Supreme Court rules on scope of statutory dues allowable as deduction on actual payment

 


 

This Tax Alert summarizes a recent ruling of the Supreme Court (SC) in the case of Travancore Sugars & Chemicals Ltd.  (Taxpayer) on the issue whether provision for vend fees payable by the Taxpayer to State Government is allowable as deduction on actual payment basis pursuant to a specific provision in Indian Tax Laws (ITL) which permits deduction for ‘tax, duty, cess or fee, by whatever name called, under any law for the time being in force’ on actual payment thereof.

 

The Taxpayer, a company engaged in the manufacture and sale of sugar and liquor, was liable under a state law to collect from customers and pay vend fee to the State Government to be used for repairs/replacement of old machinery of the Taxpayer and two other sugar mills.

 

The SC held that the vend fee compulsorily collected by the State Government was in the nature of a ‘fee’ and hence covered within the scope of the provision. It further held that even if vend fee is not regarded as ‘fee’ in the sense of recompense for a special service/benefit but is consideration paid for granting a ‘privilege’ by parting with exclusive right of the Government, still, it would fall within the wide scope of the provision which covers ‘fee, by whatever name called’. Hence, it is allowable as deduction on actual payment only.