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TMI Blog2001 (2) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... multaneously debited the profit and loss account and claimed the same as deduction. Since, the amount was paid before filing of the return the same was claimed as deduction under section 37 read with section 43B. 3. However, the Assessing Officer was of the view that the claim of the assessee was pre-mattured inasmuch as the excise duty liability did not accrue to the assessee merely on the manufacture or production of goods. According to him, the excise duty was payable only on the removal of goods from the factory premises. Accordingly, a show-cause notice was issued by the Assessing Officer as to why the aforesaid claim should not be disallowed. 4. In response to the aforesaid show-cause notice, the assessee replied vide letter dated 22-3-1999 wherein it was submitted that according to section 3 of the Excise Act, the taxable event was the date of manufacture or production of goods and therefore, there was accrual of liability to pay the excise duty on such date. According to the assessee, it is the collection of excise duty which has been postponed to the date of removal as per the Rule 9 of the Central Excise Rules, 1944 (hereafter called Excise Rules). In support of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er were repeated. However, he agreed with the legal finding given by the Assessing Officer and therefore, held that liability to pay the excise duty did not accrue to the assessee in the year under consideration inasmuch as such liability depended upon the date of removal of goods from the factory premises. Since neither the excise duty was paid nor the goods were removed from the factory premises under the year under consideration, the CIT(A) upheld the order of Assessing Officer aggrieved by the same the assessee is in appeal before the Tribunal. 7. The Ld. counsel for the assessee, Mr. Mistry has vehemently assailed the orders of CIT(A) as well as the Assessing Officer. He drew our attention to the provisions of section 3 of Excise Act and Rules 9 and 9A of Excise Rules. According to him, section 3 provides that excise duty shall be levied on all excisable goods which are produced or manufactured in India and the words "in such manner as may be prescribed" appearing in section 3 qualify the word "Collected" and not the word "levied". Therefore, the Rules 9 and 9A were made for collection of such excise duty. However, as far as the levy is concerned, the taxable event is the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hearing, a query was raised from the Bench as to what would be the legal position, if the rate of excise duty is brought down to the zero after the end of the accounting year and no tax is payable on the date of removal and vice versa. The Ld. Sr. D.R. sought time to answer this query in writing within the fortnight. The Ld. counsel for the assessee had no objection to this request, but it was requested by him that he may be given the proper opportunity to reply the written submissions which may be filed by the Sr. D.R. 9. In the meantime, the Income-tax Department sought the opinion of the Central Excise Department on this issue on the basis of which it has been submitted in writing by the Ld. Sr. DR. that "though the taxable event is manufacture/production of goods, but the levy and collection of excise duty is on the removal of the goods from the factory. Accordingly, the goods which have been manufactured at the time, when these were leviable to particular rate of duty but at the time of removal, if the rate becomes nil, the duty charged on the removal will be the nil rate. If the goods have been manufactured, when they were exempted, but subsequent to manufacture exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istry has also filed a written note reiterating his earlier submissions and also took sufficient time in the fresh hearing in canvassing for the proposition that levy is on the manufacture of excisable goods though the collection of the same is postponed to the date of removal. Hence the liability accrued to the assessee in the year under consideration when goods were manufactured. Since the assessee was following mercantile method of accounting, it was entitled to the deduction on the basis of provisions made by it in respect of the excise duty liability incurred by it. 12. The rival submissions of the parties, case law and the relevant provisions of statute have been considered carefully. Admittedly, the assessee has been maintaining accounts on mercantile method. It is the settled legal position that where the mercantile method of accounting is adopted by the assessee, he is entitled to deduction in respect of the liability incurred in the year under consideration even though it has not been paid. This legal position is well settled by various decisions of the Supreme Court and the same is not disputed by either party. 13. Therefore, the only controversy to be resolved by us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 152 Allahabad High Court in the case of CIT v. J.K Synthetics [1983] 143 ITR 771 and also Delhi High Court in the above CIT v. J.K Synthetics Ltd. [1995] 215 ITR 593. 14. Keeping in mind the above legal position, let us resolve the controversy before us. In the present case, there is no dispute between the parties that taxable event is manufacture or production of excisable goods. However, in short, the stand of department is that according to section 3 of Excise Act, duty is to be levied and collected in the prescribed manner which is provided in Rules 9 and 9A according to which the liability to pay excise duty arises on the date of removal of excisable goods; and the rate of excise duty would be the rate in force on the date of removal. On the other hand, stand of the assessee is that levy of excise duty is Provided by section 3 of the Act itself and it is only the collection of duty which is provided in the prescribed manner. Therefore, Rules 9 and 9A provide for collection of excise duty and not the levy thereof. Therefore, once the goods are manufactured, the liability to pay the duty is incurred and it is only the quantification and collection thereof which is postpone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: "11. We are of the opinion that section 3 cannot be read as shifting the levy from the stage of manufacture or production of goods to the stage of removal. The levy is and remains upon the manufacture or production alone. Only the collection part of it is shifted to the stage of removal. Once this is so, the fact that the provisions of the Central Excise Act are applied in the matter of levy and collection of special excise duty cannot and does not mean that wherever the Central Excise duty is payable, the special excise duty is also payable automatically. That is so an ordinary rule. But insofar as the goods manufactured or produced prior to 1-3-1978 are concerned, the said rule cannot apply for the reason that there was no levy of special excise duty on such goods at the stage and at the time of their manufacture/production. The removal of goods is not the taxable event. Taxable event is the manufacture or production of goods." In view of the above discussion, it is held that levy of excise duty is exclusively provided by section 3 of Excise Act and it is only the collection thereof which is postponed to the date of removal under Rule 9. Consequently, the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the date of removal of goods. Since, the goods manufactured were excisable goods at the time of manufacture, the assessee was liable to pay the duty at the rate in force on the date of removal. On the other hand, in the case of Vazir Sultan Tobacco Co. Ltd. there was no levy of special duty of excise on the date of manufacture though it was leviable on the date of removal of goods. It is because of this fact, Supreme Court held that no duty was payable at the time of removal of goods. In para 5 of the judgment, it was held "once the levy is not there at the time when the goods are manufactured or produced in India, it cannot be levied at the stage of removal of the said goods. The idea of collection at the stage of removal is devised for the sake of convenience". Even the Supreme Court in para 12 held that the decision in Wallace Flour Mills Co. Ltd. did not lay down a contrary position. 18. There is also no force in the submission of Ld. Sr. D.R. that decision of Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd is distinguishable on the ground that it was a case of special excise duty while in the case of Wallace Flour Mills Co. Ltd. it was case of basic excise duty. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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