Facts
The assessee is engaged in the business of manufacturing automobiles, which are chargeable to Excise Duty under the Central Excise Act, 1994. The assessee acquires exiceable raw materials and inputs which are used in the manufacturing of the vehicles. The assessee had also been taking benefit of MODVAT credit on the raw material and inputs used in the manufacturing.
The untilised MODVAT credit on 31-3-1999 to the credit of the assessee was Rs. 69,93,00,428/-. The MODVAT credit was accumulated to the account of the assessee due to payment of Excise Duty on raw materials and inputs which were supplied to it by the suppliers and reflected in the invoices by which raw materials and inputs were supplied. There is no denial to the fact that the appellant was entitled to utilise this credit in payment of Excise Duty to which the assessee was liable in payment of Excise Duty on manufacture of its products.
In the return it was claimed that the Company was eligible for deduction under section 43B of the Income-tax Act as an allowable deduction. Similarly, the Company claimed deduction under section 43B of an amount of Rs. 3,08,88,171/-in respect of Sales Tax Recoverable Account. The AO disallowed the claim of deduction of Rs. 69,93,00,428/- as well as Rs. 3,08,99,171/-. On appeal, the CIT(A), ITAT and HC upheld the disallowance.
SC Decision
The Supreme Court held that under the Central Excise Act, 1944 the taxable event is manufacture and production of excisable articles and payment of duty is relatable to date of removal of such article from the factory. The Excise Duty is leviable on the manufacturer of raw materials and inputs. The supplier of raw materials or inputs includes the Excise Duty paid on such articles in his sale invoices. The appellant when purchases raw materials and inputs for manufacture of vehicles it maintains a separate account containing the Excise Duty as mentioned in sale invoices. The credit of such Excise Duty paid by the appellant is to be given to the appellant by virtue of Rule 57A to 57F of Central Excise Rules, 1944 as it then existed. The appellant was fully entitled to discharge his liability to pay Excise Duty on vehicles manufactured by adjusting the credit of Excise Duty earned by it as per MODVAT scheme. The liability to pay Excise Duty is not fastened on two entities as per the scheme of Central Excise Act and Central Excise Rules. It is the manufacturer of raw materials and inputs which are used by appellant who has statutory liability to pay Excise Duty. The appellant is not assessee within the meaning of Central Excise Act, 1944, with reference to raw materials and inputs manufactured by the entities from which appellant had purchased the raw materials and entities.
The Supreme Court observed that as per section 43B(a) of Income-tax Act, deduction is allowed on “any sum payable by the assessee by way of tax, duty, cess or fee.” The credit of Excise Duty earned by the appellant under MODVAT scheme as per Central Excise Rules, 1944 is not sum payable by the assessee by way of tax, duty, cess. The scheme under section 43B is to allow deduction when a sum is payable by assessee by way of tax, duty and cess and had been actually paid by him.
The Supreme Court further observed, the deductions under section 43B is allowable only when sum is actually paid by the assessee. In the present case, the Excise Duty leviable on appellant on manufacture of vehicles was already adjusted in the concerned assessment year from the credit of Excise Duty under the MODVAT scheme. The unutilised credit in the MODVAT scheme cannot be treated as sum actually paid by the appellant. The assessee when pays the cost of raw materials where the duty is embedded, it does not ipso facto mean that assessee is the one who is liable to pay Excise Duty on such raw material/inputs. It is merely the incident of Excise Duty that has shifted from the manufacturer to the purchaser and not the liability to the same. Thus, SC concluded that the unutilised credit under MODVAT scheme does not qualify for deductions under section 43B of the Income-tax Act.