2006 (7) TMI 573 - HC - Income Tax

Summary

Issues:
1. Whether central excise duty component should be included in the value of closing stock.
2. Whether sales tax and excise duty component can be included in the total turnover for the purpose of calculation of deduction under section 80HHC of the Income-tax Act, 1961.

Issue 1: Central Excise Duty Component in Closing Stock
The Tribunal, in this case, upheld its earlier decision in favor of the assessee regarding the inclusion of the central excise duty component in the value of closing stock. The Tribunal emphasized that excise duty does not form part of the cost of goods until the goods are cleared for excise. The Tribunal referred to relevant case law and concluded that excise duty, being a liability to the State, should not be considered as profit for the assessee. The Supreme Court's ruling in CIT v. Indo Nippon Chemicals Co. Ltd. was also cited to support the position that Modvat credit on unconsumed raw material does not constitute taxable income. Consequently, the High Court upheld the Tribunal's decision, ruling against the Revenue on this issue.

Issue 2: Inclusion of Sales Tax and Excise Duty in Total Turnover
Regarding the second issue, the High Court referred to a previous judgment in CIT v. Vardhman Polytex Ltd. where a similar matter was addressed. The High Court had decided against the Revenue and in favor of the assessee in that case. Citing the earlier judgment, the High Court rejected the Revenue's appeal on the grounds that there was no merit in challenging the inclusion of sales tax and excise duty component in the total turnover for the purpose of calculating the deduction under section 80HHC of the Income-tax Act, 1961. Consequently, the appeal by the Revenue was dismissed on both counts.

In conclusion, the High Court upheld the Tribunal's decision on both issues, ruling against the Revenue and in favor of the assessee. The judgments and legal principles cited in the analysis supported the position that excise duty should not be considered as part of the closing stock value and that sales tax and excise duty component can be included in the total turnover for calculating deductions under the Income-tax Act.