Income Tax Appellate Tribunal - Ahmedabad
Assistant Commissioner Of Income-Tax vs Mugat Dyeing & Printing Mills on 29 November, 1999
Equivalent citations: [2000]75ITD387(AHD)
ORDER
T. J. Joice, A.M.
1. These appeals by the Department are directed against the order of the CIT(A) dt. 28th December, 1993 for the asst. yrs. 1986-87 and 1987-88. As the grounds of appeals are similar both the appeals are being disposed of by this common order for the sake of convenience.
2. The point in dispute for both the years is regarding the disallowance made by the AO under s. 43B which was deleted by the CIT(A). The amounts involved are Rs. 58,75,999 for asst. yr. 1987-88 and Rs. 44,58,378 for asst. yr. 1986-87.
3. The assessee-firm is a processing house carrying on the business of dyeing and printing of cloths of merchants entirely on job work basis. It is not processing the cloth of its own. 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. In the process excise duty is leviable. It collects the excise duty from the merchants on the cloth processed for them by way of separate debit note and the same is debited to excise account of merchant in separate ledger kept for the purpose. For the sake of convenience the assessee-firm deposits certain amount with the excise department as advance and as and when the cloth is cleared, the said advance is adjusted against the excise duty payable in respect of the cloth cleared. The assessee-firm has kept separate excise account of each merchant the excise duty paid is debited and the excise duty recovered from the merchants is credited to that account. The assessee-firm is not showing the receipt in the trading account nor is claiming excise duty paid to the excise department as an expenditure. Whatever balance remained unpaid at the end of the year is shown in the balance sheet. The assessee-firm has shown the unpaid excise duty collected from the merchant owners in the balance sheet under the head "deposit against differential excise duty." The Central Excise Department is charging excise duty on selling period of the cloth printed by the assessee for the merchants. The assessee-firm disputed this mode of charging the Central excise duty as according to it duty should have been charged only on the value of the job work done by the assessee-firm and not on the ultimate sale price of the cloth. However, the assessee-firm continued to collect the excise duty from the merchants on the full value of the cloth and the job charges. The assessee-firm with other processors ultimately went to the Supreme Court which granted stay under which the officers of the excise department have been restrained from levying and recovering the disputed, portion of the duty on the condition that the assessee-firm should furnish bank guarantee of equivalent amount to the excise department. In order to secure the bank guarantee, the assessee had to deposit the equivalent amount with the bank in fixed deposit. The position regarding the collecting of excise duty, fixed deposits with the bank and furnishing of the bank guarantee is shown as under :
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Particulars 1985-86 1986-87 1987-88
Rs. Rs. Rs.
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Deposit against 28,80,527 85-86 28,80,527 85-86 28,80,527 differential excise 86-87 58,75,999 86-87 58,75,999 duty 87-88 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 6,23,874 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 ---------------------------------------------------------------------
4. The assessee firm put differential excise duty collected in the fixed deposits with the bank and furnished the bank guarantee within the time prescribed by the Hon'ble Supreme Court, i.e., within four weeks of each clearance. Disputed unpaid excise duty has been shown by the assessee in the liabilities side of the balance sheet under the head 'sundry creditors', the details of which have been given in schedule 'C' to the balance sheet. The amount has been shown under the head 'deposit' against differential excise duty. It has been pointed out that the amount of fixed deposits has been reflected in the balance sheet in the assets side. It has been further submitted by the assessee that ultimately after the decision of Supreme Court, the excise department encashed the bank guarantee and realised the amount against the deposits after encashing the fixed deposits as under :
13th March, 1987 Rs. 52,15,270 (before the decision of the Hon'ble Supreme Court) 15th November, 1988 Rs. 1,24,02,400
5. The AO considered the excise duty collection as part of the trading receipts of the assessee by applying the following case laws :
(1) Chowringhee Sales Bureau (P) Ltd. vs. CIT (1975) 87 ITR 542 (SC); (2) CIT vs. Saraswati Industrial Syndicate Ltd. (1973) 91 ITR 501 (Punj); (3) P. Krishna Rao vs. CIT (1978) 112 ITR 26 (AP);
(4) Deccan Hides & Skins Co. vs. CIT (1983) 142 ITR 175 (Bom); and (5) Badri Narayan Balkrishnan vs. CIT (1965) 57 ITR 752 (AP).
6. The AO also did not allow any deduction for the excise duty on the ground that it was not paid to the Govt. a/c in terms of s. 43B of the IT Act which according to him permitted deduction only on the basis of actual payment.
7. The CIT(A) considered the issue at length in the impugned order. According to him the excise duty collected by the assessee from the manufacturers who have been exempted to take licence for manufacturing under r. 174A of the Excise Rules and Notification dt. 5th November, 1977 on the basis of authorisation given by them to the assessee and confirmed by the excise department, cannot be considered as trading receipt in the assessee's hands as the assessee was merely acting as agent of the merchant manufacturer for the purpose of collection and payment of the excise duty to the excise department. He was of the further view that the excise duty collected was not in anyway the liability of the assessee but that of the merchant or the manufacturer who had taken the ultimate responsibility for paying the correct excise duty in case any incorrect particulars were furnished with regard to the selling price or any other particulars in the authorisation given by them to the assessee, as was evident from cls. (vi) and (vii) of the authorisation form. According to the CIT(A) it was only a contractual liability on the part of the assessee-firm emanating from the authorisation given by the merchant/manufacturer. In this view of the matter, he considered that the facts of the assessee's case were distinguishable from the facts in Chowringhee Sales Bureau (P) Ltd. (supra). He also relied in this connection on the decision of the Tribunal, Ahmedabad Bench in the case of Happy Trust, Surat vs. ITO in ITA No. 1650/Ahd/1986 and that of the Tribunal, Bombay Bench in the case of Sunil Silk Mills vs. Dy. CIT (1996) 46 ITD 4 (Bom).
