COMMISSIONER OF INCOME TAX, DELHI vs. BHARAT CARBON AND RIBBON MFG. CO. (P) LTD.

CIVIL APPEAL No. 16688/1996Supreme Court1999 INSC 33417 August 1999Bench: 2 JudgesAuthor: D.P. WADHWA, M.B. SHAH COMMISSIONER OF6 pages
AI SummaryDismissed

What were the facts?

The assessee, Bharat Carbon and Ribbon Mfg. Co. (P) Ltd., manufactured carbon paper. Initially not liable to excise duty, duty was later levied. The Collector classified carbon paper under Item 17(2) of the Central Excise Tariff, a classification the assessee disputed. The assessee received a demand notice for excise duty for assessment years 1977-78, 1978-79, and 1979-80, totaling Rs. 92,98,805. The assessee challenged this levy via a Writ Petition and, pending the petition, filed a revised return claiming the excise duty as a deduction for assessment year 1981-82. The Income Tax Officer rejected the claim, deeming it a contingent liability. The Commissioner allowed it, and the Tribunal dismissed the Revenue's appeal. The High Court also dismissed the Revenue's application for reference, citing a prior Supreme Court decision. The Revenue appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court dismissed the appeal. On the first issue, the Court held that the obligation to pay excise duty arose in assessment year 1981-82 when the demand notice dated April 21, 1980, was issued, quantifying the liability. The pendency of the writ petition did not make the liability uncertain, tentative, provisional, or contingent. The assessee was bound to pay until the order was set aside or modified. The Court distinguished Indian Molasses Co. (P) Ltd. v. C.I.T. West Bengal. On the second issue, the Court affirmed that the liability accrued over the accounting period due to the demand notice, which was based on a trade notice classifying carbon paper as coated paper. The assessee's dispute and writ petition did not negate the incurred liability. The Court reiterated that the existence or absence of entries in the books of account is not decisive, citing Kedarnath Jute Manufacturing Co. Ltd. and Pope The King Match Factory v. Commissioner of Income Tax. The Court found that the High Court rightly rejected the Revenue's application for reference. No issue was expressly left undecided.

What were the issues?

1. Whether, on the facts and in the circumstances, the Income Tax Appellate Tribunal (ITAT) was correct in law in confirming that a contingent liability, not acknowledged as a debt by the assessee, qualifies for deduction under the Income Tax Act? 2. Whether, on the facts and in the circumstances, the ITAT was correct in law in holding that the principles laid down in Indian Molasses Co. (P) Ltd. v. C.I.T. West Bengal are not applicable, and the case is covered by Kedarnath Jute Manufacturing Co. Ltd. v. Commissioner of Income Tax, by ignoring that excise duty was neither determined nor owed as a debt but was merely a contingent liability not provided for in the books of accounts? Assessee's Contentions: The judgment does not explicitly record the assessee's contentions before the Supreme Court, but their actions and the High Court's reasoning imply they argued the liability was accrued and deductible based on the mercantile system of accounting and the principles in Kedarnath Jute Manufacturing Co. Ltd. Revenue's Contentions: The Revenue contended that the assessee's liability was contingent, and the decision in Kedarnath Jute Manufacturing Co. Ltd. did not apply to excise duty liability relating to previous assessment years (1976-77 to 1979-80). Therefore, deductions were rightly not granted in assessment year 1981-82. They also argued that the High Court should have raised and referred the questions of law as they were required to be decided.

Which sections of the Income-tax Act were involved?

Section 256(2)

AI-generated summary — verify with the full judgment below

A COMMISSIONER OF INCOME TAX, DELHI :.¢.. v. BHARAT CARBON AND RIBBON MFG. CO. (P) LTD. AUGUST 17, 1999 ..- B [D.P. WADHWA AND M.B. SHAH, JJ.] Income Tax Act, 1961-Levy of Excise duty under Item 17(2) of Central Excise Tariff-Liability challenged by way of Writ Petition-Such disputed .... and unpaid Excise Duty-Whether a permissible deduction over same c accounting period or contingent liability not incurred-HELD, where mercantile system of accounting is adopted, amount is deductible when liability accrues though discharged at a later date. ,- j, The Respondent-Assessee was manufacturing Carbon Papers which D was not liable to Excise Duty till 28th February, 1975. Later on, duty was levied on Carbon Papers. The Collector issued a general trade notice making Carbon Papers liable to duty as coated paper under Item 17(2) of the Central Excise Tariff. Prior to that, the Respondent-Assessee was required to clear the carbon paper under residuary Item 68. However, the Respondent-Assessee did not accept this classification of carbon appear as Coated-paper. Thereafter, E the Assessee received a demand notice for payment of Excise Duty for the years 1977-78, 1978-79

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 256(2)

All 149 judgments and leading authorities on Section 256(2) →

Recent GST High Court judgments

Search GST case law →