1 to 8. [These paras are not reproduced here as they involve minor issues.] 9. Another major item of dispute common to both assessment years is about deduction of central sales tax liability as admissible expenditure. claim is Rs. 84,21,284 for assessment year 1979-80 and Rs. 28,37,124 for assessment year 1980-81. assessee-firm exports coffee on large scale. export of coffee outside India is controlled by Coffee Board, Bangalore. Coffee Board also authorises private exporters to export coffee. There was dispute whether central sales tax was leviable in respect of export sales. Supreme Court had originally held that exemption from central sales tax was available only in respect of actual exporter and not intermediate seller. Central Sales Tax Act, 1956 was then amended to exempt from tax e v e n last sale on purchase of goods preceding sale or purchase occasioning export of goods outside territories of India subject to certain conditions. Applying this section, it appears that while export coffee sales were exempt from central sales tax, Coffee Board, which is immediate previous seller of coffee to exporter, was also not liable to pay central sales tax provided certain conditions were satisfied. But apprehending that sales tax may be levied on Coffee Board, Board asked exporters to deposit probable sales tax payable by Coffee Board or in alternative to furnish bank guarantee to that effect. action of Board in demanding guarantee was challenged by assessee and two others in writ petition before Supreme Court. order passed by Supreme Court and its effect will be considered later in our order. Suffice it to say, that on basis of circular issued by Coffee Board assessee claimed that there was accrued liability on their part to pay aforesaid sums of Rs. 84,21,284 and Rs. 28,37,124 to Coffee Board which has to be allowed as admissible deduction in computation of its income for respective years. IAC discussed various case laws and held that mere provision will not amount to accrued liability and, accordingly, disallowed assessee's claim for deduction of said sums. 10. Commissioner (Appeals) dealt with this issue in his order for assessment year 1978-79. For that year sum of Rs. 26,89,000 had been demanded from assessee. It actually paid that amount but subsequently as other exporters offered only bank guarantee, it got amount refunded on furnishing bank guarantee. Commissioner (Appeals) observed that assessee's claim had been disallowed by IAC on ground that it was only contingent liability and was also not debited to profit and loss account. He held as follows: " 6.4. I have carefully considered facts of case and I am of opinion that appellant's claim for deduction of central sales tax has to be allowed. This is not payment made to private party. This is payment demanded by statutory body and made by appellant to Government of India. In case of appellant-company, there was specific performance of contract as result of which sales tax liability arose. liability to refund of part of purchase price held as deposit in lieu of sales tax was contingent on Assessment being completed by sales tax authority on guidelines issued by Supreme Court. But that does not mean that liability did not exist when demand was raised by Coffee Board and payment was made by appellant. Besides, this is not merely liability which was not met by appellant-company. sales tax as demanded had been originally paid in full but subsequently, as agreed to by Coffee Board, only bank guarantee was filed. As regards Income-tax Officer's observation that amount had not been claimed in profit and loss account, appellant points out that in mercantile system of accounting, actual entries are immaterial. What is relevant is method of accounting and not actual entries [CIT v. Chunilal Mehta (SC), C.A. No. 153568 (Taxes & Planning, Oct. 1971)]. appellant also relies on decision of Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT  82 ITR 363 where it has been observed that whether assessee is entitled to particular deduction or not will depend on provision of law relating thereto and not on view which assessee might take of his rights nor can existence or absence of entries in his books of account be decisive or conclusive in matter. Finally, appellant contends that assessee-company on purchasing coffee for valuable consideration did not incur liability in year of account. assessee maintaining books on mercantile system of accounting is entitled to claim deduction in year in which liability arises notwithstanding fact that he has taken steps to dispute his liability and he fails or omits to make entries in his books of account CIT v. Central Provinces Manganese Ore Co. Ltd.  112 ITR 734 (Bom.). 