Income Tax Appellate Tribunal - Ahmedabad
Asstt. Cit vs Mugat Dyeing & Printing Mills on 13 August, 2002
Equivalent citations: (2002)77TTJ(AHD)696
ORDER
T.N. Chopra, A.M. 6 June 2001 These two appeals filed by the revenue are directed against the consolidated order of the learned Commissioner (Appeals), dated 28-12-1993, for assessment years 1986-87 and 1987-88. Since the facts and issues involved are identical for both the assessment years and the appeals have been heard together, these are being disposed of by a single order for the sake of convenience.
2. The common dispute involved for both the assessment years relate to disallowance of excise duty liabilities, Rs. 58,75,999 for assessment year 1986-87 and Rs. 44,58,378 for assessment year 1987-88 under section 43B. The effective grounds common in both the appeals being ground Nos. 2 and 3 identically worded, brings out the grievance of the revenue and reads as under :
2. The Commissioner (Appeals) has erred in law and on facts in holding that the assessee was only an agent of its customers/clients, who were liable to pay the Central excise 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 sub-section (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 Commissioner (Appeals) 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 learned Commissioner (Appeals) 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 Commissioner (Appeals) has erred on facts and in law to hold that the section 43B is not applicable in the case of the assessee.
3. For both the assessment years original assessments completed by the assessing officer were set aside by the Commissioner, Surat, vide order under section 263, dated 14-3-1989, with the direction that fresh assessments be made after taking into consideration the applicability of the provisions of section 43B with regard to the outstanding liabilities of excise duty appearing in the balance-sheet of the assessee under the head "sundry creditors". The assessing officer accordingly proceeded to make fresh assessments making additions of Rs. 58,75,999 and Rs. 44,58,378 for the assessment years 1986-87 and 1987-88, respectively, by invoking the provisions of section 43B. The assessee successfully carried the matter in appeal before the learned Commissioner (Appeals) who deleted the impugned additions. Aggrieved, the revenue has come up before us in appeals.
4. The assessee-firm derived income from the business of processing, dyeing, bleaching and printing of grey cloth on job work basis. The grey cloth processed by the assessee belonged to the merchant manufacturers and the same is supplied by these parties to the assessee for processing, dyeing and printing, etc. The assessee received labour charges for the job work performed by it. Since the processing involved levy of excise duty, the assessee collected the excise duty from the merchants on the cloth processed for them by way of separate debit note and the amount so collected is debited to the excise account of the merchant kept separately by the assessee. The excise duty paid is debited to this account and the excise duty recovered from the merchant is credited to such account. Entries with regard to excise duty are not carried to the profit & loss account by the assessee. The assessee-firm has shown the unpaid excise duty collected from the merchant in the balance-sheet under the head "deposit against differential excise duty". The Central excise department has been charging excise duty on selling price of the cloth printed by the assessee for and on behalf of the merchant owners. Insofar as the levy of excise duty pertained to the value of job work done by the assessee the same is not disputed. However, the portion of excise duty attributable to the value of grey cloth belonging to the merchant owners and processed by the assessee, the assessee disputed the levy before the excise authorities on the ground that as a processor of grey cloth on job work 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 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 may be."
In compliance with the stay order of the Hon'ble Supreme Court the assessee-firm, therefore, deposited the equivalent amount of the disputed excise duty (attributable to the value of grey cloth) with the bank in fixed deposit. The position regarding the collection of excise duty, fixed deposits with the bank and furnishing of the bank guarantee is shown as under :
Particulars A.Y. 1985-86 A.Y. 1986-87 A.Y. 1987-88 Deposit against differential excise duty 28,80,527 28,80,527 1885-86 28,80,527 58,75,999 1986-87 58,75,999 1987-88 44,98,378 Excise duty refund 19,39,780 19,39,780 19,39,780 48,20,207 1,06,96,306 1,51,94,684 Amount placed in fixed deposit 41,60,000 98,10,000 1,45,70,810 Difference deposited in the next accounting period details of which have been filed 6,60,207 8,86,306 6,23,875 Amount for which guarantee given to the excise department against the differential excise duty collected as per details furnished.
28,80,527 58,75,999 44,98,378 The disputed unpaid excise duty, as already pointed out, has been shown by the assessee under the head "deposit against differential excise duty" on the liability side of the balance-sheet whereas the equivalent amount of fixed deposit is reflected on the asset side of the balance-sheet. According to the assessee 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 after encashing the fixed deposits as under :
1987-88 13-3-1987 Rs. 52,15,270 (Before the decision of Hon'ble Supreme Court).
1989-90 15-11-1988 Rs. 1,24,02,490 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. 58,75,999 and Rs. 44,98,378. These amounts have been placed by the assessee in the fixed deposit in the respective assessment years 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 persective. The assessee pleaded before the revenue authorities that it was merely acting as an agent of the merchant owner and the excise duty, in so far 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 done while processing the grey cloth and this portion of the excise duty has been duly paid in the assessment years under appeal. Referring to the excise rules 174 and 174A as well as the notification issued by the excise authorities thereunder the assessee pleaded that merchant owners who give the grey cloth to the assessee for processing are the manufacturers liable to levy of excise duty and the assessee merely acts as an agent for collection of the excise duty in accordance with the authorisation issued by the merchant owners and thereafter pay the same to the Government on behalf of the merchant owners. According to the assessee it was not collecting the excise duty on its own account and merely acted as an intermediary between the merchant manufacturer and the Central excise department. On these grounds the assessee pleaded that provisions of section 43B were not applicable to the unpaid liabilities of excise duty outstanding in the balance-sheet for the assessment year under appeal. The assessee further pleaded before the assessing officer that since the disputed amount of excise duty collected from the merchant owners has been deposited in the fixed deposit account with the bank authorities and not utilised by the assessee for its business purposes and also bank guarantee of the equivalent amount has been furnished to the excise authorities against the security of the aforesaid fixed deposit, the assessee should be treated as having made constructive payment of excise duty as per the provisions of section 43B and no disallowance would, therefore, be liable to be made in its case. The assessing officer however, rejected the contentions and proceeded to make the disallowance for the two assessment years by invoking the provisions of section 43B. The Commissioner (Appeals) has, however, deleted the additions mainly relying upon the decision of Delhi Bench of the Tribunal in the case of Nuchem Plastic Ltd. v. Dy. CIT (1992) 44 TTJ (Del-Trib) 261 and Bombay Bench of the Tribunal in the case of Sunil Silk Mills Ltd. v. Dy. CIT (1993) 46 ITD 4 (Bom-Trib).
