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TMI Blog2019 (5) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... 45A of the Act is called the inclusive method . Hence, although the method of valuation of stock followed by the assessee company is not in conformity with the prescription u/s 145A, the deviations will have no effect on the profit loss account of the relevant financial year. No excisable item of the closing stack of the assessee was removed from the factory premises till the end of the accounting year. Thus, following the net method of valuation of closing stock, excise duty has rightly been excluded from the value of closing stock of finished goods at the end of the accounting period. The assessee has consistently followed the method of accounting adopted by it. The method of valuation of closing stock is at cost or net realizable value, whichever is lower. In valuing the stock, the excise duty, etc., are not added to the purchases, sales or valuation of inventories. In view of the above, finding that the ld. CIT(A) has correctly deleted the addition wrongly made, the impugned order is confirmed and the grievance sought to be raised by the Department is rejected, being shorn of merit. X X X X Extracts X X X X X X X X Extracts X X X X ..... required under section 145A. The excise duty liability of ₹ 2,92,11,000/- on closing stock of finished goods is only deductible if it is paid on or before the due date of filing of the return as required under section 43B of the Act. Further, assessee's contention that this practice is continuously followed by the assessee company for ail assessment year is not of much relevance in view of the Hon'ble Apex Court's judgment in the case of CIT Vs. British India Paints Ltd.(SC), 188 ITR 44 wherein it has been held that where method of accounting even though consistently fallowed does not disclosed true and proper income, appropriate computation to determine true income is to be made, the addition on this ground was made in previous assessment year also. In view of the above discussion, the excise duty of ₹ 2,92,11,000/- not added in the valuation of closing stock as required under section 145A of the Act and also not paid before filing of return of income as is required under section 43B of the Act is added to the income of the assessee." 3. The ld. CIT(A) deleted the addition, observing that: "In the present case, it is not in dispute that the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted the addition. The question is as to whether this action of the ld. CIT(A) is correct. 8. The dictionary meaning of 'excise' is given as duty charged on home goods during the manufacture or before sale to home consumers. It is an indirect tax through duty on the commodities produced or manufactured, collected by the Central Government at the source of manufacture or production. The duty of excise is principally a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced ['Collector of Central Excise vs. Decent Dyeing company', 1990 (45) ELT 201 (SC)]. Under the excise system, no goods can be removed from the place of manufacturer without first paying the excise duty, therefore, a purchaser can presume that the goods are duty paid. It would be intolerable if the purchasers were required to ascertain whether the excise duty had already been paid, as they have no means of knowing it. The purchaser or the manufacturer realizes the indirect tax on the goods manufactured and pays it to the Government, before the goods pass on in the hands of the consumers. 9. Entry 84 of List-I of the Seventh Schedule of the Constitution of India empowers the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods from the factory or warehouse, in the case of goods removed therefrom. 14. Hence, whereas section 3(i) of the Excises Act, i.e., the charging provision licences the levy of the duty, the collection thereof is governed by the machinery provision, i.e., Rule 9(i)(ii) of the Rules, when the goods are removed from the factory or warehouse. 15. Undisputedly, and this also supports the scheme of the Excises Act, the material point of time with reference to which the value is determined under section 4 of the Excises Act, which provision deals with determination of value for the purposes of duty, is the time of removal of the article chargeable with duty from the factory or warehouse, and not when it is manufactured or produced. 16. The Supreme Court, in 'CCE vs. Vazir Sultan Tobacco Co.' 1996 (83) ELT 3 (SC) held as under: "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." 17. The Hon'ble Apex Court in the case of 'Commissioner of Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) CIT vs. Indian Telephone Industries, 202 Taxman 307 (Karn) (6) Shyam Biri Works Ltd. vs. ACIT, (9) MTC 104 (All.) 21. The ITAT, Lucknow Bench, vide order dated 10/4/2017, in ITA No.182/LKO/2016, in the assessee's own case, dismissed the appeals preferred by the Revenue on an identical issue, for A.Y. 2012-13 and A.Y. 2013-2014, holding as under: "10. It cannot be said that the assessee has incurred liability to pay excise duty on the manufactured goods. Therefore, as on 31.3.2012 in our view the liability of ₹ 4,06,80,000/- on account of excise duty even though accrued not become due, on the finished goods. Therefore, it cannot be said that the assessee has incurred liability to pay excise duty on his manufactured goods. As the assessee incurred liability, the assessee would have debited it in the profit & loss account. The excise duty is a tax or duty on the manufacture of goods. However, the excise duty is payable on clearance of the goods from the factory. If the goods manufactured and lying at the factory, though excise duty is on manufacture of goods, but the rate of excise duty payable will be rates applicable on the day of clearance of goods from the factory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee. Where the excisable goods are manufactured and are lying in stock on the last day of the accounting year, whether the manufacturer has incurred liability to pay excise duty on the manufactured goods is the question. In the instant case, the liability of ₹ 2,92,11,000/- on account of excise duty has accrued, but has not become due on the finished goods as on 31.03.2014. In other words, the manufacturer (assessee) has not incurred the liability to pay excise duty on the manufactured goods and the said excise duty has not been debited in the profit and loss account, having accrued, but not become due. 25. According to section 145 of the I. T. Act, the books of account and financial statements are to be prepared in accordance with the regular method of accounting followed by the assessee. However, according to section 145A of the Act, while determining the income chargeable under the head 'Profits and Gains of Business or Profession', the valuation of the purchase and sale of the goods and inventory should be not only in accordance with the method of accounting regularly employed by the assessee, but it should be further adjusted as follows: (i) Sale & Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is subject to certain refinements, as to what should be included in the cost and what not. The costs, which have no connection with the production, are in the nature of periodical costs. Therefore, in case the excise duty relating to the stock on the closing day of the previous year is not debited in the profit and loss account, then, the excise duty cannot be considered as part of valuation of such stock. Only when the excise duty relating to the closing stock is debited in the profit & loss account, would the question of adding such excise duty in the value of stock arise. 28. The purchases and services forming part of the inputs in the manufacture of finished goods, have been recorded by the assessee net of the excise duty, service tax, value added tax. These are available as CENVAT/input credit and are adjustable from the duties and taxes payable on the finished goods. The assessee has not added to the value of purchase & sale, their taxes and duties, where CENVAT is availed by them, as those taxes which are refundable, cannot form part of the cost of production, and such addition would be against the general principles of accountancy. The Accounting Standard on valuation o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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