of the aforesaid factual perspective. The assessee pleaded before the revenue authorities that it was merely acting as an agent of the merchant owner and the excise duty, insofar as it relates to the value of grey cloth, represents the liability of the merchant owner and not the assessee. The assessee is liable to pay the excise duty only with reference to the value of the job work don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urs with that of Shanti Dyeing Finishing Works relied upon by the ld. counsel. In the said decision the Tribunal concurred with the view taken by the Delhi Bench in Nuchem Plastic Ltd.'s case and Bombay Bench Tribunal's decision in Sunil Silk Mills Ltd s case and held that once the assessee has deposited the excise duty receipts with the bank in full and provided the bank guarantee to the satisfaction of the excise authorities, as per the directions of the Hon'ble Supreme Court, this would amount to actual payment by the assessee in terms of the provisions of section 43B. We are inclined to follow our earlier decision and uphold the impugned order of the ld. CIT(A). 7. It is an established rule of interpretation of statutes. that the words of a statute are to be understood in the sense in which they best harmonise with the subject of the enactment and the object which the legislature has in view. Their meaning is found not so much in a strict grammatical or etymological propriety of language, nor even in its popular sense, as in the subject or in the occasion on which they are used and the object to be obtained. Section 43B of the Income-tax Act, 1961 was inserted w.e.f. 1-4-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interpretation of section 43B, being canvassed by the revenue before us is clearly contrary to the rule of reasonable construction and runs contrary to the ratio of Allied Motors (P.) Ltd.'s case. We are therefore inclined to uphold the view of the ld. CIT(A) that the disputed excise amounts deposited by the assessee in the fixed deposit cannot be brought to tax by taking resort to section 43B. We may at this stage briefly refer to the decisions rendered by various benches of the Tribunal on the issue of applicability of section 43B to the unpaid excise liabilities against which bank guarantee has been provided by the assessee. The first decision which may be noticed has been rendered by Delhi Bench of the Tribunal in the case of Purolator India Ltd. v. IAC [1990] 34 ITD 286 wherein the Tribunal held in favour of the revenue. The facts are however distinguishable in material particulars from that of assessee's case. In this case the dispute pertain to levy of excise duty on certain manufacturing expenses incurred by the assessee company as a manufacturer. The Delhi High Court granted stay of recovery of the disputed amount of excise duty on the condition that the assessee shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case involve the case of a processor of cloth supplied by the merchant manufacturers. In this case also the excise duty liability on the value of cloth not owned by the processor was disputed and the Hon'ble Supreme Court directed the assessee to pay 50% of the amount in cash and give a bank guarantee for the balance 50%. On these facts the Tribunal held that the processor has no direct liability to pay excise duty but acts only as an agent for the merchant manufacturers and the provisions of section 43B were not applicable in the facts of the case. 10. Before the Calcutta Bench of the Tribunal in Dun lop India Ltd. v. Ass ft. CIT [1992] 41 ITD 582 the disputed excise duty liability pertained to business of manufacture of tyres and tubes carried on by the assessee. It was held that section 43B would apply even if the liability has been stayed by the High Court against the bonds executed by the assessee. This was again the case of a manufacturer who collected excise duty from the customers whereas payment thereof was not made to the excise authorities during the year under question. The decision would therefore not help the revenue. 11. We may now mention the decision of Ahme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that furnishing of bank guarantee does not amount to making "actual payment" within the meaning of section 43B. The ld. DR also relied on the decision in the case of Krishna Textiles and contended that order of ld. CIT (Appeals) be reversed and that of the Assessing Officer be restored. 