6. We have heard the learned representatives of both the sides. The learned counsel for the assessee strongly relied upon the decision of Ahmedabad Bench of the Tribunal in the case of Asstt. CIT v. Shanti Dyeing & Finishing Works (to which one of us was a party) dated 21-3-2000, (2000) 68 TTJ (Ahd-Trib) 214. The facts of the instant appeals are on all the fours with that of Shanti Dyeing & Finishing Works relied upon by the learned counsel. In the said decision the Tribunal concurred with the view taken by the Delhi Bench in Nuchem Plastic's case (supra) and Bombay Bench Tribunal's decision in Sunil Silk Mills case (supra) 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 learned Commissioner (Appeals).
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 with effect from 1-4-1984, to discourage taxpayers who did not discharge their statutory liability to payment of excise duty, etc., for long periods 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. This provision has been interpreted by the Hon'ble Supreme Court in its celebrated decision in the case of Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC), wherein their Lordships, relying upon their decision in the case of Goodyear India Ltd. v. State of Haryana (1991) 188 ITR 402 (SC), held that the rule of reasonable construction must be applied while construing a statute. Their Lordships further observed that literal construction should be avoided if it defeats the manifest object and purpose of the Act. Their Lordships further observed at page 686 of the report :
"Therefore, in the well known words of Judge Learned Hand, one cannot make 'a fortress out of the dictionary' and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning."
Applying these principles to the facts of the instant case we feel that once the assessee has deposited the excise duty receipts with the bank and the bank guarantee has been provided to the satisfaction of the excise authorities, as per the directions of the Supreme Court, this would amount to "actual payment" by the assessee in terms of the provisions of section 43B. It needs to be appreciated that vide its stay order, extracted hereinbefore the Hon'ble Supreme Court has restrained the excise authorities from "levying and recovering" the disputed portion of the excise duty and required the assessee to furnish the bank guarantee to the full extent in respect of such excise duty. The assessee has fully complied with the aforesaid directions of the Hon'ble Supreme Court and deposited the entire disputed amount in the fixed deposit. After having done so in compliance with the directions of the Hon'ble Supreme Court, there is absolutely no question of the assessee to make further payment to the excise authorities so as to save itself from the mischief of section 43B. Such an approach, being canvassed by the revenue before us, would, in our opinion, be manifestly absurd and contrary to the object and purpose of section 43B. In our opinion, 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' case (supra).
We are, therefore, inclined to uphold the view of the learned Commissioner (Appeals) 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 v. IAC (1990) 34 ITD 286 (Del-Trib) 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 pertains 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 furnish the bond of the value of the duty leviable on the post-manufacturing expenses and also furnish a bank guarantee to the extent of 25 per cent of such duty each time it desires to clear the manufactured goods from its factory. On these facts the Delhi Bench of the Tribunal held that furnishing of a bond and bank guarantee to the extent of 25 per cent of the duty would not amount to payment in terms of section 43B and hence the unpaid excise duty is hit by the mischief of section 43B. The material distinction in the case of the assessee as compared with Purolator India Ltd. before the Delhi Bench are two-fold. Firstly, the assessee before us is an agent and processes the goods which belonged to the merchant manufacturer, whereas in Purolator India (supra) it was the case of a manufacturer who is liable to excise duty on the goods manufactured by it. Secondly, it is to be noted that the excise duty on the goods sold by Purolator India have been collected from the customers and formed part of trading receipts of the said assessee. Only a portion of such receipts, i.e., 25 per cent have been secured by furnishing a bank guarantee. As against this in the assessee's case the entire amount of disputed excise duty pertaining to the value of grey cloth has been deposited by the assessee with the bank by way of fixed deposit and bank guarantee for the liability has been furnished to the excise authorities for the entire amount. Thus, the assessee has been divested of the control and possession of the excise payment received from the merchant manufacturers inasmuch as the entire amount has been deposited with the bank in fixed deposit account. From the facts on record it would be seen that the excise authorities have realised the disputed liabilities directly from the bank authorities by encashment of the guarantee. In view of these material distinguishable features Purolator India would not apply in the instant case.
8. We may further refer to a subsequent decision of Delhi Bench of the Tribunal in the case of Nuchem Plastics (supra) wherein it was held that furnishing of the bank guarantee for the entire amount of excise duty disputed by the assessee would amount to payment in terms of the provisions of section 43B. This decision, therefore, rendered under identical facts directly supports the view taken by us.
