Business expenditure - Excise and additional custom duty MODVAT credit-Held to be allowable

S. 37(1) : Business expenditure - Excise and additional custom duty MODVAT credit-Held to be allowable.

The assessee had claimed unutilized credit of MODVAT as deduction in the computation of income. The

said 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). The claim was rejected by

the Assessing Officer observing that the MODVAT credit had not been utilized and could have been

utilized in the next year. Under the excise rules, additional customs duty and excise duty paid on raw

material formed part of MODVAT credit, which was utilized at the time of clearance of goods, subject to

fulfilling conditions. The CIT(A) 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 however held that the respondent-assessee had

got refund and the addition should be confirmed. Tribunal accepted the appeal of the assessee. The High

Court held that the said issue was covered by the decision of the Supreme Court in CIT v. Indo Nippon

Chemicals Co. Ltd. [2003] 261 ITR 275/130 Taxman 179 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 duty paid raw material and it should amount to income, which is liable to

be taxed under the Act. In view of the aforesaid position and also noticing the fact that the MODVAT

credit paid was brought to tax in the next year, High court held that there was no ground or reason to

interfere with the order of the tribunal. (AY. 1995 – 96)

CIT.v. Samtel India Ltd.(2014)222 Taxman 18(Mag.)/ 43 taxmann.com 104 (Delhi)(HC)