5. Section 43B was inserted by the Finance Act, 1983 (with effect from 1-4-1984) and reasons for the same as per Budget Speech of the then Finance Minister are as under:-- "Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, for long period of time. For the purpose of their income-tax assessments, they nonetheless claim the liability as deduction even as they take resort to legal action, thus depriving the Government of its dues while enjoying the benefit of non-payment. To curb such practices I propose to provide that irrespective of the method of accounting followed by the taxpayer, a statutory liability will be allowed as a deduction in computing the taxable profit only in the year and to the extent it is actually paid." 6. In this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is clear that excise duty is "actually paid" by the assessee on 13-3-1987 and 21-11-1988 within the meaning of section 43B and same is allowable when payment of excise duty is made to Government account in accordance with the procedure for payment of excise duty under the relevant law and rules framed thereunder. Accordingly, the assessee is at liberty to claim the same in subsequent assessment year and not in the assessment years under appeal because this was not "actually paid" within the meaning of section 43B. 9. For the reasons aforesaid, in my view, the expression "actual payment" as appearing in section 43B of the Income-tax Act, 1961 is to be strictly construed as interpreted by this Tribunal in Krishna Textiles' case. Hence, furnishing of bank guarantee by the assessee did not tantamount to making "actual payment" of excise duty within the meaning of section 43B to the excise authorities. Therefore, I reverse the order of CIT (Appeals) and restore the order of the Assessing Officer. 10. In the result, the Revenue's appeals are allowed. ORDER UNDER SECTION 255(4) OF INCOME-TAX ACT As there is a difference of opinion between the Members of the Bench, who heard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 43B of the Act. The learned counsel thus strongly supported the order passed by the learned A.M. 4. During the course of hearing, the Bench required the assessee to go through the judgment of the Hon'ble Gujarat High Court rendered on 27 -2-2001 in the case of CIT v. Shri Ambica Mills Co. Ltd. [IT Reference No. 228 of 1992 [RA No. 146/Ahd./1991]] along with the relevant order of Tribunal passed on 12-10-1990 in ITA No. 180/Ahd. and state as to what bearing the said judgment will have on the point in issue. His attention was also drawn to the judgment in the case of Plastic Products Engg. Co. and other relevant decisions. The learned counsel submitted that the question of law referred to the Hon'ble Gujarat High Court in the case of Shri Ambica Mills Co. Ltd. was as under: "Whether, the Appellate Tribunal is right in law and on facts in not treating the trading receipts of Rs. 3,17,79,885 on account of additional excise duty as trading receipts and in directing the ITO to delete the same?" 5. The findings were given by the Hon'ble Gujarat High Court with reference to the aforesaid question of law referred to the High Court for their esteemed opinion. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur attention to the decision of ITAT in the case of the assessee, though recalled on a later point of time to show that the decision on the point in issue was rendered against the assessee by the Tribunal after taking into consideration the various judgments. The relevant extracts from the said decision as appearing at pages 388 and 389 are reproduced below: Mugat Dyeing Printing Mills' case (Gopal Chowdhury, JM and T.J. Joice-AM) "It has been laid down by the Apex Court in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 and Sinclair Murray Co. (P.) Ltd. v. CIT [1974] 97 ITR 615 that sales-tax collected constitutes a trading receipt in the hands of the seller who collects it from the customers and pays to the Government, but the trader shall be entitled to claim deduction in respect of such realisation or part thereof as and when he pays it to the Government or to the purchaser. The same principle has been enunciated in respect of excise duty collected from the customers by the manufacturers or producers of goods and it has been clearly laid down that excise duty so collected forms part of the trading receipt of the assessee vide Jonnalla Narashimaharao Co. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e previous year. There was no doubt in the instant case that the excise duty in question was collected by the assessee in the year under consideration and had incurred liability to that extent in that previous year. Bringing Explanation 2 to section 43B by retrospective amendment is within legislative competence and could not be challenged. In fact, as the wordings of Explanation 2 themselves states it is mere clarificatory Explanation of the Government's intention all along. Further, the Supreme Court's stay was not absolute but conditional, that is subject to furnishing of bank guarantee which the assessee by its contention wanted to treat as equivalent to paid. If the excise duty was not "payable" as contended by the assessee then how is it that he made a payment of the same (by bank guarantee). Lastly, there was no force in the assessee's argument that even if section 43B could be invoked and applied, the assessee was entitled to the deduction as per the first proviso to section 43B as furnishing of bank guarantee should be treated as actual payment in view of the ratio laid down by the Supreme Court in Asstt. Collector of Central Excise v. Dunlop India Ltd [1985] 154 ITR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee that provision of bond should be treated as payment could be accepted if and only if, the two are synonymous but unfortunately the former is a step prior to actual payment and, therefore, could not be treated as payment. The Commissioner (Appeals) was therefore, justified in disallowing the assessee's claim." 