SUHAS CHANDRA SEN,J. - (1.) THE Tribunal has referred the following question of law to this Court under s. 256(1) of the IT Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sales-tax liability of Rs. 49,560 did not arise and was not allowable in the asst. yr. 1974- 75 ?"
(2.) THE assessment year involved is 1974-75 for which the relevant year of account is the financial year 1973-74. The facts found by the Tribunal are as under : "The assessee company observed mercantile method of accountancy. During the accounting period relevant to the asst. yr. 1964-65 the assessee-company purchased raw materials ostensibly for manufacture in the State of Rajasthan and thereby paid sales-tax at concessional rate 1% on the purchase price of raw materials. During the course of assessment it was found by the STO that the said raw material was utilised by the assessee for the purpose other than for which it was purchased taking benefit of concessional rate of sales-tax. He, therefore, levied sales-tax under s. 5C(2) of the Rajasthan ST Act at penal rate and thus raised the demand of Rs. 49,560 on 30th June, 1965 which date fell in the asst. yr. 1966-67. The appeal of the assessee from the order of the STO was dismissed by the Dy. Commr. of ST(A) on 6th July, 1973 which date fell in the asst. yr. 1974-75. The ITO while framing the assessment for the asst. yr. 1974-75 did not allow the claim of deduction of said Rs. 49,560." Mr. Bajoria, learned advocate appearing on behalf of the assessee, had contended that this is not a case of liability arising out of the sale or purchase simpliciter. The principle enunciated by the Supreme Court in the case of Kedarnath Jute Manufacturing Co. vs. CIT (1971) 82 ITR 363 (SC) will not apply to the facts of this case. In this case the assessee-company purchased raw materials for manufacturing in the State of Rajasthan and that is why it paid sales-tax at a concessional rate of 1% on the purchase price of the raw materials. The finding of the STO was that the raw material was utilised by the assessee for a different purpose altogether and, therefore, the concessional rate was not allowed and a penal rate of tax was charged. Mr. Bajoria has contended that the Tribunal has itself recognised this and has held that the principle laid down in the case of Kedarnath Jute Manufacturing Co. vs. CIT (supra) will not apply. The fact is that the demand was made by the STO in Rajasthan on 30th June, 1965, which fell within the accounting period relevant to the asst. yr. 1966-67. It was contended by Mr. Bajoria that as soon as goods are sold the liability to pay sales- tax arises in an ordinary case. But since that principle cannot be invoked in the facts of this case, the assessee was entitled to claim deduction in the year in which the claim of additional tax or levy of penalty became finalised.
(3.) I am unable to uphold this contention. The assessee paid sales-tax at a concessional rate of 1% in the accounting period relevant for the asst. yr. 1964-65. The subsequent demand was raised by the STO on 30th June, 1965 which fell within the asst. yr. 1966-67. The assessee's appeal against the order of the STO dt. 30th June, 1965, was dismissed by the Dy. Commr. ST (A) on 6th July, 1973. The assessee cannot claim that its liability to pay sales-tax accrued or arose on the date when its appeal was dismissed. The law in this regard is well-settled. In the case of Pope The King Match Factory vs. CIT (1963) 60 ITR 495 (Mad) it was held that the endeavour made by the assessee to get out of the liability arising out of the order of the statutory authority by preferring appeals will not in any way detract from or retard the efficacy of the liability imposed by the competent authority levying duty and making a demand for payment of that duty. The assessee was entitled to debit the amount as accrued liability when the demand was made.;