6.5. Taking into account all facts of case and on basis of explanation offered and evidence produced, I am convinced that payment made by appellant-company towards central tax liability has to be allowed as deduction from total income determined by Income-tax Officer. " 11. For years under appeal, he observed that on reasons given by him in his order for 1978-79, assessee's claim has to be allowed. He then stated that provision had been made for central sales tax liability while IAC had wrongly stated that no provision had been made. Next he states that IAC was not correct in holding that circular of Coffee Board dated 7-2-1977 w s quashed by Supreme Court. He then referred to portion of Supreme Court judgment where it was stated that impugned circular was quashed to extent to which it insisted on production of agreement with or order from foreign buyer from registered exporters before participating in export auctions. From that he drew inference that observations made by Supreme Court was with regard to future transactions and did not affect liability regarding past dealings. As only sales tax authorities could apply law as laid down by Supreme Court and until they took decision, sales tax liability subsisted and had to be allowed. He, accordingly, ordered deletion of sums of Rs. 84,21,284 and Rs. 28,37,124. revenue is in appeal. 12. learned standing counsel referred to writ petition filed by assessee and others and read out portions of Supreme Court judgment. According to him, Supreme Court more or less clearly stated that Coffee Board was not liable to pay any sales tax. It was apprehension by Coffee Board that demand may be raised against it by sales tax authorities and so it wanted to protect itself by collecting as advance from exporters sales tax which it might have to pay in future. liability was purely contingent. There was no demand on Coffee Board. There was no payment by assessee. There was, thus, no acceptance of any liability. There was neither any legal liability nor contractual liability. same issue came up in another case and Tribunal in its order in IT Appeal No. 1057 (Bang.) of 1982 dated 15-3-1983 in case of Ramesh Enterprises (P.) Ltd. v. ITO  5 ITD 395 (Bang.) upheld contention of revenue. He submitted that there was no grounds to depart from decision in Ramesh Enterprises (P.) Ltd.'s case. 13. learned counsel for assessee relied on following decisions: Shrikant Textiles v. CIT  81 ITR 222 (Bom.), Kedarnath Jute Mfg. Co. Ltd. v. CIT  82 ITR 363 (SC), CIT v. Sugar Dealers  100 ITR 424 (All.) and CIT v. Punjab Distilling Industries Ltd.  53 ITR 75 (SC). He submitted that assessee was bound to pay to Coffee Board, said sums by virtue of circular dated 7-2-1977. Whether paid or not liability subsisted. Even if on subsequent date liability was extinguished, that did not mean that there was no accrued liability. In Shrikant Textiles' case, it was held that although by second notice of demand excise duty was reduced, that cannot be made basis for finding that even on earlier date assessee could be said to have been definitely informed that excise duty was being recalculated on fresh basis. Whatever duty was levied on earlier occasion was allowed as liability in relevant year although subsequently it was reduced. Similarly, in case of Punjab Distilling Industries Ltd., empty bottle return security deposit was considered as part of receipts although assessee was bound to refund security deposits when 90 per cent of bottles were returned. It was submitted that converse also holds good and in light of decisions of Supreme Court in Punjab Distilling Industries Ltd.'s case and Kedarnath Jute Mfg. Co. Ltd.'s case and of Bombay High Court in Shrikant Textiles' case, there was definite and accrued liability on assessee to pay certain sums to Coffee Board which was admissible deduction. It was urged that Commissioner (Appeals)'s order did not require any modification. It was also sought to be pointed out that invoices themselves contained note regarding sales tax recoverable from assessee by Coffee Board. These details had not been examined in case of Ramesh Enterprises (P.) Ltd. This introduced vital distinction between assessee's case and that in Ramesh Enterprises (P.) Ltd.'s case. It was also submitted that even if liability were allowed in this year, revenue was well protected by section 41(1) of Income-tax Act, 1961, to collect tax in year of remission of liability. In fact, there was also demand by sales tax authorities, Mangalore. It was, thus, submitted that order of Commissioner (Appeals) did not require any interference. 14. In reply, learned standing counsel submitted that there was no distinction between two cases, viz., assessee's and Ramesh Enterprises (P.) Ltd.'s case. Mention of ad hoc figure of sales tax in invoice did not give rise to au accrued liability. relevant case laws had already been discussed by Tribunal in Ramesh Enterprises (P.) Ltd.'s case. revenue's claim to tax remission of liability under section 41(1) had been rejected by Commissioner (Appeals) in later years on technical ground that assessee which received remission was constitutionally different from assessee which incurred liability. Since there was no accrual of liability nor even payment towards such liability, he submitted that assessee's case to obtain deduction of liability which never existed should not be accepted. 