$~Part-IIB (R-40)
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 130/2000
Date of decision: 26th September, 2013
COMMISSIONER OF INCOME TAX, Delhi-I
..... Appellant
Through Mr. N.P. Sahni, Sr. Standing
Counsel & Mr. Ruchesh Sinha, Advocate.
versus
M/S SAMTEL INDIA LIMITED
..... Respondent
Through Nemo.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J. (ORAL):
This appeal by the Revenue, which pertains to Assessment
Year 1995-96, was admitted for hearing vide order dated 30th January,
2001 on the following substantial questions of law:-
"(i) Whether ITAT was justified in not
deciding the issue which was before it namely
whether Rs.3,95,11,874/- being the excise
duty on raw material consumed during the
year is allowable u/s. 37(1) as claimed by the
respondent before A.O.?
ITA No. 130/2000 Page 1 of 6
(ii) Whether the assessee is entitled to
MODVAT credit on account of excess of
excise duty/additional customs duty, paid by it
on purchase of raw material, over the duty
payable on finished goods, in the year of
accrual i.e. when the raw material is purchased
or in the year of receipt, when the assessee is
maintaining accounts on mercantile system of
accounting?"
2. The assessment order records that there was accumulation of
unutilised input MODVAT credit of Rs.3.95 crores. The assessee had
claimed this as a deduction in the computation of income. This claim
was made in the revised return. Assessee premised that they had paid
excise duty and additional customs duty and this constitutes an
expense under Section 37(1) of the Income Tax Act, 1961 (Act, for
short). The claim was rejected by the Assessing Officer observing
that the MODVAT credit had not been utilised and could have been
utilised in the next year.
3. Commissioner of Income Tax (Appeals) recorded the statement
of the assessee that excise duty and additional customs duty paid on
the raw material formed part of the cost of the raw material and had
to be allowed when the raw material has been consumed. Under the
excise rules, additional customs duty and excise duty paid on raw
material formed part of MODVAT credit, which was utilised at the
time of clearance of goods, subject to fulfilling conditions. The CIT
ITA No. 130/2000 Page 2 of 6
(Appeals) observed that the assessee had received refund of
MODVAT credit in the subsequent assessment year 1996-97, but it
could not be ascertained whether the refund was against the
MODVAT credit available as on 31st March, 1995. He also observed
that while valuing the closing stock on 31st March, 1995, excise duty
paid on input and utilised in the finished goods was not taken into
consideration and as per note No. 4 of the accounting policy and note
on accounts, excise duty payable on finished goods was accounted for
at the time of removal of goods. He observed that whether the cost of
raw material utilised for manufacture of finished goods included
customs duty or not was not very clear. He further held that the
respondent-assessee had got refund and the addition should be
confirmed.
4. Income Tax Appellate Tribunal by the impugned order
accepted the appeal of the assessee. It was noted that during the
relevant previous year the respondent-assessee had consumed raw
material of Rs. 146.03 crores, which included MODVAT amount of
Rs.24.02 crores. Out of this, the assessee had utilised MODVAT
credit of Rs.19.46 crores and the balance Rs.3.95 crores was claimed
as a deduction under Section 37(1) of the Act as it was forming part
of raw material. The Assessing Officer held that credit in respect of
ITA No. 130/2000 Page 3 of 6
MODVAT had accrued and was still available and, therefore,
deduction under Section 37(1) was rejected. It was noticed that the
refund received from the excise department of Rs.7.16 crores was
offered for taxation in the Assessment Year 1996-97 by the
respondent-assessee and was accordingly taxed. The tribunal
observed that as payment of excise and additional customs duties had
been made, it was to be allowed as a deduction under Section 37(1) of
the Act. Unutilised MODVAT credit remained on the credit side and
was refunded in the next assessment year, i.e., Assessment Year
1996-97, when income of the assessee to the tune of Rs.7.16 crores
was taxed on account of refund. This would amount to double
taxation of the same amount in the two years. It was also stated that
the claim for refund had to be examined by the excise department and
there was substantial reduction from the refund claim as made. It was
observed that to get the refund the assessee had to make application
and only then refund was possible.
5. The issue in question is covered by the decision of the Supreme
Court in CIT versus Indo Nippon Chemicals Company Limited ,
(2003) 11 SCC 452 wherein it was observed that the Assessing
Officer/Revenue was not correct in holding that MODVAT credit was
irreversible credit available to the manufacturers upon purchase of
ITA No. 130/2000 Page 4 of 6
duty paid raw material and it should amount to income, which is
liable to be taxed under the Act. However, in the said case it was also
noticed that the assessee had uniformly applied the net method,
namely, valuing the raw material at purchase price minus MODVAT
credit and the order of the Assessing Officer/Revenue was adversely
commented upon because they had adopted "gross method" which
included the MODVAT credit at the time of purchase and "net
method" at the time of valuation of stock in trade. This practice was
depreciated. This decision was followed by the Supreme Court in
Commissioner of Income Tax versus Shriram Honda Power
Equipment Limited, (2013) 352 ITR 481 and in the case of the
respondent-assessee in Civil Appeal No. 6449/2012.
6. The facts stated by Commissioner of Income Tax (Appeals)
create some doubt and suspicion whether net method was followed by
the assessee, but the Assessing Officer has not commented adversely
about the same in the assessment order. Findings of the
Commissioner of Income Tax (Appeals) are tentative and not firm.
In the income tax appeal and the grounds taken, there is no allegation
or averment that the respondent-assessee was following "gross
method" and not the "net method" or was following two different
methods at the time of purchase/opening stock and valuation of the
ITA No. 130/2000 Page 5 of 6
stock in hand. As noted above, SLP preferred by the Revenue in the
case of the respondent was admitted as Civil Appeal No. 6449/2012
but has been dismissed.
7. In view of the aforesaid position and also noticing the fact that
the MODVAT credit paid was brought to tax in the next year, we do
not see any ground or reason to interfere with the order of the
tribunal. Questions of law are accordingly answered against the
Revenue and in favour of the respondent-assessee.
The appeal is disposed of. No costs.
SANJIV KHANNA, J.
SANJEEV SACHDEVA, J.
SEPTEMBER 26, 2013
VKR
ITA No. 130/2000 Page 6 of 6
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