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Maruti Suzuki India Ltd. (Earlier Known as Maruti Udyog Ltd.) v. Commissioner of Income Tax, Delhi

Civil Appeal · 2020 INSC 150Decided 7 Feb 2020
Civil Appeal No. 11923 of 2018
Justice Ashok Bhushan · Justice Navin Sinha

Background

Maruti Suzuki (then Maruti Udyog) challenged a Delhi High Court ruling that upheld disallowance of two income-tax deductions for Assessment Year 1999-2000: (i) over Rs. 69.93 crore of unutilised MODVAT (excise duty) credit, and (ii) over Rs. 3.08 crore kept in a "Sales Tax Recoverable Account." The company argued that under Section 43B of the Income Tax Act, both amounts should be treated as taxes/duties actually paid and therefore deductible, since the excise duty was embedded in the price paid to its raw-material suppliers.

Decision Breakdown

The Supreme Court held that unutilised MODVAT credit is not a "sum payable by the assessee by way of tax, duty or cess" under Section 43B, because the legal liability to pay excise duty on raw materials rests on the manufacturer-supplier, not on Maruti Suzuki as purchaser: the company merely absorbed the cost, which is not the same as having a statutory duty liability of its own. The Court also held that Section 43B deductions require actual payment of a sum one is legally liable to pay, which was not shown here, and that the first proviso to Section 43B (for sums paid before the return-filing due date) did not apply since no Excise Duty liability had accrued to the assessee as of 31 March 1999. On the Sales Tax Recoverable Account, the Court agreed with the High Court that since this amount could be set off against future sales tax liability, it was correctly disallowed. Both appeals were dismissed.

Lesson Learnt

A taxpayer cannot claim a Section 43B deduction merely because a tax or duty is economically embedded in a cost paid to a supplier: the deduction is available only for sums the taxpayer itself was legally liable to pay and actually did pay; credits or notional set-offs under schemes like MODVAT do not qualify unless actually used to discharge one's own duty liability.

Official source (sci.gov.in)View Judgment (PDF)

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