15. At outset, we have to mention that facts as stated by Commissioner (Appeals) in his order for assessment year 1978-79 do not seem to be quite correct. relevant portions of his order in paragraph 6.2 are reproduced below: " ...According to appellant, in order to remove hardship caused by these decisions of Supreme Court, Parliament enacted new sub-section (3) of section 5 and added proviso to section 6(1). appellant claimed that no sales tax was payable as per provisions of section 5(3). This contention of appellant was not accepted by Coffee Board which held view that appellant was liable to pay sales tax under Central Sales Tax Act. Coffee Board issued circular dated 7-2-1977 laying down certain conditions for availing of exemption under section 5(3). Further, as Board was not certain as to final view of central sales tax authorities, it insisted on payment of sales tax by registered exporters.... " Firstly, assessee was not liable to pay Central sales tax as it was ultimate exporter. doubt was only about liability of intermediate seller, viz., Coffee Board. Therefore, statement that assessee was liable to pay sales tax under Central Sales Tax Act is not correct. It was Coffee Board which apprehended that it might be liable to pay central sales tax on supposition that taxing authorities might reject its claim for exemption under section 5(3) of that Act. Since, as dealer, it thought that it might be asked to pay sales tax, it tried to obtain reimbursement of sales tax from its clients. Therefore, there was no liability imposed by statute itself on assessee for payment of sales tax. question was about assessee's liability to reimburse to Coffee Board sales tax, if any, payable by Board. With this background, we will now proceed to narrate facts of case and examine question of accrual of liability in light of reported decisions. 16. Central sales tax is tax on sale or purchase of goods taking place in course of inter-state trade or commerce. Section 6 of Central Sales Tax Act reads as follows: " 6. Liability to tax on Inter-State sales.--(1) Subject to other provisions contained in this Act, every dealer shall, with effect from such date as Central Government may, by notification in Official Gazette, appoint, not being earlier than thirty days from date of such notification, be liable to pay tax under this Act on all sales of goods other than electrical energy effected by him in course of inter-State trade or commerce during any year on and from date so notified: Provided that dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with provisions of sub-section (3) of section 5, is sale in course of export of those goods out of territory of India. " Section 5 is reproduced below: " 5. When is sale or purchase of goods said to take place in course of import or export.--(1) sale or purchase of goods shall be deemed to take place in course of export of goods out of territory of India only if sale or purchase either occasions such export or is effected by transfer of documents of title to goods after goods have crossed customs frontiers of India. (2) ** ** ** (3) Notwithstanding anything contained in sub-section (1), last sale or purchase of any goods preceding sale or purchase occasioning export of those goods out of territory of India shall also be deemed to be in course of such export, if such last sale or purchase took place after, and was for purpose of complying with, agreement or order for, or in relation to such export. " It is, thus, clear that export sales are not liable to central sales tax. This concession was also extended to penultimate purchaser or seller by virtue of section 5(3). In this case, assessee is final exporter. Therefore, it is not liable to pay any central sales tax on export sales. By virtue of Coffee Board Act, entire stock of coffee produced in country is to be handed over to Coffee Board. Coffee Board then auctions coffee and customers are permitted to bid in those auctions. bidders can also be exporters. Therefore, Coffee Board becomes penultimate seller to exporter. According to section 5(3) read with section 6, Coffee Board will not be liable to pay central sales tax, provided conditions stated therein are satisfied. 17. After introduction of section 5(3) in Central Sales Tax Act by Central Sales Tax (Amendment) Act, 1976, Coffee Board issued following circular: " Ref. No. AC III/77-575 To All Registered Exporters. Dear Sirs, Sub: Central Sales Tax Act (Amendment) of 1976 No. 108 of 1976. As all exporters are aware, new sub-section (3) has been added to section 5 of Central Sales Tax Act, 1956 (hereinafter referred to as 'the Act') by amending Act, 108 of 1976. provisions of this new sub-section has been given retrospective effect from 1-4-1976. new sub-section reads as follows: 'Notwithstanding anything contained in sub-section (1), last sale or purchase of any goods preceding sale or purchase occasioning export of those goods out of territory of India shall also be deemed to be in course of such export, if such last sale or purchase took place after and as for purpose of complying with, agreement or order for, or in relation to such export.' 2. According to this newly inserted sub-section (3) of Act, last sale or purchase of any goods, immediately prior to sale or purchase occasioning export of goods out of territory of India, shall also be deemed to be in course of such export, subject to certain conditions laid down therein. 