Commissioner Of Income Tax Ii vs M/S Modipon Ltd.

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.19763 OF 2017 (Arising out of S.L.P.(C) No.29816 of 2011)

COMMISSIONER OF INCOME TAX II ...APPELLANT(S)

VERSUS

M/S MODIPON LTD. ...RESPONDENT(S) WITH

CIVIL APPEAL NO. 19767 OF 2017 (ARISING OUT OF S.L.P. (C) NO.16633 OF 2012)

CIVIL APPEAL NO.19768 OF 2017 (ARISING OUT OF S.L.P. (C) NO. 15939 OF 2012) CIVIL APPEAL NO.19769 OF 2017 (ARISING OUT OF S.L.P. (C) NO. 29817 OF 2011) CIVIL APPEAL NO.19770 OF 2017 (ARISING OUT OF S.L.P. (C) NO. 31209 OF 2011)

J U D G M E N T

RANJAN GOGOI,J.

Signature Not Verified 1. Leave granted in all the Special Leave Digitally signed by SUKHBIR PAUL KAUR Date: 2017.11.24 12:42:44 PKT Reason: Petitions.

2

2. Four of the present appeals involve

the same assessee, i.e., M/s Modipon Ltd.

and are in respect of the Assessment Years

1993-1994, 1996-1997, 1997-1998 and

1998-1999 respectively. The fifth appeal is

in case of another assessee, i.e., Paharpur

Cooling Towers Ltd. and pertains to the

Assessment Year 1996-1997.

3. The question involved in all the

appeals is the same and may be formulated

as hereunder:

“Whether the assessee is entitled to claim deduction under Section 43B of the Income Tax Act, 1961 in respect of the excise duty paid in advance in the Personal Ledger Account (“PLA” for short)?”

4. Before delving into the question

formulated one significant fact common to

the appeals involving the assessee-Modipon

Ltd. may be noted. From the Assessment Year

1984-1985 (from which assessment year 3 Section 43B of the Income Tax Act, 1961

came into force), the assessee has been

claiming deduction under the aforesaid

provision of the Income Tax Act in respect

of the balance amount in the PLA at the end

of each accounting year and the assessee

had been adding back the same amount as

part of the taxable income in the

immediately succeeding accounting year in

order to avoid double deduction. The

aforesaid practice consistently adopted by

the assessee had been all along accepted by

the Revenue from the Assessment Year

1984-1985 up to the Assessment Year

1998-1999 except for the four assessment

years under consideration.

5. Shri K. Radha Krishnan, learned senior

counsel for the Revenue has urged that

though levy of excise is on manufacture of

excisable goods, actual payment of duty is

at the stage of removal. The advance duty 4

paid in the PLA is adjusted/debited from

time to time, against clearances/removal

made by the assessee. Unless such

clearances/removal are made and excise duty

is debited from the advance deposit there

is no actual payment of duty so as to

entitle an assessee to the benefit of

deduction under Section 43B of the Income

Tax Act which contemplates deduction only

against actual payment as distinguished

from accrual of liability. It is urged on

behalf of the Revenue that the amount in

deposit is akin to a loan and under the

provisions of Central Excise Rules, part or

whole of the said amount can be refunded to

the assessee. It is further submitted that

under Rule 21 of the Central Excise Rules,

1944, at any time before removal, the

Commissioner or the other authorities

prescribed therein may remit duty in

respect of manufactured goods lost or 5

damaged or otherwise unfit for consumption

or marketing. The amount of advance

deposit, therefore, does not represent

actual payment of duty so as to entitle an

assessee to the benefit of deduction under

Section 43B. Accordingly the orders of the

High Courts challenged in the appeals are

liable to interference.

6. In reply, Shri Ajay Vohra, learned

senior counsel appearing for the assessee

has submitted that the practice followed by

the assessee in claiming deduction for the

balance amount in the PLA at the end of

each accounting year and adding back the

same as part of the taxable income in the

immediately succeeding accounting year

really makes the dispute between the

parties academic as the revenue

implication, in any event, is nil. Shri

Vohra has submitted that the aforesaid

practice has been accepted by the Revenue 6

for the Assessment Years 1984-1985 to

1998-1999 except for the four assessment

years in question. There is no compelling

reason to reopen the issue and, therefore,

to maintain consistency the issue may be

resolved in favour of the assessee.

