MARUTI SUZUKI INDIA LTD.versusCOMMISSIONER OF INCOME TAX, DELHI

658                      [2020]REPORTS
               SUPREME COURT    2 S.C.R. 658               [2020] 2 S.C.R.


A                      MARUTI SUZUKI INDIA LTD.
              (EARLIER KNOWN AS MARUTI UDYOG LTD.)
                                       v.
                COMMISSIONER OF INCOME TAX, DELHI
B                       (Civil Appeal No. 11923 of 2018)
                             FEBRUARY 07, 2020
              [ASHOK BHUSHAN AND NAVIN SINHA, JJ.]
            Income Tax Act, 1961 – Proviso to s.43B – Allowable
C     deduction u/s.43B in respect of unutilised MODVAT credit –
      Appellant-assessee manufactures automobiles chargeable to Excise
      Duty under the 1944 Act– It acquires excisable raw materials &
      inputs, which are used in manufacturing of vehicles, on which it
      was also taking benefit of MODVAT credit – At the end of assessment
      year 1999-2000, Rs.69,93,00,428/- was left as unutilised MODVAT
D
      credit – Assessee claimed deduction u/s.43B and also claimed
      deduction of Rs.3,08,88,171/- in respect of Sales Tax Recoverable
      Account – Assessing Officer disallowed both claims of deductions
      – Upheld by Commissioner of Income Tax & ITAT – High Court
      answered questions relating to the aforesaid disallowance in favour
E     of Revenue – Held: Under s.43B(a), deduction is allowed on “any
      sum payable by the assessee by way of tax, duty, cess or fee” –
      Credit of Excise Duty earned by appellant under MODVAT scheme
      as per 1944 Rules is not sum payable by the assessee by way of tax,
      duty, cess – Scheme u/s.43B is to allow deduction when a sum is
      payable by assessee by way of tax, duty & cess and had been
F
      actually paid by him – Excise Duty leviable on appellant on
      manufacture of vehicles was already adjusted in the concerned
      assessment year from the credit of Excise Duty under MODVAT
      scheme – Unutilised credit in the MODVAT scheme cannot be treated
      as sum actually paid by appellant – Assessee when pays the cost of
G     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 manufacturer to purchaser and not the liability
      to the same – Unutilised credit under MODVAT scheme does not
      qualify for deductions u/s.43B – Proviso to s.43B takes care of the
H
                                      658
 MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG                659
        LTD.) v. COMMISSIONER OF INCOME TAX, DELHI


situation when liability to pay a sum has incurred but could not be     A
paid in the year in question and has been paid in next financial
year before the date of submission of the Return – In the present
case, the liability to pay Excise Duty of the assessee is incurred on
the removal of finished goods in the subsequent year i.e. year
beginning from 01.04.99 and what the Court is concerned with is
                                                                        B
unutilised MODVAT Credit as on 31.03.1999 on which date the
asseessee was not liable to pay any more Excise Duty– Present is
not a case where appellant can claim benefit of proviso to s.43B –
High Court correctly answered both the questions against the
appellant and in favour of Revenue– Central Excise Act, 1944–
Central Excise Rules, 1944 – rr.57A-57F.                                C
      Central Excise Act, 1944 – Statutory liability to pay Excise
Duty – Appellant-assessee manufactures automobiles chargeable
to Excise Duty under the 1944 Act – It acquires excisable raw
materials & inputs which are used in manufacturing of vehicles –
Held: Excise duty is levied under 1944 Act and collected as per         D
1944 Rules – Assessee in reference to the 1944 Rules is Assessee as
defined in r.2(3) – Manufacture of the raw materials or inputs used
by the appellant are the excisable items within the meaning of 1944
Rules – Liability to pay Excise Duty is not fastened on two entities
as per the scheme of 1944 Act and 1944 Rules – It is the
manufacturer of raw materials and inputs which are used by              E
appellant who has statutory liability to pay Excise Duty – Appellant
is not assessee within the meaning of 1944 Act, with reference to
raw materials and inputs manufactured by the entities from which
appellant had purchased the raw materials – Central Excise Rules,
1944 – r.2(3).                                                          F
      Dismissing the appeals, the Court
      HELD: 1.1 Section 43B of the Act the provision indicates
that deduction thereunder is to be allowed on fulfilment of the
following conditions: (a) there should be an actual payment of
Excise Duty whether “by way of tax, duty, cess or fee, by whatever      G
name”; (b) such payment has to be “under any law for the time
being in force”; (c) the payment of such sum should have been
made by the assessee; (d) irrespective of the method of
accounting regularly employed by the assessee, deduction shall
be allowed while computing the income tax for the previous year         H
660            SUPREME COURT REPORTS                      [2020] 2 S.C.R.


