1 REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.11923 OF 2018 MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG LTD.) APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX, DELHI RESPONDENT(S) WITH CIVIL APPEAL NO.11924 OF 2018 JUDGMENT ASHOK BHUSHAN,J. By these appeals assessee has challenged judgment of High Court of Delhi dated 07.12.2017 deciding Income Tax Appeal No.31 of 2005. ITA No.31 of 2005 related to Assessment year Signature Not Verified 1999 2000 and ITA No.442 of 2005 related to Digitally signed by ARJUN BISHT Date: 2020.02.07 15:58:29 IST Reason: Assessment year 2000 2001, in both appeal 2 similar questions were answered against assessee. For deciding these two appeals it is sufficient to notice facts in CA No.11923 of 2018 for Assessment Year 1999 2000. High Court by impugned judgment has affirmed views of Income Tax Appellate Tribunal on questions which have been raised in this appeal. Assessing Officer as well as Commissioner of Income Tax (Appeals) has not accepted claim of appellant. appellant (hereinafter referred to as assessee) is engaged in business of manufacturing automobiles, which are chargeable to Excise Duty under Central Excise Act, 1994. assessment year in question is assessment year 1999 2000. assessee, Company, has been engaged in manufacturing and sale of various Maruti Cars and also trades in spares and components of vehicles. It acquires exiceable raw materials and inputs which are used in manufacturing of vehicles. assessee had also been taking 3 benefit of MODVAT credit on raw material and inputs used in manufacturing. At end of Assessment year 1999 2000 amount of Rs.69,93,00,428/ was left as unutilised MODVAT credit. In return it was claimed that Company was eligible for deduction under Section 43B of Income Tax Act as allowable deduction. Similarly, Company claimed deduction under Section 43B of amount of Rs. 3,08,88,171/ in respect of Sales Tax Recoverable Account. 2. Assessing Officer passed assessment order dated 28.03.2002. Assessing Officer disallowed claim of deduction of Rs.69,93,00,428/ as well as Rs.3,08,99,171/ . Aggrieved by assessment order, assessee filed appeal before Commissioner of Income Tax. Commissioner of Income Tax also sustained disallowance of above two items. appeal to ITAT met same fate. ITAT took view that advance 4 payment of Excise Duty which represented unutilised MODVAT credit without incurring liability of such payment is not allowable deduction under Section 43B. assessee filed appeal under Section 260A of Income Tax Act in High Court. High Court answered question Nos.(ii) and ((iii) relating to above noted disallowance in favour of Revenue. Aggrieved by judgment of High Court, these appeals have been filed. 3. two questions which were answered by High Court in favour of Revenue which were subject matter of this appeal are question Nos.(ii) and (iii) as framed by High Court are to following effect: "(ii) Whether ITAT had committed error of law in upholding disallowance of amount of Rs.69,93,00,428/ which represented MODVAT credit of Excise Duty that remained unutilised by 31st March, 1999 i.e. end of relevant accounting year ? (iii) Whether ITAT has committed 5 error of law in upholding disallowance of Rs.3,08,99,171/ in respect of Sales Tax Recoverable Account, under Section 43B of Income tax Act ? 4. We have heard Shri S. Ganesh, learned senior counsel for appellant assessee and Shri Arijit Prasad, learned senior counsel for Revenue. 5. Shri Ganesh submits that amount paid by way of Excise Duty by assessee to its suppliers of raw materials and inputs, is accepted as Excise Duty under provisions of Central Excise Act and Rules. Consequently, when said payments are made by assessee to its suppliers, they should be treated as payments of Excise Duty which straightaway qualify for deduction under Section 43B of Income Tax Act, irrespective of whether or when MODVAT credit arising from such payments is utilised to make payment of Excise Duty on products manufactured by assessee. 6 High Court erroneously held that above payments made by assessee are mere contractual payments and not payments by way of Excise Duty. As soon as raw materials and inputs are received in appellant's factory, assessee becomes entitled to avail of MODVAT credit in respect of Excise Duty paid on raw materials and inputs and which is mentioned in manufacturer supplier's invoice. assessee was clearly entitled for deduction of unutilised MODVAT credit balance as on 31.03.1999. 