9. The decision of the Bombay Bench of the Tribunal in Sunil Silk Mills Ltd. (supra) 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 per cent of the amount in cash and give a bank guarantee for the balance 50 per cent. 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 Dunlop India Ltd. v. Asstt. CIT (1992) 41 ITD 582 (Cal-Trib), 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 Ahmedabad Bench of the Tribunal in the case of Asstt. CIT v. Krishna Textiles (1996) 59 ITD 523 (Ahd-Trib) which has been rendered in the year 1996. This decision has been duly considered and distinguished in the subsequent decision of the Tribunal in Shanti Dyeing & Finishing Works (supra) which is being relied upon by us in support of assessee's case. In this case even though the assessee was a processor of cloth supplied by the merchant manufacturer, yet the material distinguishing feature of the case is that only 50 per cent of the disputed amount of the duty was deposited in the fixed deposit and bank guarantee against the same was given to the excise authorities. In this decision the Bench observed that :
"In this connection it is noted that the facts of the present case are different from the facts of the case of Nuchem Plastic Ltd. v. Dy. CIT (1992) 44 TTJ (Del-Trib) 261. As pointed out earlier it is admitted by the assessee himself in its written submissions that it had not to keep the full amount as margin money with the bank for obtaining bank guarantees. It is categorically admitted by the assessee that the bank allowed 50 per cent margin for fixed deposits in case of certain bank guarantees. Therefore, under these circumstances, when the assessee has merrily used funds by way of recovery of excise duty from the merchants and kept only a part of it as fixed deposits, where also the assessee was enjoying the fruits thereof by way of bank interest, etc., how it can be said that the assessee should be deemed to have made actual payment of excise duty by furnishing bank guarantee."
The Bench has thus distinguished the case of Nuchem Plastics (supra) mainly on the ground that only 50 per cent of the disputed amount of excise duty has been deposited in the fixed deposit and the balance 50 per cent has been utilised by Krishna Textiles, the assessee, for its business purposes. In the instant case before us the facts of the case are on all the fours with that the Nuchem Plastics as well as Shanti Dyeing and Finishing Works (supra) and not with Krishna Textiles (supra).
12. During the course of hearing the learned counsel submitted, on the strength of an affidavit of the partner Shri N.C. Modi, that no deduction in respect of excise duty in question has been claimed for the subsequent assessment years by the assessee. The excise authorities realised the excise duty by encashment of fixed deposits on 13-3-1987, and 21-11-1988, amounting to Rs. 52,15,270 and Rs. 1,20,02,490, respectively. In the circumstances we are inclinded to uphold the deletion of the impugned amounts for the assessment years under appeal.
13. In the result, both the appeals are dismissed.
T.K. Sharma, J.M. 27 June 2001 I have carefully gone through the order proposed by the learned A.M., brother, on the issue involved in this appeal. I also have the benefit of discussion with my learned brother in an endeavour to arrive at an agreed order. But I am unable to persuade myself to concur with his conclusion regarding interpretation of section 43B of the Income Tax Act, 1961.
2. The point in dispute for both the assessment years under appeal is regarding disallowance made by the assessing officer under sections 43B which was deleted by the Commissioner (Appeals). The amounts involved are Rs. 58,57,999 for the assessment years 1986-87 and Rs. 44,58,378 for the assessment years 1987-88. The assessee-firm is processing house carrying on the business of dyeing and printing of cloth of merchants entirely on job work basis. The grey cloth is supplied by the merchants, i.e., owners of the cloth and after dyeing and printing, it 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 is debited to the excise account of merchants in a separate ledger kept for the purpose. There is no dispute that excise duty received though kept in a separate account is a trading receipt as held by Hon'ble Gujarat High Court in the case of Plastic Products Engg. Co. v. CIT (2000) 245 ITR 349 (Guj). The Central excise department is charging excise duty on selling price of the cloth printed by the assessee for the merchants.
3. The assessing officer considered the excise duty collection as part of trading receipt, but did not allow any deduction for excise duty on the ground that it was not paid to the government account in terms of section 43B of the Income Tax Act, 1961. According to the assessing officer, deduction is permitted only on basis of "actual payment". In the impugned order, the Commissioner (Appeals) held that excise duty cannot be considered as a trading receipt in the assessee's hand as the assessee was merely acting as an agent of the merchant manufacturers for the purpose of collection and payment of excise duty to the excise department. He, accordingly, deleted the additions made by the assessing officer of Rs. 58,75,999 for assessment year 1986-87 and Rs. 44,58,378 for assessment years 1987-88. Aggrieved by the order of Commissioner (Appeals) the revenue is in appeal before the Tribunal.
4. It is pertinent to note that at the time of hearing before us on behalf of the department, the learned Departmental Representative pleaded that excise duty collected by the assessee is a trading receipt and deduction for the same is allowed only when the same is actually paid within the meaning of section 43B of the Income Tax Act, 1961. He also submitted that furnishing of bank guarantee does not amount to making "actual payment" within the meaning of section 43B. The learned Departmental Representative also relied on the decision in the case of Asstt. CIT v. Krishna Textiles (1996) 59 ITD 523 (Ahd-Trib) and contended that order of learned Commissioner (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, Employee's 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 context, I have also gone through the memo explaining the provisions of Finance Act, 1983. Para 60 of the same contains as under :
"60. 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, Employee's State Insurance Scheme, etc., for long periods of time, extending sometimes to several years. For the purpose of their income-tax assessments, they claim the liability as deduction on the ground that they maintain accounts on mercantile or accrual basis. On the other hand they dispute the liability and do not discharge the same. For some reason or the other undisputed liabilities also are not paid. To curb this practice, it is proposed to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force (irrespective of whether such tax or duty is disputed or not) or 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 shall be allowed only in computing the income of that previous year in which such sum is actually paid by him."
7. From the perusal of above and perusal of section 43B of the Income Tax Act, it can be seen that this section aimed at curbing the activities of these taxpayers who did not discharge the statutory liability but claimed, as deduction in that regard from their income on accrual basis. It was to stop this mischief that section 43B was inserted. In the case before us, to avoid the actual payment, the assessee has obtained stay by furnishing bank guarantee. In my opinion, the amount paid for obtaining bank guarantee at this stage was with the sole purpose that assessees do not want to make actual payment of excise duty. The expression "actually paid" appearing in section 43B is unambiguous and, in my opinion, has to be construed strictly in consonance with avowed aim for enacting this provision and to further, and not to defeat the same.