A     “in which sum is actually paid” by the assessee; (e) the expression
      “any such sum payable” refers to a sum for which the assessee
      incurred liability in the previous year even though such sum might
      not have been payable within that year under the relevant law.
      [Para 11][667 F-H; 668-A-B]
B           1.2 The crucial words in Section 43B(a) are “any sum
      payable by the assessee by way of tax, duty, cess or fee...”. The
      Excise Duty is levied under the Central Excise Act, 1944 and
      collected as per the Central Excise Rules, 1944. The assessee
      in reference to the Central Excise Rules, 1944 is Assessee as
      defined in Rule 2(3) which is to the following effect. The taxable
C     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 manufacture of the raw materials or inputs
      which have been used by the appellant are the excisable items
      within the meaning of Central Excise Rules, 1944. The Excise
D     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
E     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
F     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
G     manufactured by the entities from which appellant had purchased
      the raw materials and entities. [Paras 13-15][668-D-H; 669-A-C]
            1.3 As per Section 43B(a) of Income Tax Act, deduction is
      allowed on “any sum payable by the assessee by way of tax, duty,

H
 MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG               661
        LTD.) v. COMMISSIONER OF INCOME TAX, DELHI


cess or fee.” The credit of Excise Duty earned by the appellant        A
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. Furthermore, the deductions under Section
                                                                       B
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           C
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.
                                                                       D
The unutilised credit under MODVAT scheme does not qualify
for deductions under Section 43B of the Income Tax Act.
[Paras 16-18][669-B-F]
       1.4 The High Court had rightly answered the above question
in favour of the Revenue relying on its discussion with respect to
Question No.1. The sales tax paid by the appellant was debited         E
to a separate account titled ‘Sales Tax recoverable account’. The
assessee could have set off sales tax against his liability on the
sales of finished goods i.e. vehicles. No infirmity is found in the
view of the High Court answering the above question. The
proviso to Section 43B provides that nothing contained in the          F
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
the return in respect of the previous year in which the liability to
pay such sum was incurred. The crucial words in the proviso to
Section 43B are “in respect of the previous year in which the
liability to pay such sum was incurred”. The proviso takes care        G
of the situation when liability to pay a sum has incurred but could
not be paid in the year in question and has been paid in the next
financial year before the date of submission of the Return. In the
present case, there was no liability to adjust the unutilised
MODVAT credit in the year in question since had there been             H
662            SUPREME COURT REPORTS                      [2020] 2 S.C.R.