6. Shri Ganesh in alternative submits that questions are squarely covered in favour of assessee by 1st proviso to Section 43B. assessee's Excise Returns establish that while untilised MODVAT credit as on 31.03.1999 was Rs. 69.30 crores, entire amount was utilised in April, 1999 itself. Consequently, assessee is entitled to deduction under 1 st proviso to Section 43B. object and purpose of Section 43B 7 of Act is to ensure that assessee does not get deduction in respect of amount unless and until amount has been received by Government. In present case full amount of Excise Duty was paid into coffers of Government when manufacturer of raw material/inputs had cleared same from his factory gate for supply to assessee. basic object of Section 43B of Act is fully subserved and deduction should have been granted as claimed by assessee. 7. Shri Arijit Prasad, learned senior counsel for Revenue refuting submissions of learned counsel for assessee contends that deduction under Section 43B is allowable only when amount of tax, cess etc. are due and payable and assessee actually pays same. In present case Excise Duty becomes due and payable only when assessee removes finished product from factory gate, at point in time when 8 assessee makes payment to suppliers Excise Duty is not due and payable. It is not in dispute that assessee was entitled to duty paid by it to manufacturer under Rule 57A to Rule 571 of Central Excise Rules, 1944. Further it is not in dispute that assessee was entitled to utilise MODVAT credit towards payment of Excise Duty leviable on final products manufactured by it. liability under Central Excise Act to pay Excise Duty is only on manufacture of excisable goods. assessee is not one who is liable to pay Excise Duty on raw materials/inputs. It is merely incidence of Excise Duty that has shifted from manufacturer to purchaser and not liability to pay same. Answering submission of counsel for assessee based on proviso to Section 43B, it is submitted that liability to pay Excise Duty of assessee is incurred on removal of finished goods in subsequent year, therefore, on 9 31.03.1999, assessee was not liable to pay Excise Duty and, therefore, proviso will also not come to aid of assessee. 8. We have considered submissions of learned counsel for parties and perused records. 9. two issues which need to be answered by us in these appeals are: "(i) Whether ITAT had committed error of law in upholding disallowance of amount of Rs.69,93,00,428/ which represented MODVAT credit of Excise Duty that remained unutilised by 31st March, 1999 i.e. end of relevant accounting year ? (ii) Whether ITAT has committed error of law in upholding disallowance of Rs.3,08,99,171/ in respect of Sales Tax Recoverable Account, under Section 43B of Income tax Act ? 10. We need to first notice provisions of Section 43B under which deduction is sought to be 10 claimed. Section 43B is as follows: 43B.Certain deductions to be only on actual payment. Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of (a) any sum payable by assessee by way of tax, duty, cess or fee, by whatever name called, under any law for time being in force, or (b)any sum payable by assessee as employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees, or (c)any sum referred to in clause (ii) of sub section (1) of section 36, or (d)any sum payable by assessee as interest on any loan or borrowing from any public financial institution or State financial corporation or State industrial investment corporation, in accordance with terms and conditions of agreement governing such loan or borrowing, or 11 (e) any sum payable by assessee as interest on any loan or advances from scheduled bank[or co operative bank other than primary agricultural credit society or primary co operative agricultural and rural development bank] in accordance with terms and conditions of agreement governing such loan or advances, or (f)any sum payable by assessee as employer in lieu of any leave at credit of his employee, or (g)any sum payable by assessee to Indian Railways for use of railway assets, shall be allowed (irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in Section 28 of that previous year in which such sum is actually paid by him : Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by assessee on or before due date applicable in his case for furnishing return of income under sub section (1) of section 139 in 12 respect of previous year in which liability to pay such sum was incurred as aforesaid and evidence of such payment is furnished by assessee along with such return. .... 