Income Tax Appellate Tribunal - Ahmedabad
Assistant Commissioner Of Income Tax vs Shanti Dyeing & Finishing Works on 21 March, 2000
ORDER
T. N. Chopra, A.M.
1. These two appeals have been filed by the Revenue against the consolidated order of the CIT(A), dt. 3rd January,1994, for asst. yr. 1985-86 and 1986-87 whereby disallowance of deduction under s. 43B have been deleted for both the years. Since the grounds of appeal taken by the Revenue, identically worded for both the years, bring out the case of the Revenue on the issue of deduction under s. 43B, the grounds are reproduced hereunder :
(1) The learned CIT(A) has erred on facts and in law in deleting the additions made under s. 43B of the IT Act of Rs. 7,81,682 in asst. yr. 1985-86.
(2) The CIT(A) 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 s. 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-s. (4) of s. 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 s. 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 s. 43B of the Act, and thus, the legislative intention in enactment of the s. 43B would get frustrated.
(3) The learned 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 s. 43B is not applicable in the case of the assessee. The CIT(A) failed to appreciate the purpose and intention enunciated while introducing the provisions of s. 43B of the Act, as spelt out in the speech of the Hon'ble Finance Minister and in Explanatory Memorandum.
(4) It is, therefore, prayed that the order of the CIT(A) may please be set aside and the order of the AO may be restored.
2. For asst. yr. 1986-87, the addition deleted by the CIT(A) is Rs. 30,21,160.
The relevant facts may be briefly indicated below. The assessee-firm carries on the business of dyeing, bleaching and finishing of grey cloth owned by itself and also of other dealers on job work basis. The assessee paid excise duty fully on its own grey cloth dyed and bleached and also paid excise duty on the job work charges recovered from the dealers whose grey cloth was dyed and bleached by the assessee on job work basis. The only issue involved in both the appeals is with regard to excise duty on value of cloth of merchant manufacturers which the assessee recovered from these parties but did not pay the name to the excise authorities on the ground that since no manufacturing is involved, no excise duty on the cloth is payable by the assessee.
3. The assessee succeeded before the High Court but the matter was taken to the Supreme Court by the excise department. The Supreme Court vide its provisional order dt. 9th April, 1984, restrained the excise authority from recovering the disputed portion of the excise duty i.e., duty on the difference between the ultimate price charged from the customer and the value of the processing work done by the assessee, on the condition that the assessee shall furnish bank guarantee to the full extent in regard to the aforesaid difference to the satisfaction of the excise authorities. The bank guarantee was required to be furnished within 4 weeks of each of the clearance or demands as the case may be. The yearwise details of excise duty for asst. yr. 1985-86 (accounting year being the samvat year 2040) and asst. yr. 1986-87 (accounting year being samvat year 2041) are as under :
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Samvat year The amount Excise duty paid The amount of collected from to the Govt. excise duty the parties difference deposited
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2040 (1985-86) 16,26,631.04 8,44,948.70 7,81,682.34 2041 (1986-87) 33,51,336.28 3,30,175.58 30,21,160.70
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4. Thus, for asst. yr. 1985-86 the assessee deposited the amount of Rs. 7,81,682 in the fixed deposit account with Bank of Baroda and similarly for asst. yr. 1986-87 an amount of Rs. 30,21,160 have been further deposited in the F.D. account. The total amount deposited in the excise duty FDR account from asst. yrs. 1985-86 to 1989-90 along with the interest thereon amounted to Rs. 89,12,622. These deposits are reflected in the balance sheet of the assessee which appear on pp. 60 to 65 of the paper book filed during the course of hearing before the Bench. Subsequently the Supreme Court passed the final order in the year 1987 reversing the order of the Gujarat High Court and upholding the levy of excise duty on the value of cloth belonging to merchant dealers. The assessee accordingly paid the entire amount of Rs. 88,68,331 to the excise authorities, as per details placed at p. 1 of the paper book as under :
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Amount Date Mode of payment
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50,00,000 28-3-1987 By transfer
40,81,194 29-6-1988 By cheque
42,78,200 16-11-1988 By transfer
8,936 16-11-1988 By transfer
88,68,331 ------------ 88,68,331
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5. The AO disallowed the amount of Rs. 7,81,682 for asst. yr. 1985-86 and Rs. 30,21,160 for asst. yr. 1986-87 by invoking the provisions of s. 43B on the ground that payments have not been made to the excise authorities. However, it is significant to note that in the subsequent assessment years when the payments were actually made in pursuance of the judgment of Hon'ble Supreme Court upholding the levy in 1987 onwards, the AO did not allow corresponding deductions by virtue of s. 43B in respect of these excise duty payments.
