If liability to pay Excise duty is not incurred, excise duty is not to be included in closing stock

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HIGH COURT OF GUJARAT AT AHMEDABAD

TAX APPEAL No. 436 of 2011
WITH
TAX APPEAL No. 437 of 2011

COMMISSIONER OF INCOME TAX
Versus
BELL GRANITO CERAMICA LTD.

Date : 13/06/2012

 

Hon’ble Jurisdictional High Court in the case of Narmada Chematur Petrochemicals Limited (Supra) has held that, if the duty of Central Excise is not due and payable, it cannot be termed to be a cost in relation to the raw materials then such duty also cannot be termed to be a cost qua the finished goods appearing in the closing stock because admittedly, on the said day (presumption being that such goods are excisable goods) no excise duty is due and payable at the said stage and for the purposes of Excise Act, they levy is not complete unless and until Section 3 and 4 of the Excise Act operate together. According to Hon’ble High Court for the purpose of the said statute, which is the only statute under which duty of central excise can be levied and collected, the charge is not fastened in law and it cannot be stated that for the purpose of computing chargeable income such a charge gets fastened qua the finished goods appearing as part of closing stock. Further Hon’ble High Court elaborating that it would result into an anomalous situation under the two statutes, the Excise Act and the IT Act leading to contrary positions under both the statutes and in the facts of the present case, even on application of the general principles, the addition sought to be made by Revenue cannot be sustained. Further, it is held that making of an entry or absence of an entry cannot determine rights parties. In other words, Hon’ble High Court held that if the law does not lead to incurring of a liability, or does not lead to a corresponding right to insist for discharging such a liability any accounting practice (even if suggested by the ICAI) cannot lay down anything to the contrary. Hon’ble High Court has discussed the provisions of Section 145A which has been inserted by Finance (No.2) Act, 1998 w.e.f. 1st April, 1999. Hon’ble High Court considered that though the Bill proposed retrospective insertion ultimately the section has come on the statute book only from 1^st April, 1999 but what is more material is that the same relates to inclusion in the value of inventory the amount of any tax, duty etc. paid or liability incurred for the same under any law in force. Meaning thereby such tax, duty, etc. should have been actually paid or should be actually due and payable under the law applicable to such tax, duty, etc. in force. Otherwise even Section 145A will also not carry case of Revenue any further. CIT v. English Electric Co. of India Ltd. (2000) 243 ITR 512 (Mad) and CIT v. Dyanavision Limited (2004) 267 ITR 600 (Mad) was also considered. And finally concluded that under the scheme of the excise duty, the assessee incurs liability to pay excise duty only upon both the events taking place, namely manufacture of excisable goods and removal of excisable goods; excise duty is not therefore includible in the valuation of closing stock.