Case Note & Summary
The Supreme Court dismissed appeals by Maruti Suzuki India Ltd. against the Delhi High Court judgment dated 07.12.2017, which upheld the disallowance of deductions under Section 43B of the Income Tax Act, 1961 for unutilised MODVAT credit of Rs.69,93,00,428 and sales tax recoverable account of Rs.3,08,99,171 for Assessment Year 1999-2000. The assessee, engaged in automobile manufacturing, claimed deduction for excise duty paid on raw materials and inputs reflected as MODVAT credit, and for sales tax collected but not paid. The Assessing Officer, CIT(A), and ITAT disallowed the claims. The High Court framed questions (ii) and (iii) on these issues and answered them in favour of the Revenue. The Supreme Court held that Section 43B requires actual payment of sum payable by way of tax, duty, etc., under any law. MODVAT credit is a notional credit available for future set-off against excise duty liability on finished goods; it does not represent actual payment by the assessee. The liability to pay excise duty arises only on removal of finished goods, not on purchase of raw materials. The first proviso to Section 43B does not apply because the liability was not incurred in the previous year. Similarly, sales tax recoverable account represents amounts collected by the assessee as agent, not expenditure incurred. The Court affirmed the High Court's decision and dismissed the appeals.
Headnote
A) Income Tax - Section 43B Deduction - MODVAT Credit - Unutilised MODVAT credit balance as on 31.03.1999 does not constitute actual payment of excise duty by the assessee; it is a notional credit available for future set-off against excise duty liability on finished goods. The assessee is not entitled to deduction under Section 43B for such unutilised credit as there is no actual payment of sum payable by way of duty under any law. (Paras 10-13) B) Income Tax - Section 43B Deduction - Sales Tax Recoverable Account - Amounts collected by assessee as sales tax but not paid to government by year-end are not allowable as deduction under Section 43B; such amounts are held in trust for the government and do not represent expenditure incurred by the assessee. (Paras 14-15) C) Income Tax - Section 43B - First Proviso - The first proviso to Section 43B allows deduction if sum is actually paid on or before due date of return, but only if liability to pay such sum was incurred in the previous year. In case of MODVAT credit, liability to pay excise duty arises only on removal of finished goods, which occurs in subsequent year; hence proviso does not apply. (Paras 16-18)
Issue of Consideration
Whether unutilised MODVAT credit of excise duty and sales tax recoverable account are allowable as deduction under Section 43B of the Income Tax Act, 1961.
Final Decision
Appeals dismissed; High Court judgment affirmed; disallowance of deductions under Section 43B for unutilised MODVAT credit and sales tax recoverable account upheld.
Law Points
- Section 43B deduction requires actual payment of sum payable by way of tax
- duty
- cess or fee under any law
- MODVAT credit represents notional credit not actual payment
- liability to pay excise duty arises on removal of finished goods
- not on purchase of raw materials
- first proviso to Section 43B applies only when liability is incurred in previous year and paid by due date of return.