Reliance in this regard has been placed on

decisions of this Court in Radhasoami

Satsang vs. C.I.T.1 and C.I.T. vs. Excel

Industries Ltd.2 Shri Vohra has further

submitted that the very same issue had been

decided in favour of the assessee by two

High Courts i.e. Delhi High Court in C.I.T.

vs. Maruti Suzuki India Ltd.3 and Punjab &

Haryana High Court in C.I.T. vs. Happy

Forgings Ltd.4 and C.I.T. vs. Raj and San

Deeps Ltd.5 There has been no appeal by the

Revenue against any of the said decisions

of the High Courts. Neither there is

1 (1992) 193 ITR 321 (SC) 2 (2013) 358 ITR 295 (SC) 3 (2013) 212 Taxman 603 (Del.) 4 ITA No. 590 of 2007 decided by the Punjab & Haryana High Court on 11.07.2008 5 (2007) 293 ITR 12 7

compelling good reason or public interest

involved so as to reopen the issue. It is

submitted that the decisions rendered by

the Delhi and Punjab & Haryana High Courts,

on merits, would commend for acceptance. Accordingly, it is submitted that, in the

absence of strong compelling reasons, on

the ratio of the decision in C.K.

Gangadharan and Anr. vs. C.I.T.6 the

present appeals ought to not be entertained

any further.

7. On merits it has been submitted by

Shri Vohra that under Section 3 of the

Central Excise Act, the event for levy of

excise duty is the manufacture of goods

though the duty is to be paid at the stage

of removal of the goods. Pointing out the

provisions of Rule 173G of the Central

Excise Rules, 1944 it is submitted that the

6 (2008) 8 SCC 739 8

advance deposit of central excise duty in a

current account is a mandatory requirement

from which adjustments are made, from time

to time, against clearances effected.

Though, sub-rule (1)(A) contemplates refund

from the current account, such refund can

be granted only on reasons being recorded

by the concerned authority i.e., the

Commissioner on the application filed by

the assessee. Refund is not a matter of

right. The amount deposited in the PLA is

irretrievably lost to the assessee, it is

argued. Payment of central excise duty

takes place at the time of deposit in the

PLA, though the deposit is on the basis of

an approximation and the precise amount of

duty qua the goods removed is ascertained

at the stage of removal/clearances. The

said facts, according to the learned

counsel, would not make the deposit

anything less than actual payment of duty. 9

8. We have considered the submissions

made on behalf of the parties.

Notwithstanding the acceptance by the

Revenue of the practice adopted by the

assessee-Modipon Ltd. in all the assessment

years except for the ones under dispute as

enumerated above and the absence of any

challenge to the decisions of the Delhi and

the Punjab & Haryana High Courts, the

present challenge would still be

entertainable so long as it discloses a

substantial question of law or an issue

impacting public interest or the same has

the potential of recurrence in future. The

Revenue cannot be shut out from the present

proceedings merely because of its

acceptance of the practice of accounting

adopted by the assessee or its acceptance

of the decision of the two High Courts in

question. An adjudication of the

question(s) arising cannot be refused 10

merely on the above basis. We will,

therefore, have to proceed to answer the

merits of the challenge made by the Revenue

in the present appeals.

9. Deposit of Central Excise Duty in the

PLA is a statutory requirement. The Central

Excise Rules, 1944, specify a distinct

procedure for payment of excise duty

leviable on manufactured goods. It is a

procedure designed to bring in orderly

conduct in the matter of levy and

collection of excise duty when both

manufacture and clearances are a continuous

process. Debits against the advance deposit

in the PLA have to be made of amounts of

excise duty payable on excisable goods

cleared during the previous fortnight. The

deposit once made is adjusted against the

duty payable on removal and the balance is

kept in the account for future

clearances/removal. No withdrawal from the 11

account is permissible except on an

application to be filed before the

Commissioner who is required to record

reasons for permitting an assessee to

withdraw any amount from the PLA. Sub-rules

(3), (4), (5) and (6) of Rule 173G

indicates a strict and vigorous scrutiny to

be exercised by the central excise

authorities with regard to manufacture and

removal of excisable goods by an assessee.

The self removal scheme and payment of duty

under the Act and the Rules clearly shows

that upon deposit in the PLA the amount of

such deposit stands credited to the Revenue

with the assessee having no domain over the

amount(s) deposited.