A     liability to pay Excise Duty by the appellant on manufacture of
      vehicles, the unutilised MODVAT credit could have been adjusted
      against the payment of such Excise Duty. In the present case,
      the liability to pay Excise Duty of the assessee is incurred on the
      removal of finished goods in the subsequent year i.e. year
      beginning from 01.04.1999 and what the Court is concerned with
B
      is unutilised MODVAT Credit as on 31.03.1999 on which date
      the asseessee was not liable to pay any more Excise Duty. Hence,
      present is not a case where appellant can claim benefit of proviso
      to Section 43B. High Court correctly answered both the questions
      against the assessee-appellant and in favour of the Revenue.
C     [Paras 32, 34 and 35][674-E-F; 675-A-E]
            Eicher Motor Ltd. and Another v. Union of India and
            Others (1999) 2 SCC 361 : [1999] 1 SCR 295; Collector
            of Central Excise, Pune and Others v. Dai Ichi Karkaria
            Ltd. and Others (1999) 7 SCC 448 : [1999] 1 Suppl.
D           SCR 360; Berger Paints India Ltd. v. Commissioner of
            Income Tax 2004 (266) ITR 99 – distinguished.
            Lakhan Pal National Ltd. v. ITO (1986) 162 ITR 240 –
            referred to.
                             Case Law Reference
E
      [1999] 1 SCR 295               distinguished           Para 19
      [1999] 1 Suppl. SCR 360        distinguished           Para 25
      2004 (266) ITR 99              distinguished           Para 28
      (1986) 162 ITR 240             referred to             Para 28
F
            CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11923
      of 2018.
           From the Judgment and Order dated 07.12.2017 of the High Court
      of Delhi at New Delhi in ITA No. 31 of 2005.
G                                     With
            Civil Appeal No. 11924 of 2018.
             Arijit Prasad, S. Ganesh, Sr. Advs., S.A. Haseeb, Diksha Rai,
      Mrs. Anil Katiyar, Ms. Kavita Jha, Ms. Devika Jain, Anant Mann, Advs.
      for the appearing parties.
H
  MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG                    663
         LTD.) v. COMMISSIONER OF INCOME TAX, DELHI


      The Judgment of the Court was delivered by                             A
      ASHOK BHUSHAN, J.
       1. By these appeals the assessee has challenged the judgment of
the High Court of Delhi dated 07.12.2017 deciding the Income Tax Appeal
No.31 of 2005. ITA No.31 of 2005 related to Assessment year 1999-
2000 and ITA No.442 of 2005 related to Assessment year 2000-2001, in         B
both the appeal similar questions were answered against the assessee.
For deciding these two appeals it is sufficient to notice the facts in CA
No.11923 of 2018 for Assessment Year 1999-2000. The High Court by
the impugned judgment has affirmed the views of Income Tax Appellate
Tribunal on the questions which have been raised in this appeal. The         C
Assessing Officer as well as the Commissioner of Income Tax (Appeals)
has not accepted the claim of the appellant. The appellant (hereinafter
referred to as the “assessee”) is engaged in the business of manufacturing
automobiles, which are chargeable to Excise Duty under the Central
Excise Act, 1994. The assessment year in question is assessment year
1999-2000. The assessee, a Company, has been engaged in                      D
manufacturing and sale of various Maruti Cars and also trades in spares
and components of the vehicles. It 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. At the end of the Assessment           E
year 1999-2000 an amount of Rs.69,93,00,428/- was left as unutilised
MODVAT credit. 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.                                                         F

        2. The Assessing Officer passed assessment order dated
28.03.2002. The Assessing Officer disallowed the claim of deduction of
Rs.69,93,00,428/- as well as Rs.3,08,99,171/-. Aggrieved by the
assessment order, the assessee filed an appeal before the Commissioner
of Income Tax. The Commissioner of Income Tax also sustained the             G
disallowance of the above two items. An appeal to ITAT met the same
fate. The ITAT took the view that the advance payment of Excise Duty
which represented unutilised MODVAT credit without incurring the
liability of such payment is not an allowable deduction under Section
43B. The assessee filed an appeal under Section 260A of the Income           H
664             SUPREME COURT REPORTS                           [2020] 2 S.C.R.


