SIMPLEX ENGINEERING & FOUNDRY WORKS PVT. LTD.,,NEW DELHI vs. DCIT (LTU), CIRCLE-1 & 2, NEW DELHI

The grounds of appeal raised by the assessee read as under:-

The Ld. Counsel of the assessee did not pressed legal ground no. 1 and the same is dismissed has not pressed.

Regarding ground no. 2 the Ld. Counsel of the assessee, in the written submissions submitted as under:-

That as per the provision of Section 68 of the Service Tax Act, it is clear that under the Act it is the liability of service provider to pay the service tax - whether being charged or not.

That in the case of Tupperware India (P) Ltd. vs. CIT in 234 Taxman 56 (Del), the Hon'ble Jurisdictional High Court has held that the taxes and duties payable by third person but have been paid by an assessee, in the interest of his business on account of commercial expediency during the course of his carrying out business, is an allowable deduction as a business expenditure.

Placing rejoinder to the above submissions the Ld. Counsel of the assessee preciously reiterated the written submissions and submitted that the assessee is a service provider to Vishakhapatnam Steel Plant and liability to pay make payment of service tax is on the shoulders of the assessee provider as per section 68 of Service Tax Act r.w.r.6A of Service Tax Rules. The Ld. Counsel submitted that the Assessing Officer is incorrect to say that service tax liability is not of the assessee but of the Vishakhapatnam Steel Plant. The Ld. Counsel vehemently pointed out that it is not a case of the A.O that the assessee has not paid Simplex Engineering & Foundry Works Pvt. Ltd., the service tax to the Government exchequer but he has made the disallowance on the ground that liability to pay service tax is not of the assessee but of the service receiver which is an incorrect observation. The Ld. Counsel further explain that as per judgment of Hon’ble jurisdictional High Court of Delhi in the case of Tupperware India (P) Ltd. vs. CIT (supra), the taxes and duties payable by third person but have been paid by the assessee, in the interest of his business on account of commercial expediency during the course of his carrying out business, is an allowable deduction as a business expenditure. The Ld. Counsel submitted that in the present case identical facts and circumstances exit as the assessee raised bill on Vishakhapatnam Steel Plant inclusive of service tax but the service receiver Vishakhapatnam Steel Plant did not pay the entire amount of bill including service tax, therefore the assessee debited the same to the P&L account as revenue expenditure on account of commercial expediency similarly the amount of excise duty was also paid by the assessee as the contract manufacture did not pay partial excise duty to the assessee and assessee after paying to the Government debited in P&L account claiming as revenue expenditure which is also allowable as Simplex Engineering & Foundry Works Pvt. Ltd., business expenditure under commercial expediency u/s. 37(1) of the Act. Finally Ld. Counsel submitted that the liability to pay service tax as well as excise duty was primarily on the assessee under the law though it may be reimburse by the clients but it remains the liability of the assessee whether reimburse by the clients or not. In the present case impugned amounts of service tax and excise duty was paid by the assessee to the exchequer but could not reimburse from the clients due to reasons beyond control of the assessee. Therefore the assessee is entitled to claim it as revenue expenditure under commercial expediency.

On a careful consideration of rival submissions from the assessment order we observe that it is not a case of the Assessing Officer that assessee did not pay service tax or excise duty to the exchequer and the A.O has not invoked provisions of section 43B of the Act. The main contention of the Assessing Officer is that the liability to pay excise duty and service tax is not of the assessee but the clients. Neither by the A.O in the assessment order nor by the Ld. CIT(A) in the first appellate order nor by the Ld. Senior D.R. before during argument before us, the factum was not controverted Simplex Engineering & Foundry Works Pvt. Ltd., that the assessee could not recover impugned amounts of service tax and excise duty from its clients but paid the same to the Government and claimed it as business expenditure under commercial expediency to comply with the taxation provisions of the Government. It is not also a case of the A.O that the assessee recovered the amount from Vishakhapatnam Steel Plant and contract manufactures and did not pay the same to the Government or the assessee has wrongly claimed impugned amounts as revenue expenditure because the assessee had already recovered the same from Vishakhapatnam Steel Plant and contract manufacturers. In the situation when the assessee complying with the provisions of indirect taxation and deposit the service tax and excise duty to the exchequer as applicable to the business activity of the assessee. In a situation when the assessee is not able to recover such amounts fully or partially then the assessee is very well entitle to claim the same as revenue expenditure in its P&L account under commercial expediency of complying with the taxation liability as well as maintaining business relations with the respective clients/costumers. Therefore we hold that the A.O was not right in making disallowance in the hands of assessee therefore the ground Simplex Engineering & Foundry Works Pvt. Ltd., no 2 of assessee is allowed and A.O is directed to delete the additions.

In the result, appeal of the assessee is partly allowed.