CIT v Loknete Balasaheb Desai S.S.K. Ltd.
High Court of Bombay
ITA No. 4297 of 2009
Decided on: 22 June 2011
J.P. Devadhar, J
1. Heard. Admit on the following question of law:-
“Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that under section 145A of the Income Tax Act, 1961 the excise duty element cannot be added to the value of unsold sugar lying in stock on the last day of the accounting year?”
2. By consent, appeal is taken up for final hearing.
3. The assessment year involved is AY 2001-02.
4. The assessee is engaged in the business of manufacture and sale of white sugar. In the assessment year in question, the assessing officer held that the excise duty on sugar manufactured but not sold and lying in closing stock was a liability incurred by the assessee under section 145A(b) (sic)1 of the Income Tax Act, 1961 (‘the Act’ for short) and has to be considered for disallowance under section 43B of the Act.
5. On appeal filed by the assessee, the CIT(A) upheld the order of the assessing officer. According to CIT(A), the liability to pay excise duty is incurred on manufacture and the obligation to pay the excise duty continues when the goods are in stock and does not cease to exist.
6. On further appeal filed by the assessee, the ITAT following the judgment of the Madhya Pradesh High Court in the case of Assistant Commissioner of Income Tax -1(1), Indore v D and H Secheron Electrodes P. Ltd. reported in (2008) 173 Taxman 188 held that the assessing officer was not justified in adding excise duty to the price of the unsold sugar lying in stock on 31/3/2001.
7. The argument of the revenue is that the excise duty liability is incurred on manufacture of sugar and since section 145A(a) specifically used the expression ‘incurred’, the Tribunal ought to have held that the excise duty liability has to be taken into consideration in valuing the unsold sugar in stock on the last day of the accounting year.
8. Section 145A inserted by the Finance (No.2) Act, 1998 w.e.f. 1/4/1999 reads thus:-
“145A. Method of accounting in certain cases- Notwithstanding anything to the contrary contained in Section 145, the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall be:-
(a) in accordance with the method of accounting regularly employed by the assessee, and
(b) further adjusted to include the amount of tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation – For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payments notwithstanding any right arising as a consequence to such payment. “
9. The expression ‘incurred by the assessee’ in Section 145A(a) is followed by the words ‘to bring the goods to the place of its location and condition as on the date of valuation’. Thus, the expression ‘incurred by the assessee’ relates to the liability determined as tax, duty, cess or fee payable in bringing the goods to the place of its location and condition of the goods. Explanation to section 145A(a) makes it further clear that the income chargeable under the head profits and gains of business shall be adjusted by the amount paid as tax, duty, cess or fee. Therefore, the expression ‘incurred’ in section 145A(a) must be construed to mean the liability actually incurred by the assessee.
10. Where the excisable goods are manufactured and are lying in stock on the last day of the accounting year, whether the manufacturer has incurred liability to pay excise duty on the manufactured goods is the question.
11. The Apex Court in the case of Commissioner of Central Excise v Polyset Corporation and Anr. reported in 115 ELT 41 (S.C.) has held that the dutiability of excisable goods is determined with reference to the date of manufacture and the rate of excise duty payable has to be determined with reference to the date of clearance of the goods. Therefore, though the date of manufacture is the relevant date for dutiability, the relevant date for the duty liability is the date on which the goods are cleared. In other words, in respect of excisable goods manufactured and lying in stock, the excise duty liability would get crystallised on the date of clearance of goods and not on the date of manufacture. Therefore, till the date of clearance of the excisable goods the excise duty payable on the said goods does not get crystalised and consequently the assessee cannot be said to have incurred the excise duty liability. In respect of the excisable goods lying in stock, no liability is determined as payable and consequently, there would be no question of incurring excise duty liability.
12. In the present case, it is not in dispute that the manufactured sugar was lying in stock and the same were not cleared from the factory. Therefore, in the facts of the present case, the ITAT was justified in holding that in respect of unsold sugar lying in stock, central excise liability was not incurred and consequently the addition of excise duty made by the assessing officer to the value of the excisable goods was liable to be deleted.
13. In the result, the question raised in this appeal is answered in the affirmative i.e. in favour of the assessee and against the revenue.
14. The appeal is disposed off accordingly with no order as to costs.