A     Tax Act in the High Court. The High Court answered question Nos.(ii)
      and ((iii) relating to the above noted disallowance in favour of the
      Revenue. Aggrieved by the judgment of the High Court, these appeals
      have been filed.
             3. The two questions which were answered by the High Court in
B     favour of the Revenue which were subject matter of this appeal are
      question Nos.(ii) and (iii) as framed by the High Court are to the following
      effect:
            “(ii) Whether the ITAT had committed an error of law in upholding
            the disallowance of the amount of Rs.69,93,00,428/- which
C           represented MODVAT credit of Excise Duty that remained
            unutilised by 31 st March, 1999 i.e. the end of the relevant
            accounting year ?
            (iii) Whether the ITAT has committed an error of law in upholding
            the disallowance of Rs.3,08,99,171/- in respect of Sales Tax
D           Recoverable Account, under Section 43B of the Income-tax Act?”
            4. We have heard Shri S. Ganesh, learned senior counsel for the
      appellant-assessee and Shri Arijit Prasad, learned senior counsel for the
      Revenue.
              5. Shri Ganesh submits that the amount paid by way of Excise
E
      Duty by the assessee to its suppliers of raw materials and inputs, is
      accepted as Excise Duty under the provisions of Central Excise Act and
      Rules. Consequently, when the said payments are made by the assessee
      to its suppliers, they should be treated as payments of Excise Duty which
      straightaway qualify for deduction under Section 43B of the Income
F     Tax Act, irrespective of whether or when the MODVAT credit arising
      from such payments is utilised to make payment of Excise Duty on the
      products manufactured by the assessee. The High Court erroneously
      held that the above payments made by the assessee are mere contractual
      payments and not payments by way of Excise Duty. As soon as the raw
G     materials and inputs are received in the appellant’s factory, the assessee
      becomes entitled to avail of MODVAT credit in respect of Excise Duty
      paid on the raw materials and inputs and which is mentioned in the
      manufacturer-supplier’s invoice. The assessee was clearly entitled for
      deduction of unutilised MODVAT credit balance as on 31.03.1999.

H
  MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG                       665
LTD.) v. COMMISSIONER OF INCOME TAX, DELHI [ASHOK BHUSHAN, J.]


       6. Shri Ganesh in alternative submits that questions are squarely        A
covered in favour of the assessee by the 1st proviso to Section 43B. The
assessee’s Excise Returns establish that while the untilised MODVAT
credit as on 31.03.1999 was Rs. 69.30 crores, the entire amount was
utilised in April, 1999 itself. Consequently, the assessee is entitled to the
deduction under the 1st proviso to Section 43B. The object and purpose          B
of Section 43B of the Act is to ensure that an assessee does not get
deduction in respect of an amount unless and until the amount has been
received by the Government. In the present case the full amount of
Excise Duty was paid into the coffers of Government when the
manufacturer of raw material/inputs had cleared the same from his
factory gate for supply to the assessee. The basic object of Section 43B        C
of the Act is fully subserved and deduction should have been granted as
claimed by the assessee.
       7. Shri Arijit Prasad, learned senior counsel for the Revenue
refuting the submissions of the learned counsel for the assessee contends
that deduction under Section 43B is allowable only when the amount of           D
tax, cess etc. are due and payable and the assessee actually pays the
same. In the present case the Excise Duty becomes due and payable
only when the assessee removes the finished product from the factory
gate, at the point in time when the assessee makes payment to the suppliers
the Excise Duty is not due and payable. It is not in dispute that the           E
assessee was entitled to the duty paid by it to the manufacturer under
Rule 57A to Rule 571 of the Central Excise Rules, 1944. Further it is not
in dispute that the assessee was entitled to utilise MODVAT credit
towards payment of Excise Duty leviable on the final products
manufactured by it. The liability under the Central Excise Act to pay
                                                                                F
Excise Duty is only on the manufacture of the excisable goods. The
assessee is not one who is liable to pay Excise Duty on the raw materials/
inputs. It is merely the incidence of Excise Duty that has shifted from
the manufacturer to the purchaser and not the liability to pay the same.
Answering the submission of counsel for the assessee based on proviso
to Section 43B, it is submitted that liability to pay Excise Duty of the        G
assessee is incurred on the removal of the finished goods in the subsequent
year, therefore, on 31.03.1999, the assessee was not liable to pay the
Excise Duty and, therefore, the proviso will also not come to the aid of
the assessee.
                                                                                H
666            SUPREME COURT REPORTS                          [2020] 2 S.C.R.