6. Now coming back to the assessment for the assessment years under appeal, the issue travelled upto the Tribunal in the first round of litigation and vide its order dt. 4th May,1992,the matter was sent back to the first appellate authority with the following observations :
"In order to ascertain whether the assessee could be said to have acted as agent as far as excise duty pertaining to value of cloth was concerned. He would also scrutinize the various petitions made before the High Court and the Supreme Court by the assessee and by the association of merchants and then ascertain as to what was the effect of the direction of the Supreme Court restraining the excise department from levying the disputed excise duty. After ascertaining all these facts he would decide the point in controversy in accordance with law. He would give reasonable opportunity to the ITO to place the relevant materials in rebuttal before finally deciding the point in controversy. He would take into consideration the directions given by the Tribunal in the case of M/s. Dyeing and Printing Mills so far as those directions are relevant to the facts of the relevant assessees."
7. The CIT(A), therefore, having considered the facts held that the assessee was not the owner of the cloth received by it for the purpose of processing. Thus, the excise duty collected by him on the value of cloth in his fiduciary capacity was to be paid over to the Government of India through central excise department or in the eventuality of success before the Hon'ble Supreme Court, the amount was to be refunded to the constituents.
8. The CIT(A) held that the provisions of s. 43B were not attracted and accordingly deleted the additions for both the years. Aggrieved with the orders of the CIT(A) the Department is in appeal before us. The case of the Department, as spelt out in the grounds of appeal reproduced above is broadly based on the following points :
(1) The provisions of s. 43B are clearly applicable in the case of the assessee since the liability to pay the excise duty on the cloth belonging to the merchant manufacturers is cast on the assessee-firm.
(2) Making of the FDR as per the directions of the Supreme Court could not be construed as constructive payment thus taking out the case out of the mischief of s. 43B.
9. On behalf of the Department reliance is placed on the decision of Ahmedabad Bench of the Tribunal in the case of Krishna Textiles ITA 1835/1994, order, dt. 3rd January, 1996.
10. On behalf of the assessee elaborate written submissions have been made and it has been argued that r. 174A of the excise rules as well as notifications of the excise authorities placed at pp. 75 and 76 of the paper book indicates that the assessee has collected duty on behalf of merchant-manufacturers who have to file authorisation under notification declaring the value of their cloth to recover excise duty on their cloth for and on their behalf and not of the assessee-firm. It is further argued that even if the excise duty recovered from the merchant-manufacturers constitutes trading receipt of the assessee, the fact that the entire receipts have been deposited in the F.D. account with bank of Baroda and bank guarantee has been provided to the satisfaction of the excise authorities would constitute for all intents and purposes, constructive payment in terms of the provisions of s. 43B. In support of its contention the learned counsel has heavily relied upon the decision of Delhi Bench of the Tribunal in the case of Nuchem Plastic Ltd. vs. Dy. CIT (1992) 44 TTJ (Del) 261. Further reliance is placed on the decision of Bombay Bench of the Tribunal in the case of Sunil Silk Mills Ltd. vs. Dy. CIT (1993) 46 ITD 4 (Bom). The learned counsel has also relied upon the decision of Jaipur Bench of the Tribunal in the case of Rajasthan Partika Ltd. ITA No. 1046 to 1048/Jp./1992, order dt. 10th March, 1999.