3. Coffee Board is advised that benefit of new section 5(3) of Central Sales Tax Act of 1956 will be available in respect of coffee purchased by exporters in export auctions conducted by Coffee Board, if such purchases by exporters take place after and was for purpose of compliance with agreement or order for supply of coffee secured from foreign buyers. In order to avail of benefit, it would be necessary that exporters should have proof to establish following: (a) registered exporter should have export contract on hand at time of his participating in export auction. (b) purchase of coffee effected by registered exporter in auction should be for fulfilment of export contract. (c) There should be proof of export. 4. Such of coffee exporters participating in export auctions and who would like to avail of benefit contemplated in sub-section should deposit with Chief Coffee Marketing Officer before commencement of each export auction, copies of export orders or agreements from their foreign buyers, on basis of which they wish to avail of benefit, along with originals of the basis of which they wish to avail of benefit, along with originals of orders or agreements, as evidence of compliance of condition (a) referred to in para 3 ante. In respect of coffee purchased by exporters in open auctions against prior orders or agreements lodged with Chief Coffee Marketing Officer in manner stated above, sales tax will not be collected from exporter at time of payment of value of coffee and its delivery, subject to exporters furnishing contingency deposit or bank guarantee as detailed below. 5. Since final authority to exempt any sale from payment of sales tax under section 5(3) of Act is assessing authority firm order lodged before commencement of auction will not be free from doubt in regard to its acceptability to assessing authority as evidence of order or agreement secured prior to purchase of coffee in open auction, until assessment is completed. As assessment of transactions relating to this is generally taken up couple of years after close of financial year, it has been decided to collect contingency deposit in lieu of sales tax liability on such exports and equivalent to amount of such liability from exporters. 6. If, however, exporters do not choose to make contingency deposit, they could adopt either of following two alternatives to cover their liability towards sales tax: (a) exporters may furnish bank guarantee to Board as per specimen enclosed, for amount of sales tax involved in respect of their purchases in such auction and for which they propose to seek benefit of exemption from liability. While furnishing bank guarantee, exporters should also furnish details of sales tax involved separately in respect of each pool agent/depot concerned as enclosure to bank guarantee. or (b) exporters may furnish security deposit for amount involved in t h e form of separate fixed deposit receipts for coffee purchased in different states in each of export auction. fixed deposit receipts should be in name of Coffee Board, on account of exporter concerned for period of 4 years. 7. Coffee Board as assessee will have to establish to satisfaction of assessing authority that benefit of section 5(3) of Act is available on all transactions in respect of which benefit of section 5(3) of Act is proposed to be availed of. contingency deposit/security deposit/bank guarantee is being called for from exporters in order only to provide for cover against any levy of sales tax by assessing authority in future. In event of assessing authority not accepting Board's contention for benefit under section 5(3) of Central Sales Tax Act and making assessment on Board, contingency deposit/security deposit will be appropriated towards payment of sales tax by Board. In case of bank guarantee, Board will demand amount involved from banks who have given guarantees and appropriate amount towards Board's liability of sales tax. It may also be mentioned that if assessing authority does not accept Board's contention and levy sales tax on such transactions, Board may prefer appeal before appellate authority and in such event expenses incurred in connection with such appeal will have to be borne by exporters. 8. Since amendment to Central Sales Tax Act has been brought into force with retrospective effect, any benefit arising thereof in respect of past purchases will have to be dealt with on merits of each case. Such of exporters who have clear case for seeking exemption in respect of their past purchases may prefer their claims with contemporaneous evidence of acceptable nature when question will be examined at this end. Please acknowledge receipt of this circular. " conditions sought to be imposed by Coffee Board for making contingent deposits or furnishing bank guarantees Were opposed by some of exporters including assessee. Writ petitions bearing Nos. 4238 and 4239 of 1978 were filed by assessee. These writ petitions along with those filed by Consolidated Coffee Ltd. and