A           8. We have considered the submissions of the learned counsel for
      the parties and perused the records.
            9. The two issues which need to be answered by us in these
      appeals are:
            “(i) Whether the ITAT had committed an error of law in upholding
B           the disallowance of the amount of Rs.69,93,00,428/- which
            represented MODVAT credit of Excise Duty that remained
            unutilised by 31 st March, 1999 i.e. the end of the relevant
            accounting year ?
            (ii) Whether the ITAT has committed an error of law in upholding
C           the disallowance of Rs.3,08,99,171/- in respect of Sales Tax
            Recoverable Account, under Section 43B of the Income-tax Act?”
            10. We need to first notice the provisions of Section 43B under
      which deduction is sought to be claimed. Section 43B is as follows:
            “43B.Certain deductions to be only on actual payment.-
D
            Notwithstanding anything contained in any other provision of this
            Act, a deduction otherwise allowable under this Act in respect
            of—
            (a) any sum payable by the assessee by way of tax, duty, cess
                or fee, by whatever name called, under any law for the time
E               being in force, or
            (b) any sum payable by the assessee as an employer by way of
                contribution to any provident fund or superannuation fund or
                gratuity fund or any other fund for the welfare of employees,
                or
F
            (c) any sum referred to in clause (ii) of sub-section (1) of section
                36, or
            (d) any sum payable by the assessee as interest on any loan or
                borrowing from any public financial institution or a State
                financial corporation or a State industrial investment
G               corporation, in accordance with the terms and conditions of
                the agreement governing such loan or borrowing, or
            (e) any sum payable by the assessee as interest on any loan or
                advances from a scheduled bank [or a co-operative bank
                other than a primary agricultural credit society or a
H               primary co-operative agricultural and rural development
  MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG                     667
LTD.) v. COMMISSIONER OF INCOME TAX, DELHI [ASHOK BHUSHAN, J.]


           bank] in accordance with the terms and conditions of the           A
           agreement governing such loan or advances, or
      (f) any sum payable by the assessee as an employer in lieu of
          any leave at the credit of his employee, or
      (g) any sum payable by the assessee to the Indian Railways for
          the use of railway assets,                                          B
           shall be allowed (irrespective of the previous year in which
           the liability to pay such sum was incurred by the assessee
           according to the method of accounting regularly employed
           by him) only in computing the income referred to in Section
           28 of that previous year in which such sum is actually paid        C
           by him :
           Provided that nothing contained in this section shall apply in
           relation to any sum which is actually paid by the assessee on
           or before the due date applicable in his case for furnishing
           the return of income under sub-section (1) of section 139 in       D
           respect of the previous year in which the liability to pay such
           sum was incurred as aforesaid and the evidence of such
           payment is furnished by the assessee along with such return.
                                                                       ...”
       11. The untilised MODVAT credit on 31.03.1999 to the credit of         E
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
                                                                              F
utilise this credit in payment of Excise Duty to which the assessee was
liable in payment of Excise Duty on manufacture of its products. When
we analyse provision of Section 43B of the Act the provision indicates
that deduction thereunder is to be allowed on fulfilment of the following
conditions:
      “a. there should be an actual payment of Excise Duty whether            G
          “by way of tax, duty, cess or fee, by whatever name”;
      b.   such payment has to be “under any law for the time being in
           force”;
      c.   the payment of such sum should have been made by the
           assessee;                                                          H
668              SUPREME COURT REPORTS                         [2020] 2 S.C.R.


A           d.    irrespective of the method of accounting regularly employed
                  by the assessee, deduction shall be allowed while computing
                  the income tax for the previous year “in which sum is actually
                  paid” by the assessee;
            e.    the expression “any such sum payable” refers to a sum for
B                 which the assessee incurred liability in the previous year even
                  though such sum might not have been payable within that
                  year under the relevant law.”
             12. The fulfillment of the above statutory conditions is necessary
      for allowing deduction under Section 43B. We have to examine the facts
C     of the present case to find out as to whether all the conditions which are
      necessary for permissible deduction under Section 43B are present here
      or not.
             13. The crucial words in Section 43B(a) are “any sum payable by
      the assessee by way of tax, duty, cess or fee...”. We need to examine as
      to whether unutilised credit under MODVAT Scheme was sum payable
D     by the assessee.
            14. The Excise Duty is levied under the Central Excise Act, 1944
      and collected as per the Central Excise Rules, 1944. The assessee in
      reference to the Central Excise Rules, 1944 is Assessee as defined in
      Rule 2(3) which is to the following effect:-
E
                 “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 a registered person of
            a private warehouse in which excisable goods are stored;”
             15. The taxable event is manufacture and production of excisable
F
      articles and payment of duty is relatable to date of removal of such
      article from the factory. The manufacture of the raw materials or inputs
      which have been used by the appellant are the excisable items within
      the meaning of Central Excise Rules, 1944. The Excise Duty is leviable
      on the manufacturer of raw materials and inputs. The supplier of raw
G     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
H
  MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG                    669
LTD.) v. COMMISSIONER OF INCOME TAX, DELHI [ASHOK BHUSHAN, J.]