9. The learned Senior DR also placed reliance on the decision of ITAT Calcutta Bench in the case of Dunlop India Ltd. [Hon'ble Shri V. Dongzathang-AM and Hon'ble Shri Vimal Gandhi-JM]. The relevant extracts from the Head Note are reproduced below: 'The entire amount of Rs. 1,647.64 lakhs was disputed liability covered by the expression "duty" as used in section 43B. It is settled law that liability to pay excise duty arises as soon as excisable goods are manufactured or produced. In many cases there is a dispute between the excise authorities and the manufacturers on the amount of excise duty payable on goods manufactured. The dispute is carried to Courts and stay orders are granted. The ad interim order of stay normally does not affect the nature and character of excise duty. In the present case, the lower authorities rejected the claim of the assessee and held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Senior DR further drew our attention to the judgment of the Hon'ble Supreme Court in the case of Empire Industries Ltd. v. Union of India [1986] 162 ITR 846 in which it was observed that the Governments are run on public funds and if large amounts all over the country are held up during the pendency of litigations, it becomes difficult for the Governments to run and becomes oppressive to the people. Governments expenditure cannot be made on bank guarantees or securities. This judgment of the Hon'ble Supreme Court draws clear distinction between furnishing of bank guarantee and actual payment of tax and duty. Furnishing of bank guarantee cannot therefore be treated as equivalent to actual payment of tax or duty as contemplated in section 43B of the Act. 12. The learned Senior DR also relied upon the judgment of the Hon'ble Supreme Court in the case of Asstt. Collector of Central Excise v. Dunlop India Ltd. [1985] 154 ITR 172 in which the Hon'ble Supreme Court has held as under: "Governments are not run on mere bank guarantees. Very often some courts act as if furnishing a bank guarantee would meet the ends of justice. No governmental business or for that matter no b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal even in the case of Shanti Dyeing Finishing Works which is heavily relied upon by the assessee. Such trading receipt therefore ought to have been first credited to P L Account, which in the present case has not been done by the assessee. The assessee claims that if the additional excise duty collected by the assessee is treated as trading receipt, then it deductible under section 43B on the basis of bank guarantee furnished. By keeping entries do not in any manner decide the allowability or otherwise of a particular deduction. The assessee by not showing the additional excise duty collected by them as trading receipt has claimed deduction in respect of that amount while computing its taxable income, though the same was not specifically debited in the P L Account. Such deduction is not allowable in view of the clear provisions of section 43B of the Act. 15. The learned Senior DR submitted that the learned Judicial Member has rightly placed reliance on the judgment of the Hon'ble Gujarat High Court in the case of Plastic Products Engg. Co. for holding that the excise duty so collected by the assessee, though kept in a separate account is a trading receipt. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 615 (SC), though rendered in the context of Sales-tax Rules, govern the facts of the instant case in the matter of excise duty realisation by the assessee. Further reliance is placed on the decision of Gujarat High Court in the case of Navjivan Udyog Mandir (P.) Ltd. v. CIT [1994] 117 CTR (Guj.) 360: [1994] 207 ITR 40 (Guj.) wherein the Hon'ble High Court has categorically held that the amount of excise duty collected by the assessee from the customers would form part of its trading receipts. Reference may further be made to the recent decision of the Hon'ble Supreme Court in the case of Jonnalla Narasimharao Co. v. CIT [1993] 112 CTR (SC) 126 : [1993] 200 ITR 588 (SC) and CIT v. T. Naggi Reddy [1993] 115 CTR (SC) 418 : [1993] 202 ITR 253 (SC)." 