2020 (8) TMI 474 - HC - Income Tax

Valuation of stock - inclusion of duty of excise in the value - Accrual of liability - whether liability to pay excise duty is incurred immediately on manufacture of liquor or it arises only when the same is sought to be removed from the premises of the manufacturer, either for the purposes of sale or otherwise? - HELD THAT - Assessee's liability to pay duty on the goods manufactured arises only at the time of removal of the same from its premises, be it distillery, or a warehouse or any other place of storage established or licensed under the Karnataka State Excise Act and not at any time earlier. The aforesaid issue is no longer res integra in view of decisions of Supreme Court in Polyset Corporation 1999 (10) TMI 66 - SUPREME COURT wherein held that till date of clearance of goods, excise duty payable on such goods does not get crystallized and assessee cannot be said to have incurred the excise duty liability. Thus, it was held that in respect of the excise goods not being removed, no liability is accrued and there is no question of payment of excise duty. The same view has been reiterated in 'MARUTI SUZUKI (INDIA) LIMITED VS. COMMISSIONER OF INCOME TAX, DELHI' 2020 (2) TMI 376 - SUPREME COURT - Decided against revenue.

Summary

Issues:
1. Interpretation of Section 145A of the Income Tax Act regarding the valuation of closing stock.
2. Determination of the liability to pay excise duty on manufactured goods under the Karnataka State Excise Act.

Issue 1: Interpretation of Section 145A of the Income Tax Act regarding the valuation of closing stock:
The appeal under Section 260A of the Income Tax Act, 1961 involved a substantial question of law regarding the valuation of closing stock. The Tribunal initially held that excise duty payable on goods manufactured but not removed need not be part of the finished goods valuation. However, the High Court noted that the Tribunal did not consider Section 145A, which became effective from 01.04.1999. The matter was remitted for fresh consideration. The Tribunal, relying on a Supreme Court decision, determined that excise duty liability does not accrue until the goods are cleared, and no liability is incurred for excise goods not yet removed. The revenue challenged this decision.

Issue 2: Determination of the liability to pay excise duty on manufactured goods under the Karnataka State Excise Act:
The High Court analyzed the liability to pay excise duty on manufactured goods under the Karnataka State Excise Act, 1965. It was established that the liability to pay duty arises only at the time of removal of goods from the manufacturer's premises, as per Section 16(3) of the Act. The court referenced Supreme Court decisions and other high court rulings to support this interpretation. The legal position was clarified that the liability for excise duty is incurred only upon removal of goods, not at the time of manufacture. Consequently, the substantial question of law was answered against the revenue and in favor of the assessee, leading to the dismissal of the appeal.

This detailed analysis of the judgment highlights the interpretation of relevant legal provisions and the application of precedents to resolve the issues raised in the appeal effectively.