By TIOL News Service

NEW DELHI, NOV 24, 2017: THE issue is - Whether Advance deposit of Central Excise Duty through PLA constitutes ACTUAL payment of duty within meaning of Sec 43B. YES is the answer.

Facts of the case

The Assessee-company claimed deduction as per the provisions of section 43B in respect of the balance amount in the PLA at the end of each accounting year. The Assessee also had been adding back the same amount as part of the taxable income in the immediately succeeding accounting year in order to avoid double deduction. Such practice consistently adopted by the Assessee had been all along accepted by the Revenue from the AY 1984-1985 up to the AY 1998-1999 except for the four AYs under consideration.

For the AYs in question, the objection of the Revenue was that though levy of excise was on manufacture of excisable goods, actual payment of duty was at the stage of removal. The advance duty paid in the PLA was adjusted from time to time, against clearances or removal made by the Assessee. Unless such clearances or removal were made and excise duty was debited from the advance deposit there was no actual payment of duty so as to entitle an Assessee to the benefit of deduction u/s 43B of the Act which contemplated deduction only against actual payment as distinguished from accrual of liability. It was also contended that the amount in deposit was akin to a loan and under the provisions of Central Excise Rules, part or whole of the said amount can be refunded to the Assessee. Accordingly, it was held that the amount of advance deposit did not represent actual payment of duty so as to entitle the Assessee to the benefit of deduction u/s 43B. Being aggrieved, the Assessee filed a Writ petition which was allowed by the jurisdictional High Court.

After hearing the parties, the Apex Court held that,

++ deposit of Central Excise Duty in the PLA is a statutory requirement. The Central Excise Rules, 1944, specify a distinct procedure for payment of excise duty leviable on manufactured goods. It is a procedure designed to bring in orderly conduct in the matter of levy and collection of excise duty when both manufacture and clearances are a continuous process. Debits against the advance deposit in the PLA have to be made of amounts of excise duty payable on excisable goods cleared during the previous fortnight. The deposit once made is adjusted against the duty payable on removal and the balance is kept in the account for future clearances/removal. No withdrawal from the account is permissible except on an application to be filed before the Commissioner who is required to record reasons for permitting an assessee to withdraw any amount from the PLA. Sub-rules (3), (4), (5) and (6) of Rule 173G indicates a strict and vigorous scrutiny to be exercised by the central excise authorities with regard to manufacture and removal of excisable goods by an assessee. The self removal scheme and payment of duty under the Act and the Rules clearly shows that upon deposit in the PLA the amount of such deposit stands credited to the Revenue with the assessee having no domain over the amount(s) deposited;

++ the Delhi High Court in the appeals arising from the orders passed by it has also taken the view that the purpose of introduction of Section 43B of the Central Excise Act was to plug a loophole in the statute which permitted deductions on an accrual basis without the requisite obligation to deposit the tax with the State. Resultantly, on the basis of mere book entries an assessee was entitled to claim deduction without actually paying the tax to the State. Having regard to the object behind the enactment of Section 43B and the preceding discussions, it would be consistent to hold that the legislative intent would be achieved by giving benefit of deduction to an assessee upon advance deposit of central excise duty notwithstanding the fact that adjustments from such deposit are made on subsequent clearances/removal effected from time to time;

++ consistent practice followed by the assessee and accepted by the Revenue; the decisions of the two High Courts in favour of the assessee which have attained finality in law; and no contrary view of any other High Court being brought to our notice, should lead us to the conclusion that the High Courts were justified in taking the view that the advance deposit of central excise duty constitutes actual payment of duty within the meaning of Section 43B of the Central Excise Act and, therefore, the assessee is entitled to the benefit of deduction of the said amount.

(See 2017-TIOL-434-SC-IT)