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TMI Blog1988 (9) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted that various show-cause notices had been received from Superintendent, Central Excise requiring the assessee to show cause to Asst. Collector Central Excise why additional duty as mentioned in said notices be not demanded and recovered. It was argued before the ITO that since the assessee company was maintaining accounts on mercantile basis the liability as mentioned in said notices had accrued in the relevant accounting year and should be allowed as deduction. The assessee filed photostat copies of all the notices relevant to the claim. It was found that the assessee had filed objections in response to show cause notices and in respect of same of the show cause notices Asst. Collector had passed final orders while in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in further appeal before us. 5. We have considered the submissions made by the parties, and decisions cited before us. We find that legal position regarding allowability of excise duty when assessee is following mercantile system of accounting is as follows: "Like Sales-tax the liability for excise duty comes into existence by force of the relevant statute. In regard to the admitted liability, for the assessees keeping mercantile system of accounts, the liability is incurred as soon as excisable goods are manufactured or produced. This is so because the taxable event in the case of excise duty is the manufacture or production. The duty is not directly on the goods but on the manufacture." 6. It is on the basis of above principles that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence this item also was ex-facie not allowable. 8. We are then left with items No. 2 and 4 to 10. Each and every notice is a mere show cause notice. None of them is a demand notice. The assessee had paid excise duty, which according to assessee is payable. Addl. duty is proposed to be levied by the concerned authorities. But that is merely a proposal. There is no determination of liability. The assessee had been called upon to show cause why additional duty should not be realised. The assessee is under no legal obligation to pay the excise duty mentioned in those show cause notices in this relevant year. He is given opportunity to justify the stand taken by him that duty already paid was proper. It is only when Asst. Collector determines t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or they do not appear before the adjudicating officer whom the case is posted for hearing the case will be decided ex parte." 9. The decision of the Calcutta High Court in the case of Century Enka Ltd. is not an authority for the proposition that a provision made on the basis of mere show cause notice was allowable as deduction. Observations in the judgment are to be weighed in the light of facts involved therein. In Calcutta case, the so-called show-cause notice was not of the type of the show-cause notice in our case. In that case the liability was held to have been incurred because of certain directions in the letter sent by the concerned authorities to the assessee. Full contents of that letter are not mentioned in the decision. Only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an incurred liability. This is a case of determining the existence of liability itself. It is to be noted that in respect of four show cause notices no liability has been determined by the Asstt. Collector even in 1988 when we heard these appeals. We were informed about this in the course of arguments. 11. For the reasons given above, the ITO was justified in disallowing deduction of amounts mentioned in various show cause notices which represented mere proposal to levy excise duty in future in quasi-judicial proceeding and not a demand in respect of an existing liability. We reject this ground. 12. Ground No. 2 is as follows: "The CIT(A) erred in holding that the incremental liability for gratuity of Rs. 17,02,000 actuarially valued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of deduction. 14. As regards ground No. 3(b), the Tribunal has allowed it on the basis of a decision of Ahmedabad Bench in the case of Windsor Foods Ltd. (ITA 728/Ahd/84). We find that Benches of the Tribunal at Bombay are taking a different view on this point. The plain words in s. 32A does not justify allowance of investment allowance on exchange difference amount which was required to be paid several years after the installation of new machinery. Besides, no investment allowance reserve was created as required by sub-s. (4) of s. 32A. The investment allowance is one time allowance and it is to be allowed in the year of installation or in the immediate succeeding year is the machinery were put to use in that year. It cannot be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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