11. The learned counsel has sought to distinguish the decision in Krishna Textiles (supra) on the ground that in that case only 50 per cent of the excise duty collected from the merchant-manufacturers was deposited with the bank for furnishing the bank guarantee whereas in assessee's case 100 per cent of the excise duty collected on the value of cloth belonging to merchant-manufacturers has been deposited in the F.D. account for furnishing bank guarantee as per directions of Hon'ble Supreme Court.
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) Ltd. vs. CIT (1973) 87 ITR 542 (SC), and Sinclair Murray & Co. (P) Ltd. vs. 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. vs. 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 decisions of the Hon'ble Supreme Court in the cases of Jonballa Narasimharao & Co. & Ors. vs. CIT (1993) 200 ITR 588 (SC) and CIT vs. T. Naggi Reddy (1993) 202 ITR 253 (SC).
12. Now coming to the second issue regarding deductibility of excise duty liabilities in the context of the provisions of s. 43B, the section introduced by Finance Act, 1983, would have to be construed keeping in view the object, purpose and intent of the legislature in enacting this provision. To understand the circumstances in which s. 43B came to be inserted in the IT Act and the mischief which it sought to prevent, it is necessary to look at the memorandum explaining the provisions in the Finance Bill of 1983. Para 60 of the Memorandum reads 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. employees' 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."
13. The budget speech of the Finance Minister for the year 1983-84 is to the same effect. Sec. 43B was, therefore, clearly aimed at curbing the activities of those taxpayers who did not discharge the statutory liability for long periods of time but claimed at deductions in that regard from their income on accrual basis. It was to stop this mischief that s. 43B was inserted. Now in the instant case before us there are genuine and bona fide litigation carried on by the assessee with the excise authorities against the levy of excise duty in relation to the cloth not owned by the assessee. The fact that the assessee succeeded before the High Court along with a number of other processors of cloth in the same business provides ample proof that the litigation is not guided by ulterior motive of evading or withholding excise duty payments. It is further to be noted that the amounts of excise duty Rs. 7,81,682 for asst. yr. 1985-86 and Rs. 30,21,160 for asst. yr. 1986-87 have not been utilised by the assessee for its business purposes but the amounts as and when fallen due have been deposited in the F.D. account with the Bank of Baroda for the purpose of providing bank guarantee to the excise authorities in compliance with the directions of the Hon'ble Supreme Court. The assessee had thus no control over active user of the money deposited with the bank. The assessee of course got the benefit of interest on these deposits and such interest income has been duly disclosed in the relevant assessment years and brought to tax by the AO.
14. It is in the light of the aforesaid facts of the assessee's case that the applicability of the provisions of s. 43B would have to be considered by us. Sec. 43B makes a departure from the accepted method of accounting adopted by the assessee and such departure is intended by the legislature for curbing the mischief of withholding of tax payments while claiming deduction in respect thereof in the income-tax assessments. Such a provision should necessarily be construed reasonably in the light of the object and purpose for enacting the same. Statutes should be construed not as theorems of euclid but with imagination of purpose behind them. This is more so since the section has been enacted by way of an exception to accepted rules of commercial accounting. A literary interpretation de hors the object and purpose of the provision would be violative of accepted rules of interpretation. Once the assessee has deposited the excise duty receipts with the Bank of Baroda and bank guarantee has been provided to the satisfaction of the excise authorities, as per the directions of the Hon'ble Supreme Court, this would in our opinion amount to 'actual payment' by the assessee in terms of the provisions of s. 43B. So far as the assessee is concerned it has lost control over the user of the money for the business purpose and the money has for all indended purposes gone out of its circulating capital the word 'paid used in s. 43B would have to be construed in a liberal manner so as to extend to all manner of divestment of money by the assessee. We are inclined to concur with the view taken by the Delhi Bench of the Tribunal in Nuchem Plastic's case (supra) and Mumbai Bench in Sunil Silk Mills Ltd.'s case (supra) and hold that provisions of s. 43B would not be applicable in the instant case for both the assessment years. For the above reasons we hold that the deletion of additions of excise duty payments for the two assessment years are fully justified.
15. The appeals of the Revenue are, therefore, dismissed.