appellant was fully entitled to discharge his liability to pay Excise Duty   A
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     B
Act, 1944, with reference to raw materials and inputs manufactured by
the entities from which appellant had purchased the raw materials and
entities.
      16. 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.”       C
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.
                                                                             D
       17. Furthermore, 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          E
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.                                 F
     18. We thus, conclude that the unutilised credit under MODVAT
scheme does not qualify for deductions under Section 43B of the 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)             G
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, the payment by appellant was Excise Duty which qualified for
deduction under Section 43B.
                                                                             H
670            SUPREME COURT REPORTS                           [2020] 2 S.C.R.


A            20. In Eicher Motors Ltd. and another, the challenge to the
      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 the manufacturers, stood lapsed, Rule 57-F(4-A)
      has been extracted in paragraph 2 of the judgment which is to the following
B     effect: -
            “2. The relevant Rule reads as follows:
                   “57-F. (4-A) Notwithstanding anything contained in
            sub-rule (4), or sub-rule (1) of Rule 57-A and the notifications
C           issued thereunder, any credit of specified duty lying unutilised
            on the 16th day of March, 1995 with a 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 the Schedule to the Central Excise Tariff Act, 1985
D           (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
E           stock or contained in finished products lying in stock on the
            16th day of March, 1995.”
             21. This Court in reference to 57-F(4-A) took the view that right
      to credit had become absolute at any rate when the input is used in the
      manufacture of the final products. This court held that the scheme sought
      to be introduced cannot be made applicable to the goods which had
F
      already come into existence in respect of which the earlier Scheme was
      applied. Following observations have been made by this Court in paragraph
      5 of the above judgment:-
                   “As pointed out by us that when on the strength of the
            Rules available, certain acts have been done by the parties
G           concerned, incidents following thereto must take place in
            accordance with the Scheme under which the duty had been
            paid on the manufactured products and if such a situation is
            sought to be altered, necessarily it follows that the right, which
            had accrued to a party such as the availability of a scheme,
H           is affected and, in particular, it loses sight of the fact that the
  MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG                    671
LTD.) v. COMMISSIONER OF INCOME TAX, DELHI [ASHOK BHUSHAN, J.]


      provision for facility of credit is as good as tax paid till tax is    A
      adjusted on future goods on the basis of the several
      commitments which would have been made by the assessees
      concerned. Therefore, the Scheme sought to be introduced
      cannot be made applicable to the goods which had already
      come into existence in respect of which the earlier Scheme
      was applied under which the assessees had availed of the               B
      credit facility for payment of taxes. It is on the basis of the
      earlier Scheme necessarily that the taxes have to be adjusted
      and payment made complete. Any manner or mode of
      application of the said Rule would result in affecting the rights
      of the assessees.”                                                     C
       22. The observations in the 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. The above observation cannot be read to mean that payment
of Excise Duty by the appellant which was component of sale invoice          D
purchasing the raw material/inputs by the 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-A to 57-I of Central Excise         E
Rules, 1944. The above judgment thus in no manner supports the
submissions of the appellant for the purposes of the 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 the above case, this Court had occasion to consider
                                                                             F
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 a
      manufacturer obtains credit for the Excise Duty paid on raw            G
      material to be used by him in the production of an excisable
      product immediately it makes the requisite declaration and
      obtains an acknowledgment thereof. It is entitled to use the
      credit at any time thereafter when making payment of Excise
      Duty on the excisable product...                                       H
672            SUPREME COURT REPORTS                          [2020] 2 S.C.R.