18. The Hon'ble Supreme Court in the case of KCP. Ltd. has held that if a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the Assessing Authority from treating it as trading receipt. It is the nature and quality of the receipt and not the head under which it is credited in the account books which is decisive. The Hon'ble Supreme Court in the aforesaid judgment has he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions and in our opinion no interference is warranted in the order of the CIT(A) inasmuch as the view taken therein is correct on the facts of the case and the position of law as laid down. In our opinion, the amount in question cannot be treated as a trading receipt since the subsequent events show that 50% of the amount viz. a sum of Rs. 1.74 crores had been paid pursuant to the decision of the Supreme Court and the balance was covered by a bank guarantee. In other words, the amount which appeared as a liability in the books of the respondent on 31-12-1982 was either payable to the Excise Department or refundable to the customers from whom it had been collected that being a question to be decided after the outcome of the final litigation. This however was not a case where the assessee had no intention to make the payment either to one or the other. It is also apparent that the amount collected as additional Excise Duty was not available to the respondent for use in its business since 50% of the amount was paid as a result of the direction of the Hon'ble Supreme Court and the balance was covered by a bank guarantee which meant that funds to that extent stood deposited in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gujarat High Court rendered under almost similar facts and circumstances clearly goes against the assessee. 20. As already stated hereinbefore, main question in the present case is that whether providing of bank guarantee pursuant to directions of Hon'ble Supreme Court for payment of entire amount of disputed Excise Duty/Additional Excise Duty actually collected by the assessee after depositing equivalent amount in fixed deposits with the banks amounts to "actual payment" of such duty so as to qualify for grant of deduction under section 43B of the Act. The learned representatives of both sides have cited various judgments to support their respective contentions. The judgment of Hon'ble Gujarat High Court in the case of Shri Ambica Mills Co. Ltd. on identical facts supports the view expressed by the learned Judicial Member. Apart from this, after giving a deep and thoughtful consideration to the entire relevant material and after a careful reading of all other relevant judgments cited by the learned representatives of both sides, I am of the considered opinion that furnishing of bank guarantee for payment of entire disputed amount of Excise Duty / Additional Excise Duty collected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... op India Ltd. has observed that the Governments are not run on mere bank guarantees. Liquid funds are necessary for running of a Government. Furnishing of bank guarantee pursuant to an order of the Hon'ble Supreme Court only provides a right to the Excise Department to enforce the payment of such duty in the event of their succeeding in the pending litigation and does not represent the actual payment of tax or duty available for meeting the Government expenditure/for public purposes. 22. The Hon'ble Supreme Court in the case of Allied Motors (P.) Ltd. referred to the clauses of Memorandum explaining the provisions in Finance Bill, 1983 and the Budget Speech explaining the reasons which necessitated insertion of section 43B in Income-tax Act. It has been observed that section 43B was clearly aimed on curbing the activities of those tax payers, who did not discharge their liabilities of payment of Excise Duty etc. for long period of time but claimed deduction in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that section 43B was inserted. A plain reading of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, is further fortified by the decision of the Hon'ble Supreme Court in the case of Oswal Agro Mills Ltd. v. Asstt. Collector of Central Excise [1994] 2 SCC 546. It may be relevant here to reproduce para 10 of the said judgment: "10. The question, therefore, is whether it can be said that the 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 the excise duty. In our view, the answer is in the negative. 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, impose 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pursuant to an order of the Hon'ble Supreme Court, on the facts and circumstances of the present case, cannot be regarded as actual payment of duty in terms of section 43B of the Act. The assessee is therefore not entitled to grant of deduction of Excise Duty liability amounting to Rs. 58,75,999 for assessment year 1986-87 and Rs. 44,58,378 in assessment year 1987-88. The amounts of Excise Duty/Additional Excise Duty so collected by the assessee in the relevant years under consideration represent the assessee's trading receipts and are liable to tax. The assessee will however be entitled to grant of such deductions in the year, when the amount of duty has actually been paid to the Excise Department, as observed by the learned Judicial Member 26. In view of aforesaid facts and discussions; I am inclined to agree with the view expressed by the learned Judicial Member. 27. The matter will now go before the regular Bench for decision according to the majority opinion. Per Shri T.N. Chopra, A.M.-- In conformity with the majority opinion we hold that the assessee is not entitled to claim of deduction of excise duty liabilities Rs. 58,75,999 for assessment year 1986-87 and Rs. 44, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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