(Ranjan Gogoi and Abhay Manohar Sapre, JJ.)
MWP Ltd. _________________________________ Appellant(s)
v.
Commnr. of Income Tax Karnataka (Central) ______ Respondent
Civil Appeal Nos. 6883-6885 of 2005, decided on January 29, 2015
The Order of the court was delivered by
Order
1. The challenge in these appeals is against the common order dated 5th April, 2005 passed by the High Court of Karnataka in the exercise of its reference jurisdiction (as it then existed) answering the questions referred to it against the assessee and in reversal of the conclusions of the Appellate Commissioner and the Income Tax Appellate Tribunal. The assessment years in question are 1982-83, 1984-85 and 1985-86 respectively. The issue before the High Court was with regard to the entitlement of the appellant-assessee to the benefit of the deduction of the amount of liability to payment of sales tax on the excise duty component of the goods purchased by the assessee from the manufacturer-seller-M/S. Mc Dowell & Co. Ltd.
2. The facts noticed are those arising in the appeal for the assessment year 1982-1983 though the same would suffice for the other appeals also. There is no dispute that in terms of the Agreement between the buyer and seller, the appellant-assessee had directly deposited the excise duty payable on the goods and had claimed and received the deductions under the said head. It is also not in dispute that the assessee has been granted the benefit of other components of the sale price. The manufacturer – M/S. Mc Dowell & Co. Ltd., did not include the excise duty element in its turn over as the same was directly paid by the buyer and had denied its liability to pay sales tax on the said component. The claim of M/S. Mc Dowell & Co. Ltd. was, however, negatived by all forums including this Court. Having been found to be liable for payment of sales tax on the excise duty component, M/S. Mc Dowell & Co. Ltd. had raised a demand upon the assessee for the same and the assessee accordingly filed revised return for the assessment year in question.
3. The assessing officer refused the benefit of deduction which, however, was granted by the Appellate Commissioner before whom for the first time an agreement dated 18.12.1981 by and between the assessee and M/S. Mc Dowell & Co. Ltd. was produced. Clause 8 of the Agreement which is relevant to the present controversy is being extracted hereunder:
“It is hereby agreed by the buyer that in the event of the Government of Andhra Pradesh treating the excise duty paid by the buyer as part of turnover of the seller and demanding sales tax and other charges on the excise duty, the buyer hereby agreed with the seller to reimburse the sales tax and other charges payable by the seller to the Government of Andhra Pradesh on sufficient proof being furnished by the seller to the buyer in this regard”.
4. The aforesaid view of the Appellate Commissioner was affirmed by the Tribunal in an appeal filed by the Revenue. Aggrieved, a reference was sought and obtained by the Revenue which having been answered in the manner indicated above, the assessee is before us in the present appeals.
5. The order of the High Court dated 5th April, 2005 would go to show that the sole basis on which the claim of the assessee was negatived is the authenticity of the agreement dated 18.12.1981. According to the High Court as the said agreement was for the first time produced before the Appellate Commissioner and there was no reference to the same in any of the relevant correspondence of the assessee, the Agreement dated 18.12.1981 was of doubtful credibility. The High Court, on an assumption that the agreement was bone fide, also took the view that as by the said agreement the discharge of liability was contemplated on the happening of certain events, the same would not be enforceable in law.
6. Shri Parasaran, learned senior counsel appearing on behalf of the appellant has contended that in the absence of a specific question with regard to the authenticity of the Agreement dated 18.12.1981, the High Court exercising its reference jurisdiction could not have proceeded to determine the issue and that too on an appreciation of the factual matrix of the case. In this regard, learned counsel has drawn the attention of the Court to the questions framed on which the High Court was required to provide an answer. Two decisions of this Court in – 2001 (1) SCC 135 K. Ravindranathan Nair v. Commissioner of Income Tax, Ernakulam and 2008 (XII) SCC 458 Sudarshan Silks & Sarees v. Commissioner of Income Tax, Karnataka were also placed before us in support of the contention advanced, namely, that in the absence of a specific question framed, it was not open for the High Court to go into the issue of authenticity of the Agreement dated 18.12.1981. Alternatively, it has been submitted by Shri Parasaran that even dehors the agreement, sales tax on excise duty being a part of the sale price, the liability of such tax has to be borne by the assessee. Therefore, the view taken by the High Court would justify interference.
7. Mr. Rupesh Kumar, learned counsel appearing on behalf of the Revenue has strenuously urged that the Agreement dated 18.12.1981 should not commend for acceptance of the Court in the light of the surrounding facts, particularly, as the agreement had surfaced from nowhere at an intermediate stage of the assessment proceedings. Learned counsel would urge that the document exfacie appears to be collusive and in view of the serious doubts that can be entertained with regard to its authenticity, the High Court was perfectly justified in coming to its impugned conclusions. Learned counsel for the Revenue has further urged that even if the claim of the assessee that it has/had followed a mercantile system of accounting is accepted, the same would not enure to the benefit of the assessee, inasmuch as in the return filed or the documents enclosed thereto, no such liability has not been shown or created.
8. Having considered the submissions advanced on behalf of the rival parties, we do not find that the issues that arise for consideration should detain the Court. Admittedly and evidently no question with regard to the authenticity of the Agreement dated 18.12.1981 was framed so as to require or justify an answer by the High Court. In the absence of a specific question to the above effect before the High Court, we decline to go into the merits of the issue though urged before us. Instead, we hold that the High Court had exceeded its jurisdiction in recording a finding with regard to the authenticity of the Agreement dated 18.12.1991. If the Agreement dated 18.12.1991 is to be treated as a part of the record of the assessment proceedings, undoubtedly, a liability had been cast upon the assessee insofar as the sales tax payable on the excise duty component is concerned. It is not in dispute that the mercantile system of accounting was in vogue in the assessee company. In the revised return filed by the assessee deduction of the amounts claimed by M/S. Mc Dowell & Co. Ltd. on sales tax was reflected. That the original return filed by the assessee did not reflect the aforesaid figures is not difficult to understand. At the time when the said return was filed (29.09.1982) the liability of M/S. Mc Dowell & Co. Ltd., disclaimed by the said Company, was yet to be determined. After the said claim of M/S. Mc Dowell & Co. Ltd. was negatived by the Andhra Pradesh High Court (06.12.1982) and during the pendency of the appeals before this Court M/S. Mc Dowell & Co. Ltd. had issued a letter dated 07.05.1983 to the assessee intimating that in the event the decision of the Supreme Court is adverse to M/S. Mc Dowell & Co. Ltd. the sales tax element will be collected by Mc Dowell from the assessee. It is thereafter that the revised return was filed on 27.08.1984. The liability of M/S. Mc Dowell & Co. Ltd. attained finality with the decision of the Constitution Bench dated 17th April, 1985 – 1985 (3) SCC 230 Mc Dowell and Company Limited v. Commercial Tax Officer.
9. In the light of the foregoing discussions and for the reasons that have been alluded above, we are of view that the assessee is entitled to the benefit of deduction of the sales tax payable on the excise duty component in the assessment years in question. We, therefore, set aside the order of the High Court and restore the order of the Appellate Commissioner and the learned Tribunal deciding the said issue in favour of the assessee and against the revenue.
10. All the appeals are allowed as indicated above.
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