8. Before us, the assessee has also submitted an affidavit wherein it is mentioned that no deduction in respect of excise duty in question has been claimed for the subsequent assessment year by the assessee. The excise authorities realised the excise duty by adjustment of FDR on 13-3-1987, and 21-11-1988. From this, 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 Asstt. CIT v. Krishna Textiles (1996) 59 ITD 523 (Ahd-Trib). 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 the Commissioner (Appeals) and restore the assessment order of the assessing officer.
10. In the result, the revenue's appeals are allowed.
Reference under section 255(4) of Income Tax Act, 1961 29 June 2001 As there is a difference of opinion between the Members of the Bench, who heard these two appeals, the following point of difference, common for both the appeals, is referred to the Hon'ble President, ITAT, for the opinion of the Third Member :
"Whether in the facts and circumstances of the case claim of the assessee for deduction of excise duty liabilities, Rs. 58,75,999 for assessment year 1986-87 and Rs. 44,58,378 for assessment year 1987-88 are hit by the mischief of section 43B ?"
B.M. Kothari, A.M. (As a Third Member) 4 June 2002 There was a difference of opinion between the Members of "C" Bench, Hon'ble Shri T.M. Chopra, A.M. and Hon'ble Shri T.K. Sharma, J.M., who heard these appeals and the following point of difference, common for both the appeals, was referred to the Hon'ble President, ITAT for the nomination of Third Member :
"Whether in the facts and circumstances of the case, claim of the assessee for deduction of excise duty liabilities, Rs. 58,75,999 for assessment year 1986-87 and Rs. 44,58,378 for assessment year 1987-88 are hit by the mischief of section 43B ?"
2. The Hon'ble President, ITAT nominated my name as Third Member. The case was accordingly heard on 3-5-2002 and 10-5-2000.
3. The learned counsel appearing on behalf of the assessee strongly supported the order passed by the learned A.M. He contended that the view taken by the learned A.M. is fully supported by the decision of Tribunal Ahmedabad Bench in the case of Asstt. CIT v. Shanti Dyeing & Finishing Works (2000) 68 TTJ (Ahd-Trib) 214 the decision of Tribunal Delhi Bench in the case of Nuchem Plastic Ltd. v. Dy. CIT (1992) 44 TTJ (Del-Trib) 261 and the decision of Tribunal Mumbai Bench in the case of Sunil Silk Mills Ltd. v. Dy. CIT (1993) 46 ITD 4 (Bom-Trib). The learned counsel further contended that to the best of his information, the decision of Tribunal Ahmedabad Bench in the case of Shanti Dyeing & Finishing Works (supra) has been accepted by the department and no further reference/appeal has been filed before the Hon'ble Gujarat High Court. The learned counsel contended that the assessee has deposited the entire amount of excise duty collections as fixed deposits with bank, as is evident from the chart reproduced at page 5 of the order passed by learned A.M. and on that basis the bank has provided bank guarantee to the satisfaction of the excise authorities, as per directions of Hon'ble Supreme Court. Furnishing of bank guarantee on the basis of full amount deposited in fixed deposits would amount to actual payment by the assessee in terms of the 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. Ambica Mills Co. Ltd. in IT Ref. 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 to issue. His attention was also drawn to the judgment in the case of Plastic Products Engineering Co. v. CIT (2000) 245 ITR 349 (Guj) 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 Ambica Mills Co. Ltd. (supra) was as under :
"Whether, the 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 Income Tax Officer 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 Hon'ble Gujarat High Court has held that the additional excise duty collected by the assessee is trading receipt and is accordingly liable to tax. The question in the present case is that even if the collections of additional excise duty is treated as trading receipt, the same is allowable as deduction under section 43B as the assessee had furnished bank guarantee for the full amount pursuant to the directions of the Hon'ble Supreme Court and such bank guarantee was given by the bankers on the strength of fixed deposits made by the assessee for the full amount. The learned counsel also submitted that the reference to the bank guarantee given in respect of 50 per cent of the amount in the case of Ambica Mills Co. Ltd. (supra) given in para-7 of the order of the Tribunal is just a passing reference made by the Tribunal while allowing the assessee's contention. He thus, submitted that the aforesaid judgment of the Hon'ble Gujarat High Court in the case of Ambica Mills Co. Ltd. does not in any manner go against the assessee.
6. The learned Senior Departmental Representative relied upon the judgments of the Hon'ble Gujarat High Court in the cases of Ambica Mills Co. Ltd. (supra), Plastic Products Engineering Co. v. CIT (supra) as well as the judgment of the Hon'ble Supreme Court in the case of KCP Ltd. v. CIT (2000) 245 ITR 421 (SC). He also pointed out that the decision in the assessee's case was originally rendered by the Tribunal against the assessee and that decision has been in Asstt. CIT v. Mugat Dyeing & Printing Mills (2000) 75 ITD 387 (Ahd-Trib). This decision was rendered by Hon'ble Shri Gopal Chowdhury, J.M. and Shri T.J. Joice, A.M. on 29-11-1999. The decision in the case of Shanti Dyeing & Finishing Works (supra) was rendered by the Tribunal on 21-3-2000, by Hon'ble Shri Gopal Chowdhury, J.M. and Hon'ble Shri T.N. Chopra, A.M. in favour of the assessee. It would be imperative to mention here that the decision against the assessee in the case of Mugat Dyeing & Printing Mills delivered on 29-11-1999, published in (2000) 75 ITD 387 (Ahd-Trib) (supra) was not even referred to in the case of Shanti Dyeing & Finishing Works (supra) decided on a subsequent date on 21-3-2000 in which one of the Hon'ble Members was a common Member.
