2015 (10) TMI 521 - AT - Income Tax

Addition made on account of excise duty not included in the closing stock of the finished goods - CIT(A) deleted the addition - Held that - Undisputedly section 145A of the Act was introduced w.e.f. 1.4.1999, therefore, it cannot be invoked for recasting the closing stock of the assessee. It is also an undisputed fact that the assessee has been following similar method of accounting in earlier years and no addition was ever made in the closing stock by the Assessing Officer. Unless and until it is entered on one side of an item of cost, it cannot be taken as a component of the value of the closing stock on the other side. It is also held that levy of excise duty is incomplete inasmuch as assessee under the Excise Act is not required to discharge the liability to pay duty levied upon the manufacture of excisable goods, till such goods are removed from factory premises or from the warehouse. The test to determine as to whether the liability had been incurred or not would be as to whether a corresponding right is available with the excise authority to enforce such a liability. Mere production or manufacture by itself would not be sufficient. Though there might be levy under section 3 of the Excise Act, yet neither the rate nor the value would be determinable till the point of time of removal of the excisable goods from the factory premises, hence, the scheme itself indicates that so far as an assessee is concerned, it incurs liability to pay excise duty only upon both the events taking place, namely manufacture and removal of excisable goods. This position has to be necessarily adopted considering that the duty of central excise is levied and collected on an advalorem basis. In other words, unless and until the value is known, the levy and collection would not be correct and valid. We have also carefully examined the order of the ld. CIT(A) and we find that the ld. CIT(A) has adjudicated the impugned issue judiciously in the light of the legal position. Since no specific infirmity has been pointed out in the order of the ld. CIT(A), we confirm the same. - Decided against revenue.

Summary

Issues Involved:
Reopening of assessment validity, inclusion of excise duty in closing stock valuation.

Reopening of Assessment Validity:
The appeal was filed by the Revenue against the order of the ld. CIT(A) deleting the addition of Rs. 17,14,390 made by the Assessing Officer due to excise duty not being included in the closing stock of finished goods. The audit party raised an objection regarding the exclusion of excise duty, leading to a notice under section 154 of the Income-tax Act, 1961. The Assessing Officer subsequently made an addition to the income of the assessee. The assessee challenged the validity of the reopening and the addition on merit before the ld. CIT(A). The ld. CIT(A) upheld the validity of the reopening but deleted the addition, citing that the relevant provisions of section 145A of the Act were not applicable to the appellant's case as they were introduced post the relevant period. The ld. CIT(A) observed that excise duty is leviable on manufactured goods and is not part of the cost of goods purchased or manufacturing cost. The ld. CIT(A) also considered the consistent method of accounting employed by the assessee in earlier years and the absence of any previous additions on this account.

Inclusion of Excise Duty in Closing Stock Valuation:
The Revenue appealed to the Tribunal, arguing for the application of section 145A of the Act and the validity of the addition. The assessee contended that section 145A could not be invoked for the assessment year in question as it was introduced later. The assessee maintained that excise duty is a post-manufacturing cost and should not be considered part of the closing stock value unless entered as an item of cost. The Tribunal carefully analyzed the arguments, previous judgments, and the provisions of the Excise Act. It noted that section 145A was not applicable to the assessment year and that the assessee had consistently followed a specific accounting method. The Tribunal concurred with the assessee's position that excise duty is levied on manufactured goods, not on purchased goods or manufacturing costs. The Tribunal upheld the order of the ld. CIT(A) and dismissed the appeal of the Revenue, confirming the deletion of the addition of Rs. 17,14,390 related to excise duty from the closing stock valuation.

This detailed analysis of the legal judgment highlights the issues of reopening assessment validity and the inclusion of excise duty in closing stock valuation, providing a comprehensive overview of the arguments, legal provisions, and decisions made by the authorities and the Tribunal.