S. 43B – Interest on Custom duty not covered in S. 43B

3 Royal Cushion Vinyl Products Ltd. v. ACIT

ITAT ‘F’ Bench, Mumbai

A.Y. 2002-03. Decided on : 31-7-2008

Counsel for assessee/revenue : Mayur Shah/

K. M. Varma

The assessee was a manufacturer of PVC flooring, leather
cloth, etc. It had imported certain raw materials under advance licence without
the payment of customs duty. This exemption was granted with the condition that
the assessee would export required value of goods. However, for its failure to
export goods, the assessee was made to pay the customs duty of Rs.9.52 crore,
which was waived on goods imported, along with the interest of Rs.3.78 crore. In
its tax audit report, the assessee had shown Rs.13.20 crore as disallowable
u/s.43B. However, in its return of income filed, the assessee had disallowed the
sum of Rs.9.52 crore only i.e., the amount equal to the custom duty. The
interest of Rs.3.78 crore was claimed as not covered u/s.43B. The Assessing
Officer as well as the CIT(A) held that the interest was disallowable u/s.43B.

The Tribunal referred to the Calcutta High Court decision in
the case of Hindustan Motors Ltd., where it was held that interest payable under
the Customs Act, 1962 was not part and parcel of customs duty payable and hence,
such interest did not attract S. 43B of the Act. According to it, the same High
Court followed the said decision in Orient Beverages Ltd., where it was held
that interest payable on outstanding municipal taxes could not be disallowed
u/s. 43B. Further, it also referred to the Apex Court decision in the case of
Harshad Mehta, where it was held that penalty or interest could not be
considered as tax. In view of the same, and the fact that there were no
decisions of the jurisdictional High Court, though there were decisions which
were against the assessee but of a different High Court, the Tribunal allowed
the appeal and deleted the disallowance of Rs.3.78 crore.