11. untilised MODVAT credit on 31.03.1999 to credit of assessee was Rs.69,93,00,428/ . MODVAT credit was accumulated to account of assessee due to payment of Excise Duty on raw materials and inputs which were supplied to it by suppliers and reflected in invoices by which raw materials and inputs were supplied. There is no denial to fact that appellant was entitled to utilise this credit in payment of Excise Duty to which assessee was liable in payment of Excise Duty on manufacture of its products. When we analyse provision of Section 43B of Act provision indicates that deduction thereunder is to be allowed on fulfilment of following conditions: 13 "a. there should be actual payment of Excise Duty whether by way of tax, duty, cess or fee, by whatever name ; b.such payment has to be under any law for time being in force ; c.the payment of such sum should have been made by assessee; d.irrespective of method of accounting regularly employed by assessee, deduction shall be allowed while computing income tax for previous year in which sum is actually paid by assessee; e.the expression any such sum payable refers to sum for which assessee incurred liability in previous year even though such sum might not have been payable within that year under relevant law. 12. fulfillment of above statutory conditions is necessary for allowing deduction under Section 43B. We have to examine facts of present case to find out as to whether all conditions which are necessary for permissible deduction under Section 43B are present here or not. 14 13. crucial words in Section 43B(a) are any sum payable by assessee by way of tax, duty, cess or fee... . We need to examine as to whether unutilised credit under MODVAT Scheme was sum payable by assessee. 14. Excise Duty is levied under Central Excise Act, 1944 and collected as per Central Excise Rules, 1944. assessee in reference to Central Excise Rules, 1944 is Assessee as defined in Rule 2(3) which is to following effect: Rule 2(3). assessee means any person who is liable for payment of duty assessed and also includes any producer or manufacturer of excisable goods or registered person of private warehouse in which excisable goods are stored; 15. taxable event is manufacture and 15 production of excisable articles and payment of duty is relatable to date of removal of such article from factory. manufacture of raw materials or inputs which have been used by appellant are excisable items within meaning of Central Excise Rules, 1944. Excise Duty is leviable on manufacturer of raw materials and inputs. supplier of raw materials or inputs includes Excise Duty paid on such articles in his sale invoices. appellant when purchases raw materials and inputs for manufacture of vehicles it maintains separate account containing Excise Duty as mentioned in sale invoices. credit of such Excise Duty paid by appellant is to be given to appellant by virtue of Rule 57A to 57F of Central Excise Rules, 1944 as it then existed. appellant was fully entitled to discharge his liability to pay Excise Duty on vehicles manufactured by adjusting credit of Excise 16 Duty earned by it as per MODVAT scheme. liability to pay Excise Duty is not fastened on two entities as per scheme of Central Excise Act and Central Excise Rules. It is manufacturer of raw materials and inputs which are used by appellant who has statutory liability to pay Excise Duty. appellant is not assessee within meaning of Central Excise Act, 1944, with reference to raw materials and inputs manufactured by entities from which appellant had purchased raw materials and entities. 