Madras High Court
Principal Commissioner Of Income vs M/S.Kaleesuwari Refinery Pvt. ... on 8 March, 2021
TCA.No.282 of 2018
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 08.03.2021
CORAM
THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM
and
THE HONOURABLE MS.JUSTICE R.N.MANJULA
Tax Case Appeal No.282 of 2018
Principal Commissioner of Income
Tax, Central 2,
No.108, Mahatma Gandhi Road,
Chennai. ...Appellant
Vs
M/s.Kaleesuwari Refinery Pvt. Ltd.,
No.53, Rajasekaran Street,
Mylapore, Chennai - 600 004. ...Respondent
APPEAL under Section 260A of the Income Tax Act, 1961 against
the order dated 05.10.2017 passed by the Income Tax Appellate Tribunal,
Madras 'A' Bench in I.T.A.No.2927/Mds/2016 for the assessment year 2007-
08.
For Appellant : Mr.T.R.Senthil Kumar, SSC
assisted by
Ms.K.G.Usha Rani, JSC
For Respondent : Mr.G.Baskar
1/10
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TCA.No.282 of 2018
JUDGMENT
(Delivered by T.S.SIVAGNANAM,J)
This appeal, filed by the Revenue under Section 260A of the
Income Tax Act, 1961 (for short, the Act), is directed against the order dated
05.10.2017 made in I.T.A.No.2927/Mds/2016 on the file of the Income Tax
Appellate Tribunal, Madras 'A' Bench ('the Tribunal' for brevity) for the
assessment year 2007-08.
2. The appeal was admitted on 28.06.2018 on the following
substantial questions of law:
"1. Whether the ITAT was justified in
holding that the claim of Rs.1,83,04,644/- which is
a part of opening balance in Service Tax Set Off
Account (STA) made by the assessee as allowable
expenditure under Income Tax Act? and
2. Whether Appellate Tribunal is justified in
law in giving relief to the assessee by placing
reliance on the decision of the ITAT, Hyderabad in
the case of M/s.NCS Distilleries P. Ltd Vs. I.T.O.
by ignoring that the facts in the present case are
different and distinguishable?"
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TCA.No.282 of 2018
3. We have heard Mr.T.R.Senthil Kumar, learned Senior Standing
Counsel assisted by Ms.K.G.Usha Rani, learned Junior Standing Counsel
appearing for the appellant – Revenue and Mr.G.Baskar, learned counsel for
the respondent.
4. The respondent is a manufacturer of edible oil and filed its
return of income for the assessment year under consideration i.e. AY 2007-
08 declaring a total income of Rs.17,56,15,534/-. During the course of
scrutiny assessment proceedings under Section 143(3) read with Section
263 of the Act, the Assessing Officer observed that a sum of
Rs.1,83,04,644/- represents a part of balance in the account of "Service Tax
set off account" as on 31.03.2007 and the same was charged to Profit &
Loss account on the presumption that this amount will not be useful for
future set off against Central Excise duty payable and Service Tax payable
as the Excise on edible oil was discontinued with effect from 01.03.2005.
5. The Assessing Officer, vide order dated 31.01.2014, disallowed
the written off of service tax amount of Rs.1,83,04,644/- and charging the
same to Profit & Loss account on the ground that it was not in order.
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TCA.No.282 of 2018
Aggrieved by the same, the assessee preferred appeal before the
Commissioner of Income Tax (Appeals) 18, Chennai [CIT(A)], whom, by
order dated 28.07.2016, allowed the appeal, by taking note of the earlier
decisions of the Tribunal. Aggrieved by the same, the Revenue filed appeal
before the Tribunal, which has been dismissed by the impugned order.
6. On a perusal of the order passed by the CIT(A), though it
appears to be a non-speaking order, yet, the CIT(A) rightly took note of the
decision of the Hyderabad Tribunal in the case of M/s.NCS Distilleries P.
Ltd. Vs. ITO, Ward 16(2) Hyderabad in ITA.No.699/Hyd/2012. In the said
decision, the Tribunal took note of an earlier decision of the Chandigarh
Tribunal in the case of M/s.Mohan Spinning Mills Vs. ACIT in
ITA.No.1212/Chd/2011 dated 25.04.2012 and also the decision of the
Ahmadabad Tribunal in the case of ACIT Vs. Rangoli Industries P. Ltd. in
ITA.No.1936/Ahd/2010 dated 11.01.2013. The operative portion of the
order dated 11.01.2013 reads as follows:
"6. Having heard the submissions of both the sides
and considering the facts of the case as narrated
before the authorities, it was observed that the
aforesaid amount of the Excise Duty credit
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TCA.No.282 of 2018
(CENVAT Credit) written off was allowable as
deduction. on this issue, Coordinate Bench at
Chandigarh in the case of M/s.Mohan Spinning
Mills (supra) has opined as under:-
"7. We have heard the rival contentions and
perused the record. The issue arising in the
present appeal is in respect of the deduction
claimed on account of CENVAT amounting to
Rs.35,94,577. The assessee was engaged in the
business of manufacturing and trading of yarn
and fibre. The yarn manufactured by the assessee
was an excisable item. The assessee was paying
excise duty on the raw material purchased i.e.
acrylic yarn/fibre and polyester yarn/fibre. In
turn, assessee was liable to pay duty on its
manufactured items. The rate of excise duty
payable on the raw material was higher and the
assessee was depositing the excise duty in PLA
account which in turn was adjustable against the
excise duty payable on the finished products.