The order passed by the Tribunal in the case of Mugat Dyeing & Printing Mills (supra) was subsequently recalled by the Tribunal vide order dated 12-5-2000 in MA Nos. 25 & 26/Ahd/2000. The learned Senior Departmental Representative thus drew our attention to the decision of Tribunal 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 :
"Asstt. CIT v. Mugat Dyeing & Printing Mills (supra) Gopal Chowdhury, J.M. and T.J. Joice, A.M. "It has been laid down by the Apex Court in Chowringhee Sales Bureau (P) Ltd. v. CIT (1973) 87 ITR 542 (SC) and Sinclair Murray & Co. (P) Ltd. v. CIT (1974) 97 ITR 615 (SC) 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 Narashimharao & Co. v. CIT (1993) 200 ITR 588 (SC) : (1993) 68 Taxman 340 (SC) and CIT v. T. Naggi Reddy (1993) 202 ITR 253 (SC). The decision of the Supreme Court in the case of Jonnalla Narashimharao & Co. (supra) has been followed by the Gujarat High Court in the case of Navjivan Udyog Mandir (P) Ltd. v. CIT (1994) 207 ITR 40 (Guj). In view of the binding ratio of these decisions we hold that the assessing officer was justified in treating the excise duty collected as a trading receipt of the assessee.
The assessee has made fixed deposit in the bank as security to the Central excise department in accordance with the ruling given by the Supreme Court during the period of stay. No part of the money has been used or could be used by the assessee and in case the excise duty was payable, the entire bank guarantee is to be acted upon by the excise department. Be that as it may, under the specific provisions of section 43B, the assessee is entitled to claim deduction for the excise duty paid only on the basis of actual payment to Government account. In the case of Asstt. CIT v. Krishna Textiles (1996) 59 TTJ 523 (Ahd-Trib), and in certain other cases, it has been held that the furnishing of the bank guarantee could not be treated as equal to the actual payment of excise duty for the purpose of section 43B. Following the said decision, the assessee was not entitled to deduction under section 43B in respect of the deposits for obtaining bank guarantee.
7. The learned Senior Departmental Representative then relied upon the decision of Tribunal in the case of Asstt. CIT v. Krishna Textiles (1996) 59 ITD 523 (Ahd-Trib). The relevant extracts from headnote are reproduced below :
"Once the excise duty collected were treated as part of trading receipts the assessee's contention that no deduction was claimed and, therefore, section 43B was not applicable, would not survive. The effect of treating the said collections as trading receipts would mean that the trading account if recast would include the excise duty collection as a part of the turnover on the credit/income side and the net income shown would necessarily imply that the amount of excise duty had been claimed as a deduction on the basis of mercantile system of accounting which is now not permissible after introduction of section 43B.
On combined reading of section 43B and Explanation 2, it would be clear that the term "payable" in section 43B has been used in specific sense of a sum payable for which the assessee has incurred liability in the 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 172 (SC). Further, it was admitted by the assessee that it had not to keep the full amount as margin money with the bank for obtaining bank guarantee, and the bank allowed 50 per cent margin for fixed deposits in the case of certain bank guarantees. Therefore, under these circumstances, when the assessee had merely used funds by way of recovery of excise duty from the merchants and kept only a part of it as fixed deposits, where also the assessee was enjoying the fruits thereof by way of bank interest, etc., how it would be said that the assessee should be deemed to have made actual payment of excise duty by furnishing bank guarantee. Further, the bank guarantee itself showed that in case of default only by the assessee, the bank will pay the excise duty to the department. The guarantor had thus undertaken to make good to the excise department only in the event of default by the assessee. Thus, the contention of the assessee to treat furnishing of bank guarantee as equal to actual payment of excise duty for the purpose of section 43B could not be accepted. On the same analogy, the alternative contention of the assessee that the amount of fixed deposits as against excise collection for the assessment year 1985-86 should be allowed was to be rejected.
Therefore, the excise duty collected by the assessee constituted trading receipts in its hands and as such liable to be assessed during the year under appeal and further the bank guarantee furnished by the assessee did not tantamount to actual payment of excise duty. Accordingly, the findings of the Commissioner (Appeals) were reversed and those of assessing officer restored."
8. The learned Senior departmental Representative then relied upon the decision of Tribunal Delhi Bench in the case of Purolator India Ltd. v. IAC (1990) 34 ITD 286 (Del-Trib). The Tribunal Delhi Bench held as under in the aforesaid case :
"The word 'Bonds' has been defined to mean 'a writing of obligation to pay a sum'. This means that it is an undertaking given by the author of the bond that he is binding himself to pay the payee a certain sum of money. Section 43B provides that deduction would be allowed of duty, taxes, etc., if the same is paid during the year. The word 'paid' means 'satisfied'. The bond gives the right to the payee to enforce payment from the author while the payment satisfies the payee, i.e., the former is the beginning while the latter is the end of the transaction. The claim of the assessee 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 Departmental Representative also placed reliance on the decision of Tribunal Calcutta Bench in the case of Dunlop India Ltd. v. Asstt. CIT (1992) 41 ITD 582 (Cal-Trib) (Hon'ble Shri V. Dongzathang, A.M. and Hon'ble Shri Vimal Gandh, J.M.). The relevant extracts from the headnote 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 that the amount of Rs. 1,647.64 lakhs was outstanding liability relating to Central excise duty. It was therefore, for the assessee to show that excise duty liability was replaced by some other kind of liability. This had not been done. The, assessee justified claim that it was a liability 'incurred' wholly on account of the view taken by the authorities under the Excise Act. The above view could be displaced through final order of a competent authority and not on execution of bonds or interim stay order'. Therefore, the entire amount Rs. 1,647.64 lakhs was disputed liability covered by the word 'duty' as understood in section 43B.