T.G.M. Assadi & Sons were disposed of by Supreme Court. decision is reported in Consolidated Coffee Ltd. v. Coffee Board AIR 1980 SC 1468. Regarding interpretation of section 5(3), Court held as follows: " 14. In first place concerned phrase speaks of two things in disjunctive: 'agreement' or 'order'. word 'order' which appears in statute dealing with sales tax must be understood in commercial sense, that is, in sense in which traders and commercial men will understand it. In commercial sense order means firm request for supply of definite goods emanating from buyer, indent placed by purchaser and, therefore, order for or in relation to export would mean indent from foreign buyer. It is not possible to accept contention urged by counsel for petitioners that word 'order' in this phrase can mean or refer to order, direction, mandate, command or authorisation to export that may be issued by statutory body like Coffee Board for two reasons: first, occurring in sales tax statute word must be given its commercial meaning and, secondly, while enacting provision Parliament could not be said to have only statutory bodies like Coffee Board or STC in mind. If, therefore, order for export in concerned phrase means indent from foreign buyer, preceding word 'agreement' in phrase would take colour from word 'order' and would on principle of noscitur sociis mean agreement with foreign buyer. In Maxwell on Interpretation of Statutes (at p. 289, 12th edn.) rule of noscitur sociis is explained thus: 'Where two or more words, which are susceptible of analogous meaning, are coupled together they are understood to be used in their cognate sense. They take as it were, their colour from each other, meaning of more general being restricted to sense analogous to that of less general'. Applying this rule of construction it becomes clear that 'the agreement' occurring in phrase must mean agreement with foreign buyer and not agreement with local party containing covenant to export. Secondly, and more importantly, user of definite article 'the' before word 'agreement' is, in our view, very significant. Parliament has not said 'an agreement' or 'any agreement' for or in relation to such export and in context expression 'the agreement' would refer to that agreement which is implicit in sale occasioning export. Between two sales (the penultimate and final) spoken of in earlier part of sub-section ordinarily it is final sale that would be connected with export, and, therefore, expression 'the agreement' for export must refer to that agreement which is implicit in sale that occasions export. user of definite article 'the' therefore, clearly suggests that agreement spoken of must be agreement with foreign buyer. As matter of pure construction it appears to us clear, therefore, that by necessary implication expression 'the agreement' occurring in relevant phrase means or refers to agreement with foreign buyer and not agreement or any agreement with local party containing covenant to export. " Further, at end of paragraph 17, it observed as follows: " ...therefore, question will again be what type of obligation and arising from what circumstances has been prescribed by Parliament by enacting section 5(3) and that would depend upon proper construction of phrase 'the agreement or order for or in relation to such export' occurring therein and, as we have said above, since on proper construction expression 'the agreement or order' means agreement with or order from foreign buyer it must be held that Parliament intended to prescribe that obligation to export arising only from such agreement or order that would afford inextricable link so as to constitute penultimate sale sale in course of export. " Next it considered question as to when penultimate sale of coffee to exporters at auctions conducted by Coffee Board could be said to have taken place. In paragraph 30 Court held as follows: " Having regard to above discussion it is clear to us that in penultimate sales (sales of coffee effected to Registered Exporters at export auctions conducted by Coffee Board) property in coffee sold thereat passes to buyer immediately upon payment of full price, weighment and setting apart of coffee for delivery to buyer under clauses 19 and 20 of Auction Conditions and it would be at this stage, i.e., just before this stage is reached that agreement with or order from foreign buyer must be available or produced in order to attract section 5(3) of Central Sales Tax Act, 1956. " Court then issued following directions: " 31. In result writ petitions are partly allowed. impugned Circular dated 7th February, 1977, to extent to which it insists on production of agreement with or order from foreign buyer from Registered Exporters before participating in export auctions is quashed; it is also quashed hereafter to extent to which it requires Registered Exporters to make contingency deposits or furnish bank guarantees out of abundant caution inasmuch as such requirement would be unnecessary in view of our authoritative pronouncement. Coffee Board may, if so advised, modify its Circular or issue appropriate Circular requiring production of agreement with or order from foreign buyer from Registered Exporters just before property in coffee sold at such auctions passes under clauses 19 and 20 of Auction Conditions. 