Unutilized credit under MODVAT scheme does not qualify for deductions under section 43B

  • Vide Decision of Supreme court of India in Maruthi Suzuki India Limited Vs. Commissioner of Income Tax

Facts of the case:

  1. The  Assessee, a Company, has been engaged in the 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.
  2. The assessee had also been taking benefit of MODVAT credit on the raw material and inputs used in the manufacturing.
  3. At the end of the Assessment Year, 1999-2000 was left as unutilized MODVAT credit.
  4. 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.
  5. Similarly, the Company claimed deduction under Section 43B in respect of Sales Tax Recoverable Account.
  6. The Assessing Officer passed assessment order by disallowing the claim of deduction.
  7. Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax.
  8. The Commissioner of Income Tax also sustained the disallowance of the above two items.
  9. By filing an appeal before ITAT, it took the view that the advance payment of Excise Duty which represented unutilized MODVAT credit without incurring the liability of such payment is not an allowable deduction under Section 43B.
  10. The assessee filed an appeal under Section 260A of the Income Tax Act in the High Court.
  11. Aggrieved by the judgment of the High Court, these appeals have been filed.

Judgment:

The honorable Supreme Court of India held the case as follows:

  1. Deductions under section 43B are allowable only when the sum is actually paid by the assessee.
  2. In the instant case, Excise Duty leviable on the appellant on the manufacture of vehicles was already adjusted in the concerned assessment year from the credit of Excise Duty under the MODVAT scheme.
  3. The unutilized credit in the MODVAT scheme cannot be treated as sum actually paid by the appellant.
  4. 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.
  5. It is merely the incident of Excise Duty that has shifted from the manufacturer to the purchaser and not the liability to the same.

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