16. As per Section 43B(a) of Income Tax Act, deduction is allowed on any sum payable by assessee by way of tax, duty, cess or fee. credit of Excise Duty earned by appellant under MODVAT scheme as per Central Excise Rules, 1944 is not sum payable by assessee by way of tax, duty, cess. scheme under Section 43B is to allow deduction when sum is payable by assessee 17 by way of tax, duty and cess and had been actually paid by him. 17. Furthermore, deductions under Section 43B is allowable only when sum is actually paid by assessee. In present case, Excise Duty leviable on appellant on manufacture of vehicles was already adjusted in concerned assessment year from credit of Excise Duty under MODVAT scheme. unutilised credit in MODVAT scheme cannot be treated as sum actually paid by appellant. assessee when pays cost of raw materials where duty is embedded, it does not ipso facto mean that assessee is one who is liable to pay Excise Duty on such raw material/inputs. It is merely incident of Excise Duty that has shifted from manufacturer to purchaser and not liability to same. 18. We thus, conclude that unutilised credit under MODVAT scheme does not qualify for deductions 18 under Section 43B of Income Tax Act. 19. Shri Ganesh has relied on judgment of this Court in Eicher Motors Ltd. and another versus Union of India and others, (1999) 2 SCC 361, and submits that facility of credit is as good as tax paid, hence, it be accepted that by payment of Excise Duty although which is part of sale invoice issued by manufacturer or producer of raw material or inputs, payment by appellant was Excise Duty which qualified for deduction under Section 43B. 20. In Eicher Motors Ltd. and another, challenge to validity of scheme as modified by introduction of Rule 57F of Central Excise Rules, 1944 was under consideration. According to Section 57 F(4A) of Central Excise Rules, 1944, credit which was lying unutilised on 16.03.1995 with manufacturers, stood lapsed, Rule 57 F(4 A) has been extracted in paragraph 2 of judgment which is to following effect: 19 2. relevant Rule reads as follows: 57 F. (4 A) Notwithstanding anything contained in sub rule (4), or sub rule (1) of Rule 57 and notifications issued thereunder, any credit of specified duty lying unutilised on 16th day of March, 1995 with manufacturer of tractors, falling under Heading No. 87.01 or motor vehicles falling under Heading No. 87.02 and 87.04 [or chassis of such tractors or such motor vehicles under Heading No. 87.06] of Schedule to Central Excise Tariff Act, 1985 (5 of 1986) shall lapse and shall not be allowed to be utilised for payment of duty on any excisable goods, whether cleared for home consumption or for export: Provided that nothing contained in this sub rule shall apply to credit of duty, if any, in respect of inputs lying in stock or contained in finished products lying in stock on 16th day of March, 1995. 21. This Court in reference to 57 F(4 A) took view that right to credit had become absolute at any rate when input is used in manufacture 20 of final products. This court held that scheme sought to be introduced cannot be made applicable to goods which had already come into existence in respect of which earlier Scheme was applied. Following observations have been made by this Court in paragraph 5 of above judgment: As pointed out by us that when on strength of Rules available, certain acts have been done by parties concerned, incidents following thereto must take place in accordance with Scheme under which duty had been paid on manufactured products and if such situation is sought to be altered, necessarily it follows that right, which had accrued to party such as availability of scheme, is affected and, in particular, it loses sight of fact that provision for facility of credit is as good as tax paid till tax is adjusted on future goods on basis of several commitments which would have been made by assessees concerned. Therefore, Scheme sought to be introduced cannot be made applicable to goods which had already come into existence in respect of which 21 earlier Scheme was applied under which assessees had availed of credit facility for payment of taxes. It is on basis of earlier Scheme necessarily that taxes have to be adjusted and payment made complete. Any manner or mode of application of said Rule would result in affecting rights of assessees. 22. observations in above paragraph that facility of credit is as good as tax paid till tax is adjusted on future goods were made in context of 57 F(4 A) of Central Excise Rules,1944. 23. above observation cannot be read to mean that payment of Excise Duty by appellant which was component of sale invoice purchasing raw material/inputs by appellant is also payment of Excise Duty on raw material/inputs. 