32. As regards past dealings and transactions, final assessment, if any, m d e by Taxing Authorities as well as recoveries if made thereunder contrary to view expressed by us above deserve to be set aside and reassessments made and concerned State Governments will direct their Taxing Authorities to do needful and further direct refund of recoveries made to Coffee Board which in its turn will refund same to concerned Registered Exporters. Assessment or recoveries if made in conformity with our judgment need not be disturbed. Similarly contingency deposits or bank guarantees already obtained by Coffee Board from Registered Exporters, if they are contrary to our judgment, these will be refunded or released forthwith, as case may be, by Coffee Board. " From above, it would appear that Coffee Board would be penultimate seller and not liable to Central sales tax in all cases where there is agreement between exporter and foreign buyer. Coffee Board was prohibited from insisting on production of agreement to export before participating in auction or making contingency deposits or furnishing bank guarantees by exporters. It is also to be noted that assessee got refund of deposits already made and bank guarantees became unenforceable by virtue of Supreme Court judgment. It, thus, appears that circular of Coffee Board ipso facto did not impose liability on exporters to make payments to Coffee Board towards apprehended sales tax liability of latter. Tribunal in its order dated 15-3-1983 in Ramesh Enterprises (P.) Ltd.'s case held as follows: " circular of Coffee Board has been extracted in Commissioner (Appeals)'s order. It is clear from said circular that Coffee Board was not collecting any sales tax but only required exporters to make contingent deposit or bank guarantee in order only to provide for cover against any levy of sales tax by assessing authority in future. That will clearly show that what was demanded by Board was not in respect of any sales tax liability ascertained but only by way of contingency. It required exporters to make security deposit or bank guarantee. Thus, there was no actual sales tax liability on assessee when bank guarantee was given. There was no such sales tax liability even on Coffee Board when bank guarantee was furnished by assessee. Thus, question of deducting contingent liability does not arise as in fact there was no sales tax liability at all at that time.... " Following above decision, we hold that there was no accrued liability on part of assessee to pay aforesaid sums to Coffee Board. 18. We have now to examine whether mention of sales tax liability in invoices issued by Coffee Board can be taken as evidence of accrual of liability. We are now considering case of accrual of liability, according to law. Accrual of legal liability does not depend on action of parties. Hence, if Coffee Board has merely mentioned that sales tax at 6 per cent on sales is to be paid by assessee that does not amount to accrual of liability. Board itself has accepted that it is only contingency and in fact wanted contingency deposit to be made or bank guarantee to be furnished. Supreme Court has now held that Board was not empowered to demand such deposits or furnishing of bank guarantees. When that is case, how could it be said that liability to pay sales tax arose? Nor do we agree with assessee's counsel that invoices were not examined in case of Ramesh Enterprises (P.) Ltd. and that fact introduced vital distinction between that case and assessee requiring review of our earlier order. facts are same in both cases and production or non-production of invoices hardly matters since entire issue has to be considered from legal angle. cases cited on behalf of assessee have also been discussed in Tribunal's decision in Ramesh Enterprises (P.) Ltd.'s case. In case of Punjab Distilling Industries Ltd. there was binding contract between assessee and its customers to Ltd. there was binding contract between assessee and its customers to make security deposits. Punjab Excise Rules did not create right in distiller to return bottles and as such amount deposited by wholesalers having been taken under trading contract, Supreme Court held that they formed part of trading results. converse proposition that such deposits are to be taken as liability of trader will not arise. As and when deposits are returned, distiller was entitled to claim deduction. facts in present case are clearly distinguishable. decision of Bombay High Court in Shrikant Textiles' case is also not applicable to present case as noticed by Tribunal in its decision in Ramesh Enterprises (P.) Ltd.'s case. We accordingly, allow department's ground. IAC's order disallowing claim of assessee for deduction of central sales tax for two years in question is restored and order of Commissioner (Appeals) in this behalf is reversed. 19. In result, appeals are partly allowed. *** INSPECTING ASSISTANT COMMISSIONER v. M.S.P. EXPORTS (P) LTD.