10. In C.I.T. vs. Pandavapura Sahakara

Sakkare Karkhane Ltd.7 and C.I.T. vs. Nizam

Sugar Factory Ltd.8 cited at the Bar, the

High Courts of Karnataka and Andhra Pradesh 7 198 ITR 690 (Kar.) 8 253 ITR 68 (AP) 12

respectively had occasion to consider as to

whether the amounts credited to the

Molasses Storage Fund out of the sale

proceeds of molasses received by the

assessee constitute taxable income of the

assessee. Under the scheme, the assessee

had no control over the amounts deposited

in the fund and the assessee was also not

entitled to withdraw any amount therefrom

without the approval of the authorities.

Further the amount deposited could be

utilized only for the purpose specified. In

those circumstances, the High Court held

and in our view correctly, that the

deposits made, though a part of the sale

proceeds of the assessee, did not

constitute taxable income at the hands of

the assessee. We do not see why the same

analogy would not be applicable to the case

in hand.

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11. The Delhi High Court in the appeals

arising from the orders passed by it has

also taken the view that the purpose of

introduction of Section 43B of the Central

Excise Act was to plug a loophole in the

statute which permitted deductions on an

accrual basis without the requisite

obligation to deposit the tax with the

State. Resultantly, on the basis of mere

book entries an assessee was entitled to

claim deduction without actually paying the

tax to the State. Having regard to the

object behind the enactment of Section 43B

and the preceding discussions, it would be

consistent to hold that the legislative

intent would be achieved by giving benefit

of deduction to an assessee upon advance

deposit of central excise duty

notwithstanding the fact that adjustments

from such deposit are made on subsequent 14

clearances/removal effected from time to

time.

12. The above discussions, coupled with

the peculiar features of the case, noticed

above i.e. consistent practice followed by

the assessee and accepted by the Revenue;

the decisions of the two High Courts in

favour of the assessee which have attained

finality in law; and no contrary view of

any other High Court being brought to our

notice, should lead us to the conclusion

that the High Courts were justified in

taking the view that the advance deposit of

central excise duty constitutes actual

payment of duty within the meaning of

Section 43B of the Central Excise Act and,

therefore, the assessee is entitled to the

benefit of deduction of the said amount. 15

13. We, therefore, dismiss the appeals

and affirm the orders of the High Courts of

Delhi and Calcutta impugned in the present

appeals.

....................,J.

(RANJAN GOGOI)

....................,J.

(NAVIN SINHA) NEW DELHI NOVEMBER 24, 2017 16

ITEM NO.1501 COURT NO.3 SECTION XIV

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

Civil Appeal No.19763 of 2017 arising out of Petition(s) for Special Leave to Appeal (C) No(s). 29816/2011

(Arising out of impugned final judgment and order dated 27-01-2011 in ITA No. 768/2004 passed by the High Court Of Delhi At New Delhi)

COMMISSIONER OF INCOME TAX II Petitioner(s)

VERSUS

M/S MODIPON LTD. Respondent(s) ([ HEARD BY : HON. RANJAN GOGOI AND HON. NAVIN SINHA, JJ. ]RESPONDENT CAUSE TITLE MAY BE SHOWN AS "M/S MODIPON LTD.")

WITH Civil Appeal No.19767 of 2017 @ SLP(C) No. 16633/2012 (XVI) Civil Appeal No.19768 of 2017 @ SLP(C) No. 15939/2012 (XIV) Civil Appeal No.19769 of 2017 @ SLP(C) No. 29817/2011 (XIV) Civil Appeal No.19770 of 2017 @ SLP(C) No. 31209/2011 (XIV)

Date : 24-11-2017 These matters were called on for pronouncement of judgment today.

For Petitioner(s) Mrs. Anil Katiyar, AOR For Respondent(s) Mr. U.A. Rana, Adv. Mr. Himanshu Mehta, Adv. Mr. Satendra Kr. Rai, Adv. For M/S. Gagrat And Co, AOR

Mr. Jagdish Kumar Chawla, AOR

Hon'ble Mr. Justice Ranjan Gogoi pronounced the judgment of the Bench comprising of His Lordship and Hon'ble Mr. Justice Navin Sinha.

Leave granted in all the special leave petitions. The appeals are dismissed in terms of the signed reportable judgment.

(SUKHBIR PAUL KAUR) (ASHA SONI) AR CUM PS BRANCH OFFICER

(Signed reportable judgment is placed on the file)