By TIOL News Service

KOLKATA, JAN 11, 2016: THE issue is - Whether Rural Employment Cess and Primary Education cess collected from customers out of sale price can be construed as trading receipts chargeable to tax. NO is the answer.

Facts of the case

The assessee is engaged in the business of mining and extraction of coal. The mines of the assessee are located within the State of West Bengal. The Government of West Bengal levies and collects two cess namely Rural Employment Cess ('RE Cess') and Primary Education Cess ('PE Cess') from enterprises engaged in the mining and extraction of coal within the State of West Bengal. The assessee is bound to pay Rural Employment Cess and Primary Education Cess on production of coal of each year payable in the succeeding year. The said cess is collected by the assessee in the sale bills raised by the assessee on the customers and assessee treated the same as advance from customers in the liability side of the balance sheet. When the said cess is paid in the subsequent year, the concerned liability account is debited by the assessee and the entire transaction is not routed through the profit and loss account of the assessee. The assessee has been consistently following this practice over the years commencing from Asst Year 2003-04 onwards. AO observed that these receipts in the form of cess collected out of sale invoices are nothing but trading receipts and hence if the same are not paid within the due date of filing the return of income, then the same are liable for disallowance u/s 43B. CIT(A) upheld order of AO.

Having heard the parties, the Tribunal held that,

++ the expression 'payable under the relevant Act' in the context of the impugned issue means the cess payable by the assessee under the provisions of The West Bengal Rural Employment and Production Act, 1976 and The West Bengal Primary Education Act, 1973. The cess collected from customers out of sale price cannot be construed as trading receipts chargeable to tax as the same are collected in advance for payment to the exchequer in the succeeding year under the relevant Act;

++ the assessee has been consistently following this practice of treating the cess collected as a liability and the same are debited as and when the said cess is paid in the immediately succeeding assessment year and in case if the same is not paid in the succeeding year, the same is disallowed u/s 43B of the Act;

++ the assessee had commenced its operations from Asst Year 2003-04 and in the very first year, this issue was taken up for disallowance and the same was deleted by the CIT(A) and the revenue chose not to file an appeal before this tribunal. The next scrutiny assessment was made for Asst Year 2006-07 wherein no addition on this account was made. This goes to prove that the revenue had already accepted to the contentions of the assessee on the impugned issue and satisfied that the cess collected from customers have been duly remitted in the succeeding year in accordance with the provisions of The West Bengal Rural Employment and Production Act, 1976 and The West Bengal Primary Education Act, 1973 and was also satisfied with the manner of treatment of the same by the assessee for tax purposes. Having done so, there is no good reason for the revenue to shift its stand in the assessment year under appeal. Thus, the cess collected from customers in the sale invoices shall not be chargeable to tax in the year of collection.

(See 2016-TIOL-58-ITAT-KOL)