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Issues Involved:
1. Entitlement of the assessee to deduction of customs duty. 2. Determination of the rate at which customs duty is to be worked out. Issue-Wise Detailed Analysis: 1. Entitlement of the Assessee to Deduction of Customs Duty: The primary issue was whether the assessee was entitled to a deduction for customs duty on imported raw materials lying in a customs bonded warehouse. The CIT (Appeals) initially rejected the claim, stating that the customs duty payable should only be allowed at the time of actual receipt of the goods and that the value of the goods shown in the stock did not include the customs duty payable. The CIT (Appeals) concluded that the claim was not tenable as no liability to pay the duty had arisen during the year. The learned counsel for the assessee argued that the goods were imported during the relevant previous year and were lying in the bonded warehouse, making the customs duty deductible. The counsel cited the Customs Act, 1962, particularly Sections 12 and 15, and referenced decisions from the Bombay High Court, which interpreted "import" to mean that the taxable event occurs when goods enter the territorial waters of India. Therefore, the basic liability for customs duty arose when the goods entered the territorial waters of India. The Tribunal agreed with the assessee's interpretation, noting that the taxable event took place in the relevant previous year, and thus, the assessee was entitled to claim a deduction for customs duty. The Tribunal emphasized that the method of accounting customs duty at the time of clearance from the bonded warehouse was irrelevant in this context. 2. Determination of the Rate at Which Customs Duty is to be Worked Out: The second issue was whether the customs duty should be calculated at the revised rates effective from 15-4-1982 or at the rates applicable during the relevant previous year. The learned counsel for the assessee argued for a higher deduction based on the revised rates, even though the claim before the IAC (Asst.) and CIT (Appeals) was for Rs. 22,56,273. The Tribunal rejected the claim for deduction at the higher rate for several reasons: - The higher rate claim was not made before the ITO or CIT(A) and was not included as an additional ground before the Tribunal. - The exact quantification of the liability required investigation of facts, making it unsuitable for a pure question of law. - The revised rates came into effect after the end of the relevant previous year, and the liability at the higher rate would only arise when the goods were actually removed from the warehouse, as per Section 15(1) of the Customs Act. The Tribunal also noted that the assessee had initially not claimed any deduction for customs duty in the original return and only claimed Rs. 22,56,273 in the revised return. Given that the revised rates were effective from 15-4-1982, the Tribunal concluded that the liability at 300% would only arise upon the actual removal of goods from the warehouse. Conclusion: The Tribunal upheld the CIT(A)'s decision that the customs duty payable should be added to the value of the bonded goods shown in the stock-in-trade, resulting in an increase in the assessee's income by Rs. 22,56,273. Therefore, the appeal was partly allowed, affirming the assessee's entitlement to the deduction but limiting it to the amount initially claimed and not at the revised higher rate.
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