INCOME TAX ACT, 1961

Section 43B

Business disallowance under section 43B - Deduction on actual payment - Unutilized MODVAT credit - Applicability of proviso to section 43B

Assessee was engaged in manufacturing automobiles, which were chargeable to Excise Duty under the Central Excise Act, 1994. The assessment year in question is assessment year 1999-2000. It acquired exiceable raw materials and inputs which were used in manufacturing of vehicles. Assessee had also been taking benefit of MODVAT credit on raw material and inputs used in manufacturing. At the end of assessment year 1999-2000 an amount of Rs. 69 crores was left as unutilised MODVAT credit. In the return, it was claimed that company was eligible for deduction under section 43B as an allowable deduction. AO disallowed deduction on the ground that advance payment of Excise Duty represented unutilized MODVAT credit without incurring the liability of such payment was not an allowable deduction under section 43B. Assessee submitted that amount paid by way of Excise Duty by the assessee to its suppliers of raw materials and inputs, was accepted as Excise Duty under provisions of Central Excise Act and Rules. Consequently, when said payments were made by assessee to its suppliers, same had to be treated as payments of Excise Duty which straightaway qualified for deduction under section 43B irrespective of whether or when MODVAT credit arising from such payments was utilised to make payment of Excise Duty on products manufactured by assessee. Assessee, alternatively submitted while untilised MODVAT credit as on 31-3-1999 was Rs. 69 crores, entire amount ws utilised in April, 1999 itself. Conseqently, assessee was entitled to deduction under 1st proviso to section 43B.Held: As per section 43B(a) deduction is allowed on 'any sum payable by assessee by way of tax, duty, cess or fee.' The credit of Excise Duty earned by assessee under MODVAT scheme as per Central Excise Rules, 1944 is not sum payable by 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, deductions under section 43B is allowable only when sum is actually paid by assessee. In the instant case, Excise Duty leviable on assessee on manufacture of vehicles was already adjusted in concerned assessment year from credit of Excise Duty under MODVAT scheme. The unutilised credit in MODVAT scheme could not be treated as sum actually paid by assessee. The assessee when pays cost of raw materials where 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 the purchaser and not liability to the same. Thus, unutilised credit under MODVAT scheme does not qualify for deductions under section 43B. Also proviso to section 43B provides that nothing contained in the section would 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. The crucial words in proviso to section 43B are 'in respect of the previous year in which liability to pay such sum was incurred'. The proviso takes care of 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 date of submission of return. In the instant case, there was no liability to adjust unutilised MODVAT credit in the year in question since had there been liability to pay Excise Duty by assessee on manufacture of vehicles, unutilised MODVAT credit could have been adjusted against payment of such Excise Duty. Liability to pay Excise Duty of assessee was incurred on removal of finished goods in the subsequent year, i.e., year beginning from 1-4-1999 and subject matter of dispute was unutilised MODVAT Credit as on 31-3-1999 on which date, asseessee was not liable to pay any more Excise Duty. Hence, it was is not a case where assessee could claim benefit of proviso to section 43B.

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