The assessee had contended that for application of section 43B the amount of tax or duty should be 'payable'. It contended that in the present case the High Court had stayed recovery of duty on terms of bonds executed by the assessee and there was, thus, no enforceable liability to pay duty, and the amount not being 'payable', the question of application of section 43B would not arise. On consideration of the decision of the Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corporation (1991) 191 ITR 676 (Cal) as also the first proviso to section 43B and without Explanation 2 to section 43B, it is clear that 'any sum payable by the assessee by way of tax/duty' under any law for the time being in force has to be allowed as deduction only in the previous year in which it is actually paid in respect of method of accounting regularly followed by the assessee. Thus, a liability incurred in respect of amount referred to in section 43B is to be allowed only on payment basis, subject to exceptions provided in the first proviso to section 43B. Hence, the assessee was not entitled to claim deduction of excise duty liability incurred without actual payment in the relevant accounting year and, therefore, the disallowance of Rs. 1,022.64 lakhs was upheld."
10. The learned Senior Departmental Representative contended that several Benches of the Tribunal have taken a view against the assessee on similar point. The number of heads, who have rendered the decisions against the assessee is more than the number of heads who have taken a view favourable to the assessee. The view taken by various Benches of the Tribunal against the assessee including Ahmedabad Benches in the case of Asstt. CIT v. Krishna Textiles (supra) ought to have been accepted by the learned A.M.
11. The learned Senior Departmental Representative further drew our attention to the judgment of the Hon'ble Supreme Court in the case of Empire Industries Ltd. & Anr. v. Union of India & Ors. (1986) 162 ITR 846 (SC) 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 Departmental Representative 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 (SC) 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 business of any kind can be run on mere bank guarantees. Liquid cash in necessary for the running of a Government as indeed any other enterprises."
13. The learned Senior Departmental Representative also relied upon the judgment of the Hon'ble Gujarat High Court in the case of Lakhanpal National Ltd. v. ITO (1986) 162 ITR 240 (Guj) to support his contention that deduction in respect of tax or duty payable by the assessee can be allowed only in the year in which the sum is actually paid. The learned Senior Departmental Representative also relied on the judgment of the Hon'ble Delhi High Court in the case of Woodward Governor India (P) Ltd. v. CIT & Ors. (2002) 253 ITR 745 (Del) to explain the significance of the use of words "notwithstanding anything" contained in any other provisions of this Act where it has been clarified that such expression appended to a section in the beginning with a view to give the enacting part of the section, in case of conflict, an overriding effect over the provisions of the Act mentioned in the non obstante clause. The true effect of the non obstante clause is that in spite of the provision or the Act mentioned therein the enactment following it will have full operation or that the provisions embraced in the non obstante clause will not be an impediment for the operation of the enactment. The learned Senior Departmental Representative submitted that the provisions of section 43B overrides all other provisions of the Act and it clearly provides that deduction in respect of tax or duty, etc., will be allowed only in the year in which the sum is actually paid. The expression "actually paid" does not cover within its ambit the furnishing of bank guarantee, realisation of which is contingent upon the order of the court in the pending litigation. The expression "actual payment" used in section 43B has to be understood in the normal sense as has been held by the Hon'ble Supreme Court in the case of K.P. Varghese v. ITO & Anr. (1981) 131 ITR 597 (SC).
14. The learned Senior Departmental Representative further contended that the assessee's counsel in the course of his arguments, had inter alia argued that the additional excise duty collected by the assessee has not been debited in the profit & loss account and, therefore, the provisions of section 43B are not applicable. The assessee has collected the amount of additional excise duty and shown it as a liability in the balance-sheet. Such collection of additional excise duty made by the assessee is trading receipt, as has been held by the Tribunal even in the case of Shanti Dyeing & Finishing Works (supra) which is heavily relied upon by the assessee. Such trading receipt, therefore, ought to have been first credited to profit & loss 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. In 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 profit & loss account. Such deduction is not allowable in view of the clear provisions of section 43B of the Act.
15. The learned Senior Departmental Representative submitted that the learned J.M. has rightly placed reliance on the judgment of the Hon'ble Gujarat High Court in the case of Plastic Products Engineering Co. v. CIT (supra) for holding that the excise duty so collected by the assessee, though kept in a separate account is a trading receipt. The learned JM has also relied upon the decision of Tribunal in the case of Asstt. CIT v. Krishna Textiles (supra) for supporting his conclusion that furnishing of bank guarantee by the assessee did not tantamount to making "actual payment" of excise duty to the excise department within the meaning of section 43B of the Income Tax Act. The interpretation of expression "actually paid" used in section 43B as made by the learned J.M. is the most reasonable and normal in representation of the said provisions. He submitted that the learned J.M. has further directed the assessing officer to allow deduction in respect payment of excise duty made to Government account in the year when the amount of excise duty has actually been paid by the assessee The interest of the taxpayers has thus been fully safeguarded in the order of the learned J.M. The learned Senior Departmental Representative thus strongly supported the order of the learned J.M.
16. I have carefully considered the submissions made by the learned representatives and have gone through the separate orders passed by the learned A.M. and the learned J.M. I have also gone through all the decisions cited by the learned representatives of both the sides and also various judgments referred to in the orders of the learned A.M. and the learned J.M.
