Indian Kanoon - Search engine for Indian Law

(ii) That assessed is entitled to deduction regarding Modvat credit even though the same has not been debited to profit and loss. According to him, the assessed is entitled to deduction under section 43-B in the year in which there is purchase of raw material (input) since payment of Excise Duty at the time of purchase amounts to actual payment when assessed becomes entitled to modvat credit under the excise laws. It is irrelevant when such modvat credit is utilized against the duty payable on finished goods. Reliance was placed on the decision of Tribunal in the case of Honda Siel Power Products Ltd. (supra).

30. The above finding of ours would apply mutates mutants with reference to the sum of Rs. 8,41,460 and Rs. 6,76,075 representing PLA balances of R&D cess on vehicles and Excise Duty on spare parts respectively.

31. At this stage, let us also deal with the deduction of Rs. 69,30,00,248 under section 43-B which represents modvat credit of excise duty which remained un-utilized by the end of the year under consideration. After giving our due consideration to the respective arguments of both the parties, we are unable to uphold the claim of assessed. Let us first understand the nature of Modvat Credit. Modvat Credit Scheme is contained in Rules 57A onwards of Central Excise Rules, 1944. Rule 57A allows credit of any duty of excise or the additional Excise Duty paid on the goods used in or in relation to the manufacture of the final products which can be utilized towards payment of duty of excise leviable on final products. For example - Suppose an assessed pays excise duty of Rs. 30 on purchase of raw material which is to be used in manufacture of goods. If the excise duty payable on manufactured goods is Rs. 50 then assessed will be entitled to adjust Rs. 30 against liability of Rs. 50. Thus only balance Rs. 20 would be payable by assessed, As per rule 57C, such credit is not allowed if the final product is exempt from levy of excise duty. Rule 57G prescribes the procedure to be followed by assessed. According to this rule, every manufacturer intending to avail this benefit, is required to file a declaration giving prescribed particulars before the Assistant Collector of Central Excise who shall issue an acknowledgement. Thereafter assessed would be entitled to take credit of duty paid on purchase of raw material. He is also required to maintain an account in Form No. RG-23A and also to maintain an account current with the excise authorities. In view of this scheme, it appears to us that Modvat credit is the notional amount which is allowed to be adjusted against the liability which is to be incurred by the assessed on the manufacture of the final products.

32. The treatment given by assessed in the book of account is like this. It debits the manufacturing account with cost of purchase of raw materials net of excise duty. The amount of excise duty on such purchases is debited to a separate account called - MODVAT recoverable account. When the cars are manufactured, the amount of excise duty payable on such manufacture is credited to Modvat recoverable account. If amount credited is more than themodvat credit, then the excess amount is modvat credit at the end of the year, the same is shown in the balance sheet on the asset side as it represents un-utilized modvat credit. It is this un-utilized amount of modvat credit which has been claimed by the assessed as deduction under section 43-B considering the same as actual payment.

34. Even otherwise, we are of the view that un-utilized modvat credit is not even payment to excise duty by way of any liability to pay such duty much less the advance payment. The liability to pay Excise Duty under the excise laws accrues only on the event of the manufacture of goods and not earlier as held by the Hon'ble Supreme Court in the case of Union of India v. Delhi Cloth & General Mills Ltd. AIR 1963 SC 791. As per the scheme of excise law discussed earlier, the assessed becomes entitled to set off the amount of modvat credit against the liability to pay excise duty which accrues on the date of manufacture. The amount of modvat credit is not refundable in any circumstance. Even assessed has no right to set off if ultimate goods manufactured is exempt from excise duty. In fact, in our opinion, the element of excise duty on the purchase of raw material is part of cost of raw material as also held by the Tribunal in the case of S.H. Kelkar & Co. Ltd. v. Dy. CIT (1993) 44 ITD 170 (Bom.) and, therefore, cannot be considered as payment of Excise Duty. On the other hand, it is the vendor manufacturer who is entitled to deduction under section 43-B in respect of excise duty charged by him from the customers like the assessed. Two persons cannot claim deduction under section 43-B in respect of the same amount, ie., once by the manufacturer who manufactured the goods and again by the purchaser of raw material from such manufacturer on the basis of entries made in R.G. 23A. The entries in R.G. 23A only entitles the assessed to set off the amount equal to the amount of excise duty forming part of cost of raw material. It assumes the character of payment only when it is adjusted against the liability on the manufacture of final product. Therefore, in our humble opinion, the assessed would be entitled to deduction in the year in which modvat credit is adjusted. Admittedly, the sum of Rs. 69,30,00,248 represents the unutilized amount of modvat credit. Hence, the same cannot be allowed as deduction under section 43-B.