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TMI Blog1991 (9) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... he validity of the demand, without success, before the appellate authorities. The assessee paid the additional central excise duty as demanded in respect of the goods manufactured in the accounting year only after the close of the accounting year and claimed the same as a deduction in the accounting year. The Tribunal, upholding the finding of the Assessing Officer and the Commissioner of Income-tax (Appeals), held that the additional demand for the central excise duty of Rs. 1,46,476 was raised by the Central Excise Authorities for the period from March 1, 1982, to April 30,1982, and Rs. 73,645 related to the period from May 1, 1982, to June 30, 1982, and that as the quantification of the two figures was made on October 6, 1982, which fell outside the accounting year which ended on June 30, 1982, the same are not allowable as a deduction in the year in question. It is thereafter that the above question of law was referred for our opinion. We heard counsel. Admittedly, the method of accounting followed by the assessee is "mercantile" and the accounting period ended on June 30, 1982. Under section 3 of the Central Excises and Salt Act, 1944, the central excise duty shall be levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is located where the statute declares it will be." The production or manufacture of goods is sufficient to attract duty and the consumption or sale is not at all necessary. In South Bihar Sugar Mills Ltd. v. Union of India, AIR 1968 SC 922, the Supreme Court held that the Act charges duty on manufacture of goods. The duty being on manufacture and not on sale, the mere fact that the goods manufactured are not actually sold would not make any difference, if what they manufactured is a dutiable item. The imposition of excise duty is on the act of manufacture or production (see In re : Sea Customs Act, 1878, s. 20(2), AIR 1963 SC 1760 and Union of India v. Bombay Tyre International Ltd. [1986] 59 Comp Cas 460 ; [1983] ELT 869). Thus, it is the fact of manufacture that attracts the duty even though it may be collected later. On a reading of sections 3 and 4 read with rule 9, it can be seen that no excisable goods shall be removed from any place where they are produced or manufactured until excise duty, leviable thereon, has been paid at such place and in such manner as is prescribed. Thus reading sections 3 and 4 and rule 9 read with rules 49 and 52, it will be seen that the duty ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363. The law in this regard is seen summarised by Kanga and Palkhivala's The Law and Practice of Income Tax (Eighth Edition), Vol. 1, at page 1164, as under : " The decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 establishes that under the mercantile system of accounting, a fiscal liability (e.g., sales tax or excise duty) under statute should be allowed as a deduction in the year in which the relevant transactions take place, although (i) the precise quantification of the liability in the form of an assessment and demand may come later, (ii) the assessee may contest the liability in appeal or other proceedings, and (iii) the assessee may have made no provision for the liability in his books." In Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), the question was whether the sales tax liability incurred on sales made during the accounting period is deductible when the assessee kept the mercantile system of accounting, even though the assessee denied the liability to pay the amount and failed to make an entry in books for claiming deduction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the quantum of liability. An assessee who maintains his books of account on the mercantile basis is entitled to deduct from the profits and gains of the business any liability which had accrued during the period for which the profits and gains were being computed. Where the liability to pay sales tax accrued during the year of assessment, even though it had to be discharged at a future date, it has to be deducted from the profits and cannot be held to be the income of the assessee. In Sirsa Industries v. CIT [1989] 178 ITR 437, the Punjab and Haryana High Court reviewed all the cases and observed (at page 440) : "Whenever the assessee wanted deduction of sales tax amount in the year in which the liability accrued, the stand of the Revenue was that since the amount was not paid, deduction should not be granted. Whenever the assessee did not claim deduction in the year in which the liability accrued and claimed deduction after the sales tax was determined or paid in another assessment year, the Revenue pleaded that deduction was claimable only in the year in which liability accrued and not when the liability was finally determined. Taking all these stands of the parties, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enough if the liability for such expenditure " accrues ". The decision by the income-tax authorities about the liability being contingent would not be fatal, if the estimate of the liability is arrived at fairly. When the assessee follows the mercantile system of accounting, it has to be deemed that the liability which has accrued, as already paid and the income which has accrued, as already received for accounting purposes. Admittedly, the assessee maintained accounts on the " mercantile basis ". Therefore, to claim deduction, it is enough that there is an accrued liability. Whether the liability accrued or not will depend upon the statute. The assessment, demand or payment is not the condition precedent. It is well-known that, in all taxing statutes, the liability is declared by the charging section. The assessment is only for quantification of the liability and the proceedings for recovery will follow after the quantification. In the case of income-tax, it is the accrual of the income that is the taxable event and, in the case of sales tax, it is the sale of goods that attracts the tax. But, in the Central Excises and Salt Act, the duty is attracted on the production or manufac ..... 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