Unjust Enrichment: Existence of customs duty as receivables in BS is evidence of not passing on it’s burden

In the instant case, the appellant has paid a certain amount of customs duty. Thereafter, the appellant has sought to create an asset in the shape of ‘receivables’ so as to not pass the effect of payment of duty to the profit and loss account. To nullify the effect of the entry ‘receivables’, it has created a parallel entry exactly opposite to the receivables in its ledger as ‘provisions’. The net effect of creating ‘receivables’ and ‘provisions’ on profit and loss and balance sheet is that the customs duty paid is included in expenditure shown in profit and loss account. The legders on the one hand recognizes the disputed amount of customs duty as receivables (an asset) and simultaneously, creates a provision (a liability) for the same amount. These are obviously artificial accounting juggleries as the net combined effect of these two ledger entries in the profit and loss account is that the customs duty gets reflected in the profit and loss as expenditure.

The appellant has attempted to argue that the said provision was made to arrive at ‘true amount of profit’. In the appellant’s own words, the act of creating receivables and resultantly showing “lesser amount of expenditure towards the customs duty, to that extent, is compensating by creating provision of same amount of profit”. It has admitted that the two entries nullify each other.

The reason why existence of the customs duty as receivables in the balance sheet is considered as evidence of not passing on the burden of customs duty to anybody else is because the said amount shown as receivable is not passed to profit and loss account as expenditure. As soon as a particular amount is charged to expenditure, it is deemed to have been recovered in the shape of the price of the goods. In the instant case, by creating an entry for receivables and thereafter, creating an entry for provision in the ledgers, the appellant has nullified these entries. Consequently, the entire amount of duty paid is passed on as an expenditure to the profit and loss account. Thus the appellant has failed to discharge the burden of unjust enrichment. In these facts and circumstances, we find ourselves in total agreement with the order of the Commissioner (Appeals). Both revenue & assessee appeals are dismissed.