1. The appeal is by the assessee against the order of the Commissioner (Appeals), holding that the assessee was not entitled to exemption on the rebate of excise duty received by it.
2. The original assessment was completed on 27-11-1971, disallowing the bad debt claim of Rs. 1,56,799. On appeal, the AAC set aside the assessment, directing the ITO to make a fresh assessment in accordance with law, allowing the amount of debt which had actually become bad during the relevant previous year after satisfying himself, whether the advances were given to genuine parties and whether a portion of the advances had become irrecoverable during the previous year. The ITO completed the reassessment on 4-12-1982, allowing the assessee's claim.
The assessee raised a fresh plea before the ITO that the sum of Rs. 8,26,474, representing credit for excise duty received from the Central excise authorities, was not taxable income. The ITO in a very brief order, rejected this contention, stating that the said sum was not entitled to exemption under Section 10(3) of the Income-tax Act, 1961 ('the Act') in view of the decisions of Ludhiana Central Co-operative Consumers' Stores Ltd. v. CIT  122 ITR 942 (Punj. & Har.) and H.R. Sugar Factory (P.) Ltd. v. CIT  77 ITR 614 (All.). The assessee went in appeal.
3. Before the Commissioner (Appeals), the learned representative of the assessee relied on a decision of the Delhi High Court in the case of Siddhartha Publications (P.) Ltd. v. CIT  129 ITR 603 and pleaded that the excise duty rebate should be treated as casual income and exempt from tax. The Commissioner (Appeals) held that the said sum was income, as it was received in the course of the business of the assessee. The assessee is in appeal before us.
4. The Collector, Central Excise, Bangalore, issued a notice No. 22/65, dated 22-5-1965, based on the notification No. 13/65, dated 13-2-1965, by the Ministry of Finance, announcing exemption from basic duty at certain percentages on additional production of sugar by the manufacturers during certain specified periods. The object was to provide for an incentive to maximise sugar production during the 1964-65 and 1965-66 seasons. The notice, issued by the Collector of Central Excise, informed the trade the concession available under the notification of the Ministry of Finance. There was an exemption of 50 per cent of the basic duty, on such quantity of sugar produced during the period 1-10-1964 to 30-11-1964 in excess of the quantity produced during the corresponding period in 1962. As regards sugar produced between 1-1-1965 and 30-6-1965, in excess of the quantity of sugar produced during the corresponding period in 1964, a graduated exemption was given as under : (i) on the first 10 per cent of such total excess production, exemption to the extent of 20 per cent on the basic excise duty ; (ii) on the next 10 per cent of such excess production exemption to the extent of 40 per cent of the basic excise duty ; (iii) on the balance of such excess production, 50 per cent of the basic excise duty ; On the basis of the notification, the assessee received credit notes from the Central Excise Department for Rs. 8,26,474. This was taken into account by the assessee on 30-9-1965. The result was the payment of excise duty which the assessee had to make on the quantity of sugar produced between 1-9-1965 and 31-8-1966, relevant to the present assessment year, was reduced by the sum of Rs. 8,26,474.
5. In appeal, the learned representative of the assessee submitted that as the excise duty rebate related to the crushing season 1-1-1965 to 30-6-1965, the rebate related to the earlier assessment year and, hence, could not be considered as income of the present year. The arguments advanced before the Commissioner (Appeals) were also repeated before the Tribunal. The principal argument was that the excise duty collected in excess never became a part of the assessee's receipts. The excess collected had to be returned to the customers. The customers had a right over this sum. The assessee was holding this sum only as a bailee on behalf of its customers under Section 72 of the Indian Contract Act, 1872. For all these reasons, he submitted that the addition of Rs. 8,26,474 should be deleted.
6. The learned departmental representative submitted that the assessee has not informed the department the actual date on which the credit certificates were received by it, from the papers, it appears that the certificates were posted on 26-8-1965. There was no possibility of the assessee having received these credits before 31-8-1965 as otherwise it should have entered the credit in its accounts for the period ending on 31-8-1965. Although the assessee was supposedly maintaining accounts on the mercantile system, unless and until it submitted the necessary papers to the Central Excise authorities and the rebate granted, the assessee cannot claim to take credit for rebate, refund or credit note for excise duty in its accounts. He submitted that the customers did not know that the assessee was entitled to rebate in excise duty.
Excise duty stood on a footing quite different from sales tax. Sales tax was payable by the customer, but collected and paid by the dealer.
The payment of Central Excise duty was primarily the responsibility of the manufacturer. The moment, the goods were manufactured and taken out of the factory, excise duty was attracted. This was the liability of the assessee. No customer will never be able to know, from which stock he has been supplied sugar. The customer will not be in a position to know that the supply to him is out of production in the season ending on 31-8-1965 which happened to be in excess of the production in the corresponding period, in the earlier year. The correct decision to be applied in this case is that of the Supreme Court in the case of General Fibre Dealers Ltd. v. CIT  77 ITR 23. That was a case, where even the customers knew that the assessee was likely to get a rebate in excise duty, and there was a liability on the part of the assessee to return the excess duty to the customers. Still, the Supreme Court held that the excess duty, collected and retained by the assessee, was part of its receipts and was includible in its income.
The same applied here also. The learned departmental representative also pointed out that Section 28(iv) clearly applied. He also submitted that the correct way of looking at the problem, in the present case, is from the payments side of the assessee and not from the receipt side from the scheme, it was clear that because of excess production, the assessee did not actually receive a refund but the duty, which it had to pay in future, was reduced. In effect, in the next season, the duty which the assessee had to pay was reduced by Rs. 8,26,474 because of the excess production in the earlier season. Hence, since the payment side of the manufacturing account was reduced the income went up by an equal amount. Looked from this point of view, he submitted that the assessee was rightly taxed on the sum of Rs. 8,26,474.
7. We are in agreement with the arguments advanced by the learned departmental representative. There is no contract between the assessee and its customers for refunding any refund or rebate in excise duty received by it. As pointed out by the learned departmental representative, there is no correlation between the stock received by the customers and the stock on which rebate in excise duty was given.
As rightly pointed out, the excise duty already paid on the production is not refunded, but the duty payable by the assessee on future production is reduced by a quantity determined with reference to the excess production. Therefore, it is wholly appropriate to look at the problem from the payment side and not from the receipt side. In this view of the matter, we agree with the final decision of the Commissioner (Appeals) and dismiss the appeal filed by the assessee.