A                  19. It is, therefore, that in the case of Eicher Motors
            Ltd. vs. Union of India, this Court said that a credit under the
            MODVAT Scheme was as good as tax paid.
                  20. With this in mind, we must now determine whether
            the Excise Duty paid on the raw material should form part of
B           the cost of the excisable product for the purposes of Section
            4(1)(b) of the Act read with Rule 6 of the Valuation Rules.”
             26. In the above case, this Court held that in determining the cost
      of the excisable product covered by MODVAT Scheme under Section
      4(1)(b) of the Act read with Rule 6 of the Valuation Rules, the Excise
C     Duty paid on raw material covered by MODVAT Scheme is not to be
      included. The question which was answered in the above case was
      entirely different to one which has arisen in the present case.
             27. This Court as noted above in the above case has laid down
      that credit for the Excise Duty paid for the raw material can be used at
D     any time when making payment of Excise Duty on excisable product.
      The user of such credit is at the time of payment of Excise Duty on the
      excisable product i.e. at the time when appellant is to pay Excise Duty
      on its manufactured vehicle.
             28. The judgment of this Court in Berger Paints India Ltd. versus
E     Commissioner of Income Tax, 2004 (266) ITR 99, has also been
      referred to. The assessee company in the above case had claimed that
      under Section 43B of the Income Tax Act, it was entitled to deduction of
      the entire sum being the duties actually paid during the relevant previous
      years. The appellant in the year in question had incurred expenditure on
      account of customs and Excise Duty aggregating to Rs.5,85,87,181/-
F     which was duties debited to the profit and loss account of the company
      for the relevant previous year. In assessment proceedings the company’s
      claim that it was entitled to deduct the entire sum of Rs.5,85,87,181/-
      being the duties actually paid during the relevant year was accepted.
      The Commissioner of Income Tax initiated proceedings under Section
G     263 of the Act claiming that Assessing officer had wrongly allowed the
      claim for deduction. The 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 a question to the High Court. The High Court answered the
      question in favour of Revenue against which the appeal was filed. The
H
  MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG                     673
LTD.) v. COMMISSIONER OF INCOME TAX, DELHI [ASHOK BHUSHAN, J.]


relevant facts have been noticed in the judgment of this Court in following   A
words: -
          “...In the assessment proceedings of the assessment year 1984-
      85, the Inspecting Assistant Commissioner of Income-tax allowed
      the appellant-assessee’s claim that it was entitled to deduct the
      entire sum of Rs.5,85,87,181/- being the duties actually paid during    B
      the relevant year previous to the assessment year 1984-85. The
      Commissioner of Income-tax initiated proceedings under section
      263 of the Act on the ground that the Assessing Officer had
      wrongly allowed the claim for deduction of an amount of
      Rs.98,25,833/- towards customs and Excise Duty paid during the
      previous year but credited to the profit and loss account in closing    C
      stock of goods under the provisions of Section 43B. the assessee
      relied upon the judgment of the 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.
      The Commissioner of Income-tax took the view that the Gujarat           D
      High Court’s decision was distinguishable on facts and, therefore,
      made an order under section 263 of the Act disallowing the claim
      of the assessee. On appeal to the Tribunal, the Tribunal held that
      the Gujarat high court’s judgment in Lakhanpal National Ltd.’s
      case [1986] 162 ITR 240 was distinguishable and confirmed the
      order of the Commissioner of Income-tax. On an application made         E
      under section 256(1) of the Act at the instance of the appellant-
      assessee, the Tribunal, inter alia, referred the following question
      of law for the opinion of the High Court (see [2002] 253 IT 738,
      739):
                 “Whether, on the facts and in the circumstances of the       F
          case, the Tribunal was right in law in rejecting the assessee’s
          claim for deduction of the excise and customs duties of
          Rs.98,25,833 paid in the year of account and debited in the
          profit and loss account, on the ground that the crediting of the
          profit and loss account by the value of the closing stock, which    G
          included the aforesaid duties, did not have the effect of wiping
          out the debit to the profit and loss account?”
             The High Court by its judgment dated September 24, 2001,
      in I.T.R.No.213 of 1993 (see [2002] 253 ITR 738), answered the
      question referred in favour of the Revenue and against the              H
      assessee.”
674             SUPREME COURT REPORTS                           [2020] 2 S.C.R.