24. By payment of component of Excise Duty as included in sale invoice is benefit which is given to appellant by virtue of credit as envisaged in statutory scheme of Rule 57 to 57 I of Central 22 Excise Rules, 1944. above judgment thus in no manner supports submissions of appellant for purposes of present case. 25. Next judgment relied by Shri Ganesh in Collector of Central Excise, Pune and others versus Dai Ichi Karkaria Ltd. and others; (1999) 7 SCC 448. In above case, this Court had occasion to consider Section 4 of Central Excise Act, 1944, which provides for valuation of raw material covered by MODVAT Scheme. Referring to Rule 57 A(1) and Rule 57 F(1), this Court laid down following in paragraph 18, 19 and 20: 18. It is clear from these rules, as we read them, that manufacturer obtains credit for Excise Duty paid on raw material to be used by him in production of excisable product immediately it makes requisite declaration and obtains acknowledgment thereof. It is entitled to use credit at any time thereafter when making payment of Excise Duty on excisable product. 23 19. It is, therefore, that in case of Eicher Motors Ltd. vs. Union of India, this Court said that credit under MODVAT Scheme was as good as tax paid. 20. With this in mind, we must now determine whether Excise Duty paid on raw material should form part of cost of excisable product for purposes of Section 4(1)(b) of Act read with Rule 6 of Valuation Rules. 26. In above case, this Court held that in determining cost of excisable product covered by MODVAT Scheme under Section 4(1)(b) of Act read with Rule 6 of Valuation Rules, Excise Duty paid on raw material covered by MODVAT Scheme is not to be included. question which was answered in above case was entirely different to one which has arisen in present case. 27. This Court as noted above in above case has laid down that credit for Excise Duty paid for 24 raw material can be used at any time when making payment of Excise Duty on excisable product. user of such credit is at time of payment of Excise Duty on excisable product i.e. at time when appellant is to pay Excise Duty on its manufactured vehicle. 28. judgment of this Court in Berger Paints India Ltd. versus Commissioner of Income Tax, 2004 (266) ITR 99, has also been referred to. assessee company in above case had claimed that under Section 43B of Income Tax Act, it was entitled to deduction of entire sum being duties actually paid during relevant previous years. appellant in year in question had incurred expenditure on account of customs and Excise Duty aggregating to Rs.5,85,87,181/ which was duties debited to profit and loss account of company for relevant previous year. In assessment proceedings company s claim that it 25 was entitled to deduct entire sum of Rs.5,85,87,181/ being duties actually paid during relevant year was accepted. Commissioner of Income Tax initiated proceedings under Section 263 of Act claiming that Assessing officer had wrongly allowed claim for deduction. Commissioner held that assessing officer incorrectly relied on judgment of Gujarat High Court in Lakhan Pal National Ltd. versus ITO (1986) 162 ITR 240, ITAT also. ITAT referred question to High Court. High Court answered question in favour of Revenue against which appeal was filed. relevant facts have been noticed in judgment of this Court in following words: In assessment proceedings of assessment year 1984 85, Inspecting Assistant Commissioner of Income tax allowed appellant assessee s claim that it was entitled to deduct entire sum of Rs.5,85,87,181/ being duties actually paid during relevant year 26 previous to assessment year 1984 85. Commissioner of Income tax initiated proceedings under section 263 of Act on ground that Assessing Officer had wrongly allowed claim for deduction of amount of Rs.98,25,833/ towards customs and Excise Duty paid during previous year but credited to profit and loss account in closing stock of goods under provisions of Section 43B. assessee relied upon judgment of Gujarat high Court in Lakhanpal National Ltd. Vs. ITO[1986] 162 ITR 240 [hereinafter referred to as Lakhanpal National Ltd. s case ] in support of its claim. Commissioner of Income tax took view that Gujarat High Court s decision was distinguishable on facts and, therefore, made order under section 263 of Act disallowing claim of assessee. On appeal to Tribunal, Tribunal held that Gujarat high court s judgment in Lakhanpal National Ltd. s case [1986] 162 ITR 240 was distinguishable and confirmed order of Commissioner of Income tax. On application made under section 256(1) of Act at instance of appellant assessee, Tribunal, inter alia, referred following question of law for opinion of High Court (see [2002] 253 IT 738, 739): Whether, on facts and in circumstances of case, Tribunal was right in law in 27 rejecting assessee s claim for deduction of excise and customs duties of Rs.98,25,833 paid in year of account and debited in profit and loss account, on ground that crediting of profit and loss account by value of closing stock, which included aforesaid duties, did not have effect of wiping out debit to profit and loss account? High Court by its judgment dated September 24, 2001, in I.T.R.No.213 of 1993 (see [2002] 253 ITR 738), answered question referred in favour of Revenue and against assessee. 