17. The amount of Central excise duty/additional excise duty collected by the assessee in both the years under consideration represent the trading receipts in the hands of the assessee. The Tribunal in the case of Shanti Dyeing & Finishing Works (supra) on which heavy reliance was placed by the learned counsel appearing on behalf of the assessee and which has also been relied upon by the learned A.M. in his order, has also inter alia held as under as appearing in para 8 at pages 218 and 219 of the report. :
"8. We have carefully considered the facts and circumstances of the case as well as the rival submissions made before us. Insofar as the excise duty recovered from the merchant-manufacturers by the assessee on the value of cloth processed by the assessee is concerned, we feel that the receipts in view of settled legal position constitutes trading receipts of the assessee. The decisions of Supreme Court in Chowringhee Sales Bureau (P) Ld. v. CIT (1973) 87 ITR 542 (SC) and Sinclair Murray & Co. (P) Ltd. v. CIT (1974) 97 ITR 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 Navjeevan Udyog Mandir (P) Ltd. v. CIT (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 Narashimharao & Co. & Ors. v. CIT (1993) 200 ITR 588 (SC) and CIT v. T. Naggi Reddy (1993) 202 ITR 253 (SC)."
18. The Hon'ble Supreme Court in the case of K.C.P. Ltd. (supra) has held that if a receipt is a trading receipt, the fact that it is not so shown in the account books of 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 held that the amount in excess of levy price collected and retained by the assessee in separate account in accounting year relevant to assessment year 1972-73 which amount was transferred to Sugar Equalisation Fund in 1997, the amount so collected represents trading receipt realised in ordinary business activities and its retention in separate account and subsequent transfer to Sugar Equalisation Account did not change the character of such receipt in assessment year 1972-73. The amount was held to be liable to tax as trading receipt in assessee's hands in assessment year 1972-73. The Hon'ble Supreme Court further observed that eventually it the amount so collected is passed on to the 'State Government or refunded to the purchasers, the assessee would be entitled to claim deduction of the sum when so paid or refunded.
19. The Hon'ble Gujarat High Court in the case of Shri Ambica Mills Co. Ltd. vide order dated 27-2-2001, in IT Ref. No. 228 of 1992 (RA No. 146/Ahd/1991) has held that the amount of Rs. 3,17,79,885 collected on account of additional excise duty was a trading receipt and the Tribunal was wrong in directing the assessing officer to delete the same. The learned counsel appearing on behalf of the assessee contended that the judgment is not relevant for purpose of deciding as to whether the bank guarantee given on the strength of fixed deposits of full amount can be treated as actual payment within the meaning of section 43B, as the said decision only decides the question referred to the Hon'ble High Court, viz., whether such receipt is a trading receipt or not. The decision of the Gujarat High Court has to be understood in the light of the facts and circumstances of the aforesaid case. It will, therefore, be necessary to make a reference to the order passed by the Tribunal in the case of Shri Ambica Mills Ltd. in ITA No. 180/Ahd/1987, which was the subject-matter of consideration by the Gujarat High Court. Ground No. 1 of revenue's appeal in that case was as under :
"The learned Commissioner (Appeals) has erred in law and on facts in not treating the receipts of Rs. 3,17,79,885 on account of additional excise duty as trading receipts and in directing the Income Tax Officer to delete the same."
The Tribunal after taking into consideration various judgments and the entire relevant facts gave the following findings in para. 7 of its order :
"7. We have examined the rival submissions and in our opinion no interference is warranted in the order of the Commissioner (Appeals) 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 per cent 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 the 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 per cent 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 bank and were not available for use. The decisions of the Supreme Court relied upon by the Income Tax Officer and those referred to by the learned Departmental Representative would accordingly not be applicable."
It is clear from the aforesaid facts that the Tribunal granted the aforesaid relief mainly on account of the fact that the amount collected as additional excise duty was not available to the assessee for use in its business since 50 per cent of the amount was paid pursuant to direction of the Hon'ble Supreme Court and balance was covered by a bank guarantee which meant that the funds to that extent stood deposited in the bank and those were not available for use. The Hon'ble High Court after taking into consideration all these facts has given the following findings in paras 3 and 4 of their judgment dated 27-2-2001 :
"3. Mr. Naik, learned counsel for the revenue states that the controversy raised herein is concluded by the decision of this court in Plastic Products Engineering Co. v. CIT (2000) 245 ITR 349 (Guj). In the said case also, the assessee, a manufacturer of industrial plastic goods, credited the amount in question to the excise deposit account and claimed that it was not a trading receipt as the amount was received on condition that the deposit was to be refunded to the buyer in case the duty was not finally paid by the assessee. The claim was disallowed by the Income Tax Officer and the receipts were brought to tax. The Tribunal confirmed that view. In the reference, at the instance of the assessee, this court held that the assessee had received the disputed amount described as excise duty which it was otherwise entitled to collect as per of the sale price (though it showed it separately in the invoices) from the buyers, and that the amount had been collected in no other character except as seller of goods as part of the sale price at best subject to the stipulation that in case ultimately the liability to duty was not sustained the amount collected as duty would be refundable. This Court, therefore, held that the receipts were taxable as revenue receipts.
4. In view of the said decision, we hold that the Tribunal erred in not treating trading receipts of Rs. 3,17,79,885 on account of additional excise duty as trading receipts in directing the Income Tax Officer to delete the same. We accordingly answer the question in the negative, i.e., in favour of the revenue and against the assessee."