A            29. This Court in Berger Paints Ltd. (Supra) upheld the view of
      assessing officer and decided the question in favour of the assessee.
      This Court held that the Commissioner of Income Tax has incorrectly
      distinguished the judgment of Lakhan Pal National Ltd. Case.
             30. As noted above in the above case, the claim of the assessee
B     was that entire sum of Rs.5,85,87,181/- was the duties actually paid
      during the relevant previous year. The above was not a case for unutilised
      MODVAT credit, hence, the said case cannot be held to lay down any
      ratio with respect to allowable deduction under Section 43B in respect
      of unutilised MODVAT credit.
C            31. Now coming to the 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 the judgment has noticed
      relevant facts in above reference in following words: -
                   “52. The facts are the Assessee pays sales tax on the
D           purchase of raw materials and computers used in the
            manufacture of cars. Though, the sales-tax paid is part of the
            cost of raw material, the Assessee debits the purchases net of
            sales tax; the sales tax paid is debited to a separate account
            titled ‘Sales-tax Recoverable A/c”. Under the Haryana
            General Sales Tax Act 1973, the Assessee cold set off such
E           sales-tax against its liability on the sales of the finished goods
            i.e. cars. Whenever the goods are sold, the tax on such sales
            is credited to the aforesaid account.”
             32. The High Court had rightly answered the above question in
      favour of the Revenue relying on its discussion with respect to Question
F     No.1. The sales tax paid by the appellant was debited to a separate
      account titled ‘Sales Tax recoverable account’. The assessee could have
      set off sales tax against his liability on the sales of finished goods i.e.
      vehicles. We do not find any infirmity in the view of the High Court
      answering the above question.
G            33. The next submission which has been advanced by Shri Ganesh
      is on the first proviso to Section 43B. It has been submitted that Return
      for the 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 that since the unutilised credit was utilised for payment of
      Excise Duty on the manufactured vehicles, the said amount ought to
H
      have been allowed as permissible deduction under Section 43B.
  MARUTI SUZUKI INDIA LTD. (EARLIER KNOWN AS MARUTI UDYOG                           675
LTD.) v. COMMISSIONER OF INCOME TAX, DELHI [ASHOK BHUSHAN, J.]


       34. The proviso to Section 43B provides that nothing contained in            A
the 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 the
return in respect of the previous year in which the liability to pay such
sum was incurred. The crucial words in the proviso to Section 43B are
“in respect of the previous year in which the liability to pay such sum
                                                                                    B
was incurred”. The proviso takes care of the situation when liability to
pay a sum has incurred but could not be paid in the year in question and
has been paid in the next financial year before the date of submission of
the Return. In the present case, there was no liability to adjust the unutilised
MODVAT credit in the year in question since had there been liability to
pay Excise Duty by the appellant on manufacture of vehicles, the                    C
unutilised MODVAT credit could have been adjusted against the payment
of such Excise Duty. In the present case, the liability to pay Excise Duty
of the assessee is incurred on the removal of finished goods in the
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
                                                                                    D
date the asseessee was not liable to pay any more Excise Duty. Hence,
present is not a case where appellant can claim benefit of proviso to
Section 43B. The submissions of Shri Ganesh on proviso to Section 43B
also does not support his claim.
      35. In view of the foregoing discussions, we are of the view that
High Court has correctly answered both the questions against the                    E
assessee-appellant and in favour of the Revenue. Consequently, the
appeals are dismissed.


Divya Pandey                                                   Appeals dismissed.
                                                                                    F




                                                                                    G




                                                                                    H