8. As regards the other contention relating to the applicability of s. 43B, the CIT(A) gave his finding as under :
"The contention of the learned counsel of the appellant that even if the excise duty collected is treated as a trading receipt, the appellant has discharged its liabilities, the moment the amount of excise duty collected was put into fixed deposit against which bank guarantee was issued to the excise department as per their requirements, also carries great force. As has been discussed above, the Hon'ble Supreme Court has stayed the payment of the excise duty collected by the appellant on specific condition that the appellant should have to furnish a bank guarantee against the excise duty so collected to the excise department as per their satisfaction. In pursuance of this direction of the Hon'ble Supreme Court, the appellant furnished the bank guarantee to the excise department to their satisfaction. Tentatively it was agreed that to secure interest of the excise department the appellants would have to put the entire excise duty collected in the fixed deposit and the bank would give bank guarantee against the amount of fixed deposits. Since the arrangement was to the satisfaction of the excise department and the appellant did not utilise any amount of excise duty collected from the merchant manufacturers the amounts so collected was always available with the excise department for appropriation but for the stay granted by the Hon'ble Supreme Court. Therefore, the contention of the learned counsel of the appellant that the appellant has made constructive payments of the excise duty so collected by putting the amount so collected in the fixed deposit and furnishing bank guarantee against these deposits, is justified. The case of the appellant is squarely covered by the Tribunal, Delhi Bench decision in the case of New Chem Plastic Ltd. vs. Dy. CIT reported in (1992) 44 TTJ (Del) 261 also Tribunal, Bombay Bench decision in the case of Sunil Silk Mills Ltd. vs. Dy. CIT (1996) 46 ITD 4 (Bom). Therefore, keeping in view all the facts and circumstances of the case, it is held that the AO was not justified in treating the excise duty collected by the appellant from the merchant manufacturers as a trading receipt and bring the same to tax by invoking provisions of s. 43B of the IT Act. Therefore, the additions of Rs. 58,999 and Rs. 44,58,378 made by the AO for asst. yrs. 1986-87 and 1987-88 respectively are deleted."
9. In the present appeals before us, the learned Departmental Representative strongly challenged the order of the CIT(A) (1996) 59 ITD 523 (Ahd), (1990) 34 ITD 286 (Del) and (1992) 41 ITD 582 (Cal). The learned Departmental Representative goes on to argue that the assessee is entitled to the deduction only in the year of payment of the excise duty.
10. However, on behalf of the assessee nobody appeared on the date of hearing. Hence we proceed to dispose of the appeal on the basis of evidence available on record and after taking into consideration the rival submissions.
11. It has been laid down by the apex Court in Chowringhee Sales Bureau (P) Ltd. (supra) and Sinclair Murray & Co. (P) Ltd. vs. CIT (1974) 97 ITR 615 (SC) that sales-tax collected constitute 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 Jonalla Narasimharao & Co. vs. CIT (1993) 200 ITR 588 (SC) and CIT vs. T. Naggi Reddy (1993) 202 ITR 253 (SC). The decision of the Supreme Court in the case of Jonalla Narasimharao & Co. (supra) has been followed by the Hon'ble Gujarat High Court in the case of Navjivan Udyog Mandal (P) Ltd. vs. CIT (1994) 207 ITR 40 (Guj). In view of the binding ratio of these decisions we hold that the AO was justified in treating the excise duty collected as a trading receipt of the assessee. Hence we are unable to agree with the finding given by the CIT(A) to the contrary on this aspect. So we reverse the order of the first appellate authority and restore the order of the AO with respect to the nature of the trading receipt in question.
12. However, if the excise duty collected is treated as trading receipt a further point arises whether the assessee is entitled to deduction under s. 43B in the circumstances mentioned above. It is clear that 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 is payable, the entire bank guarantee is to be acted upon by the excise department. Be that as it may, under the specific provisions of s. 43B, the assessee is entitled to claim deduction for the excise duty paid only on the basis of actual payment to Govt. a/c. The question whether the assessee is entitled to deduction under s. 43B in respect of the bank deposit made has been analysed from the legal perspective in the following reported decisions of the Tribunal :
(i) Asstt. CIT vs. Krishna Textiles (1997) 57 TTJ (Ahd) 681 : (1996) 59 ITD 523 (Ahd);
(ii) Purolator India vs. IAC (1990) 34 ITD 286 (Del);
(iii) Dunlop India Ltd. vs. Asstt. CIT (1992) 41 ITD 582 (Cal); and
(iv) Sunil Silk Mills Ltd. vs. Dy. CIT (supra).
13. In the decisions (i), (ii) & (iii) above cited it was 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 s. 43B, though in the decision No. (iv) cited above a view in favour of the assessee was taken. However, we find that in the decision of the Ahmedabad Bench in the case of Krishna Textile Mills (supra), the decision of the Bombay Bench in Sunil Silk Mills Ltd. (supra) in favour of the assessee has also been considered. In the circumstances, respectfully following the decision of the Hon'ble Tribunal, Ahmedabad Bench reported in (1996) 59 ITD 523 (Ahd) (supra) and also the decisions reported in (1990) 34 ITD 286 (supra) and (1992) 41 ITD 582 (supra) we have to hold that the assessee is not entitled to deduction under s. 43B for the assessment years under appeal in respect of the deposits for obtaining bank guarantee, subject to the remark that the assessee becomes entitled to claim such deduction as and when payment of excise duty is made to Govt. a/c. in accordance with the procedure for payment of the excise duty under the relevant law and rules framed thereunder. We modify the order of the first appellate authority accordingly.
14. In the result, the appeals are allowed.