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TMI Blog1996 (7) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... 1968 onwards. At that time, the Central excise authorities tested some samples of the fuse bodies, but did not pursue the matter further and determined that those goods were not liable to excise duty. In November, 1973, the Central excise authorities revived their claim and demanded that the assessee should take out a licence and pay duty on HRC fuse links. Though the assessee challenged this demand and was successful, in November, 1976, the assessee was advised that ceramic fuse bodies were themselves liable to excise duty. This advice was given on the basis of an observation made to that effect by the High Court in the litigation, which is in English Electric Co. of India Ltd. v. Superintendent, Central Excise, AIR 1975 Mad 393. Thereafter the assessee felt that it would be most appropriate and advisable to take out a licence for the manufacture of the particular component and subjecting it to excise duty. The assessee applied for a licence and it was issued on February 1, 1977. On being required to furnish the quantities of fuse bodies manufactured and cleared since its inception, with the view to levy duty, by a letter, dated March 16, 1977, the assessee furnished the required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake a provision in its accounts. Even otherwise, it was open to the assessee to estimate the liability and make a provision for it, because the liability to pay excise duty arose not when a demand was raised but as and when the manufacture of the excisable item took place. So the contention of the assessee was that the taxable event was the point of manufacture and not the raising of the demand, The Tribunal, accepting the assessee's contention, held that under the Excise Act, the liability to pay duty arises as and when manufacture took place. This conclusion was arrived at on the basis of the decision of the Calcutta High Court in the case of CIT v. Century Enka Ltd. [1981] 130 ITR 267. In that decision it was held that in all fiscal statutes, the point of taxation is the happening or occurrence of the taxable event. In the case of excise duty, the taxable event is the production or manufacture of goods. This was also the view expressed by the Supreme Court in the decision in Shinde Bros. v. Deputy Commissioner, AIR 1967 SC 1512. In this decision, the Supreme Court pointed out that the taxable event in the case of duties of excise is the manufacture of goods and the duty is not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich in the present system of law should not be permitted. It was further submitted that as a result of various proceedings, the excise duty was levied only for a period of one year, and, therefore, that one year's liability can be allowed when it was actually paid. The judgment in English Electric Co. of India Ltd. v. Superintendent, Central Excise, AIR 1975 Mad 393, was delivered on February 12, 1975, wherein it was held that it is difficult to regard HRC fuse-link as porcelain ware merely because one of its components is made of porcelain. The whole thing, viz., HRC fuselink is a manufactured article and one of its components is porcelain. But merely because that component forms part of the finished article, that by itself will not come within entry 23B, for it must be porcelain ware as such. Hardly, HRC fuselink can be described as porcelain ware as we commonly understand the phrase. Therefore, according to learned senior standing counsel, if at all the liability arose, it arose for payment of excise duty in the assessment year 1973-74. Hence, it was submitted that the liability which arose for payment of excise duty can be allowed only in that year when the liability arose. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the taxable event must be the manufacture or production of goods. Further, the levy need not be imposed at the stage of production or manufacture, but may be imposed later. " Therefore, according to learned senior standing counsel for the Department in the present case the liability to pay excise duty arose when the goods were manufactured and the liability for payment of excise duty pertaining to a particular assessment year can be allowed only in that assessment year and the earlier liability arose during the earlier years cannot be allowed in the later assessment year simply because the assessee was contesting the levy, where the assessee followed the mercantile system of accounting. On the other hand, learned counsel appearing for the assessee, while supporting the order passed by the Tribunal, and relying upon the decisions cited in the order passed by the Tribunal, submitted that even before the end of the accounting year the assessee applied for licence, i.e., on February 1, 1977, and obtained the licence before the end of the accounting year, i.e., March 31, 1977, and it was a consequence of this licence, the liability to pay excise duty arose and that, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and recovery of the money. Quantification and recovery of money due under the Act should not be confused with the accrual of a liability. If under the system of accounting the liability accrued, then the assessee is entitled to deduction. In the present case, the assessee was following the mercantile system of accounting. The assessee in its accounts for the year ended March 31, 1977, which is the relevant year under appeal, made a provision in its accounts for a sum of Rs. 5,75,000 towards excise duty and claimed the same as a deduction. The Department disallowed the claim on the ground that the demand from the Excise Department was received only in June, 1977, after the accounting year was over and consequently no demand arose in the accounting year, which could be allowed as a deduction. According to the Department, the deduction could be allowed at the time of actual payment. From 1968 the assessee is manufacturing ceramic fuse bodies used as a component in the manufacture of HRC fuse links. The excise authorities have made an attempt to levy excise duty on this item of manufacture but appears to have dropped the matter having apparently been satisfied that the items p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in provisions of the Central Excises and Salt Act, 1944. Section 3 provides that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India, and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates set forth in the First Schedule. Rule 7, which is in Chapter III which deals with levy and refund of and exemption from duty, provides for the recovery of duty. Rule 9 of the said Rules deals with the time and manner of payment of duty. Rule 9A deals with the provision of data for determination of duty and tariff valuation. The Calcutta High Court in the above cited decision ultimately came to the conclusion that the taxable event under the Central Excises and Salt Act, 1944, is on the manufacture 'or production of excisable goods irrespective of or independent of future user, either in the manufacture of further goods or in the sale of the said goods. In the case of Union of India v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 SC 791, the Supreme Court emphasised that excise duty was on the manufacture of goods and not on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Excise Department and hence the excise duty liability demanded by the notice is deductible in the assessment year under consideration when the demand notice was issued. In CIT v. India Foils Ltd. [1993] 200 ITR 259, the Calcutta High Court held that the exemption from excise duty was granted by the notification effective from January 5, 1981. Accordingly, the goods manufactured and cleared prior to the said notification were liable to duty. It was not correct to contend that since the goods were not manufactured during the relevant previous year, the assessee was not entitled to deduction of excise duty. In this case, the show cause-cum-demand notice was issued during the relevant previous year and, accordingly, the demand, although earlier disputed, became real and enforceable and, therefore, the same is allowable as deduction in the previous year in question. In Saurashtra Cement and Chemical Industries Ltd. v. CIT [1995] 213 ITR 523, the Gujarat High Court held that : " merely because an expense relates to a transaction of an earlier year, it does not become a liability payable in the earlier year, unless it can be said that the liability was determined and crystall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some time in November, 1973, which the assessee successfully contested. During that time as per law prevailing the assessee is not liable to excise duty. When that was the law, the assessee cannot be expected to have incurred a liability to pay excise duty on the items it manufactured. But it was in November, 1976, that the assessee was advised that since ceramic fuse bodies were themselves liable to duty and since there was an observation to that effect in the judgment of the High Court, the assessee subjected itself to levy of duty by applying for licence and since that event took place in February, 1977, which is the relevant year under consideration, the Tribunal came to the conclusion that the liability to pay excise duty arose only in February, 1977, even though the manufacture was earlier to that period. In the earlier period, the assessee was entertaining only an honest doubt as to the levy of duty. Since the liability under law had accrued, consequently, the assessee made a provision in the accounts and in that case the liability related to that period. The assessee contested the liability and succeeded and therefore it can be said that under the law, no liability had acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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