29. This Court in Berger Paints Ltd. (Supra) upheld view of assessing officer and decided question in favour of assessee. This Court held that Commissioner of Income Tax has incorrectly distinguished judgment of Lakhan Pal National Ltd. Case. 30. As noted above in above case, claim of assessee was that entire sum of Rs.5,85,87,181/ was duties actually paid 28 during relevant previous year. above was not case for unutilised MODVAT credit, hence, said case cannot be held to lay down any ratio with respect to allowable deduction under Section 43B in respect of unutilised MODVAT credit. 31. Now coming to second question i.e. with regard to disallowance of Rs.3,08,79,171/ in respect of Sale tax recoverable amount,the High Court in paragraph 52 of judgment has noticed relevant facts in above reference in following words: 52. facts are Assessee pays sales tax on purchase of raw materials and computers used in manufacture of cars. Though, sales tax paid is part of cost of raw material, Assessee debits purchases net of sales tax; sales tax paid is debited to separate account titled Sales tax Recoverable A/c . Under Haryana General Sales Tax Act 1973, Assessee cold set off such sales tax against its liability on sales of 29 finished goods i.e. cars. Whenever goods are sold, tax on such sales is credited to aforesaid account. 32. High Court had rightly answered above question in favour of Revenue relying on its discussion with respect to Question No.1. sales tax paid by appellant was debited to separate account titled Sales Tax recoverable account . assessee could have set off sales tax against his liability on sales of finished goods i.e. vehicles. We do not find any infirmity in view of High Court answering above question. 33. next submission which has been advanced by Shri Ganesh is on first proviso to Section 43B. It has been submitted that Return for assessment year in question was to be filed before 30.09.1999 and unutilised credit in fact was fully utilised by 30.04.1999 itself. It is submitted 30 that since unutilised credit was utilised for payment of Excise Duty on manufactured vehicles, said amount ought to have been allowed as permissible deduction under Section 43B. 34. proviso to Section 43B provides that nothing contained in Section shall apply in relation to any sum which is actually paid by assessee on or before due date applicable in his case for furnishing return in respect of previous year in which liability to pay such sum was incurred. crucial words in proviso to Section 43B are in respect of previous year in which liability to pay such sum was incurred . proviso takes care of situation when liability to pay sum has incurred but could not be paid in year in question and has been paid in next financial year before date of 31 submission of Return. In present case, there was no liability to adjust unutilised MODVAT credit in year in question since had there been liability to pay Excise Duty by appellant on manufacture of vehicles, unutilised MODVAT credit could have been adjusted against payment of such Excise Duty. In present case, liability to pay Excise Duty of assessee is incurred on removal of finished goods in subsequent year i.e. year beginning from 01.04.1999 and what we are concerned with is unutilised MODVAT Credit as on 31.03.1999 on which date asseessee was not liable to pay any more Excise Duty. Hence, present is not case where appellant can claim benefit of proviso to Section 43B. submissions of Shri Ganesh on proviso to Section 43B also does not support his claim. 35. In view of foregoing discussions, we are 32 of view that High Court has correctly answered both questions against assessee appellant and in favour of Revenue. Consequently, appeals are dismissed. J. [ASHOK BHUSHAN] J. [NAVIN SINHA] NEW DELHI, FEBRUARY 07, 2020. Maruti Suzuki India Ltd. (Earlier Known as Maruti Udyog Ltd.) v. Commissioner of Income-tax, Delhi