The aforesaid judgment of Hon'ble 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. (supra) on identical facts supports the view expressed by the learned J.M. 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 by the assessee in the relevant years cannot be considered equivalent to "actual payment" of duty made in the relevant years. Furnishing of bank guarantee 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 revenue succeeding in the pending litigation. Furnishing of such bank guarantee has been ordered by the Hon'ble Supreme Court in order to ensure collection of dues in the event of revenue succeeding in the pending cases before the Hon'ble Apex Court. It is condition of staying demand for the disputed tax or duty. In the event the revenue fails in the pending proceedings before the Hon'ble Supreme Court, the question of payment of tax or duty, the amount of which is covered by bank guarantee, does riot arise. Where, however, revenue succeeds, the amount of duty becomes payable by the assessee to the revenue and it is open to revenue to invoke the bank guarantee and demand payment thereof. The bank guarantee is thus a security for the revenue, that in the event revenue succeeds, its dues will be recoverable being backed by guarantee of a bank.
21. The Bench also required the assessee to state as to whether the. interest income earned on these fixed deposits belonged to the assessee or not, the learned counsel was fair enough to state that the assessee has duly disclosed the interest on such fixed deposits on the basis of which bankers have given bank guarantee, as its income of the respective years. This also further confirms the view that giving of bank guarantee on the basis of 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 and is also entitled to receive interest income on such fixed deposits made with the bank. The excise department is entitled to encash the bank guarantee only in the event of their succeeding in the pending litigation before the Hon'ble Supreme Court. Unless such contingency, viz., success of revenue in pending litigation takes place, the assessee continues to be the owner of fixed deposits and interest income thereon. The actual payment of duty will take place only when the amount of such duty reaches the coffers of the government and is available for public purposes. The Hon'ble Supreme Court in the case of Asstt. Collector of Excise Duty v. Dunlop India Ltd. (supra) 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. v. CIT (1997) 224 ITR 677 (SC) 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 taxpayers, 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 section 43B clearly indicates that deduction in respect of tax or duty under any law would be allowed in computing the income only in that previous year in which such sum is actually paid by the assessee. The Hon'ble Gujarat High Court in the case of Lakhanpal National Ltd. v. ITO (supra) has held that in view of specific language of section 43B, there is no scope for any doubt that such amount of tax or duty can be allowed by way of deduction while computing the income in the previous year in which such sum is actually paid by the assessee. In the present case the assessee had the choice of making the payment of excise duty/additional excise duty collected by him from various customers to the excise department in the respective years and still contest their liability to collect and pay such amounts before the Hon'ble Courts. In that event the assessee could claim deduction in respect of such amount on the basis of actual payment made in the relevant years of collection. The option was still available with the assessee to deposit the entire amount with the excise department instead of depositing the full amount in fixed deposits with the bank and ask the bankers to give bank guarantee on the strength of such fixed deposits. In case the excise department fails in the pending litigation, the assessee could claim refund of such excise duty payments along with interest under the provisions of excise laws. Instead of making actual payment of amount of excise duty/additional excise duty collected by the assessee to the excise department, it opted to approach the Hon'ble Court for granting of stay, which the Hon'ble Court granted on the condition that the assessee should furnish bank guarantee. The Hon'ble Court did not direct that the assessee should deposit 100 per cent amount in fixed deposits with the banks. It was a matter depending on the terms and conditions which were agreed upon by the assessee with the bankers for providing bank guarantee in favour of the excise department, Furnishing of bank guarantee to secure the payment of dues to excise department in the event of their succeeding in pending litigation cannot, therefore, be regarded as actual payment of tax on duty in terms of section 43B of the Act.
23. The view that furnishing of bank guarantee for payment of disputed amount of excise duty/additional excise duty cannot be regarded as equivalent to actual payment of such duty, 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 he 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, 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 the assessee to the revenue and it is open to the revenue to invoke the bank guarantee and demand payment thereon. The bank guarantee is security for the revenue, that in the event the revenue succeeds its dues will be recoverable, being backed by the guarantee of a bank. In the event, however, unlikely, of the bank refusing to honour its guarantee it would be necessary for the revenue or, where the bank guarantee is in favour of the principal administrative officer of the court, that officer to file a suit against the bank for the amount due upon the bank guarantee. The amount of the disputed tax or duty that is secured by a bank guarantee cannot, therefore, be held to be paid to the revenue. There is no question of its refund and section 11B is not attracted."
24. The Constitutional Bench of the Hon'ble Supreme Court in the case of Somaiya Organics (India) Ltd. v. State of U.P. & Anr. (2001) 5 SCC 519 confirmed the aforesaid view. Para 35 of the said judgment is reproduced below :
"35. Furthermore, in view of the enunciation of the law by this court in Oswal Agro Mills Ltd. v. Asstt. Collector of Central Excise (1994) 2 SCC 546 case a bank guarantee which is furnished cannot be regarded as payment of excise levy which the government is entitled to retain. The furnishing of a bank guarantee is order normally in order to ensure collection of dues. Where, however, the State, as in the present case, has been held not to be entitled to collect or realise vend free after 25-10-1989, it cannot be allowed to invoke the bank guarantee and realise the amount of vend free. What cannot be done directly can not be done indirectly either. Furnishing of bank guarantee is only a promise by the bank to pay to the beneficiary the amount under certain circumstances contained in the bank guarantee. Furnishing of bank guarantee cannot tantamount to making of payment as it was to avoid making payment of the vend free that bank guarantees were issued. The respondents, in other words, are not entitled to encash the bank guarantee and realise vend free in respect of the period prior to 25-10-1989."
25. In view of the aforesaid facts and circumstances, I am of the considered opinion that the furnishing of bank guarantee for securing payment of excise duty/additional excise duty 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 J.M.
26. In view of aforesaid facts and discussions, I am inclined to agree with the view expressed by the learned J.M.
27. The matter will now go before the regular Bench for decision according to the majority opinion.
T.N. Chopra, A.M. 13 August 2002 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. 14,58,378 for assessment year 1987-88 in view of the provisions of section 43B.
2. The appeals of the revenue are, therefore, allowed.