The excise duty payable on the finished products
was on the lower side and consequently over the
period of years the assessee had credit of excise
duty resulting in accumulation of CENVAT."
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TCA.No.282 of 2018
"10. Various tests have been laid down by various
High Courts and the Apex Court in relation to the
allowability of expenditure under Section 37(1) of
the Act while computing the income from profits
and gains of business or profession. In the facts of
the present case, the assessee had paid CENVAT
on purchase of raw material which was deposited
in its PLA account for claiming the benefit of set
off against the excise duty payable on the
manufactured items i.e. branded yearn. The
assessee was paying higher rate of excise duty on
the raw material purchased by it as against the
rate of excise duty applicable on the manufactured
items, consequently credit of excise duty was
available with the assessee. The said excise duty
paid from year to year was not claimed as an
expenditure but was carried forward from year to
year to be adjusted against the excise duty
payable by the assessee on its manufactured items.
However, during the year under consideration the
assessee closed down its manufacturing unit and
consequently the benefit of the CENVAT credit
remained un-adjusted. Once the manufacturing
unit of the assessee is closed down, admittedly the
benefit of CENVAT credit not availed of against
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TCA.No.282 of 2018
the excise duty payable on manufactured items,
cannot be utilized by the assessee and the said
write off of CENVAT credit, is allowable as an
expenditure in the year under consideration on the
closure of the business. The write off of CENVAT
credit by the assessee in its books of account is
thus allowable as business expenditure under the
provisions of section 37(1) of the Act relatable to
the year, in which the manufacturing activities are
closed down by the assessee.
Accordingly, we direct the Assessing Officer to
allow the claim of the assessee in respect of write
off of CENVAT credit of Rs.35,94,577/-. Ground
No.1 raised by the assessee is thus allowed."
7. The CIT(A) also took note of the decision in the case of
Girdhar Fibres P. Ltd. Vs. ACIT in ITA.No.2027/Ahd/2009 dated
12.10.2012, wherein, identical issue was decided in favour of the assessee.
The Revenue seeks to distinguish the decision in the case of M/s.NCS
Distilleries P. Ltd., by referring to certain factual aspects stating that in the
said case, the unit had been closed down. However, the said contention
sought to be given by the Revenue is not tenable, because the assessee could
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TCA.No.282 of 2018
not have availed the set off on account of operation of law and from the
assessment year 2007-08 onwards, Central Excise duty on edible oils were
deleted.
8. In the case of M/s.NCS Distilleries P. Ltd., it appears that the
union was merged with other company and therefore, the credit remained
unutilized. However, this is not a feature to distinguish the said decision. In
fact, the Tribunal has taken into consideration as to how the CENVAT
Scheme operates and granted relief to the assessee. The Tribunal has once
again re-appreciated the factual position and found that the decision in
M/s.NCS Distilleries P. Ltd., would fully apply to the case on hand.
9. The Service Tax Department issued show Cause notice dated
14.06.2005 alleging wrongful availment of service tax credit on input
service and this show cause notice culminated in an Order-in-Original
disallowing a credit of Rs.49,00,194/-. Challenging the said disallowance,
the assessee filed appeal before the Commissioner of Central Excise,
Chennai, who dropped the demand to an extent of Rs.39,09,242/- Aggrieved
by the same, the Revenue filed appeal before the CESTAT and the Tribunal,
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TCA.No.282 of 2018
by Final Order No.41520-41521 of 2017 dismissed the appeal filed by the
Revenue on 08.08.2017. The above order also fortifies the stand taken by
the assessee before the authorities, particularly before the CIT(A) as well as
the Tribunal.
10. For the above reasons, we find that there is no error in the
order passed by the Tribunal. Accordingly, the appeal fails and it is
dismissed. Consequently, the substantial questions of law are answered
against the Revenue. No costs.
(T.S.S.,J.) (R.N.M.,J.)
08.03.2021
Index: Yes/No
Internet:Yes/No
hvk
To
1. The Income Tax Appellate Tribunal,
Madras 'A' Bench, Chennai.
2. The Principal Commissioner of Income Tax,
Central 2, No.108, Mahatma Gandhi Road,
Chennai.
https://www.mhc.tn.gov.in/judis/
TCA.No.282 of 2018
T.S.SIVAGNANAM,J
AND
R.N.MANJULA,J
hvk
TCA.No.282 of 2018
08.03.2021
https://www.mhc.tn.gov.in/judis/
