Income Tax Appellate Tribunal - Lucknow
Premier Alloys Ltd., Kanpur vs Department Of Income Tax on 21 August, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH "B", LUCKNOW
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER
ITA No.135/LKW/2011
Assessment Year:1997-98
Income Tax Officer v. M/s Premier Alloys Ltd.
Ward 6(2) 783/79, W-1, Saket Nagar
Kanpur Kanpur
PAN:AAACP8238J
(Appellant) (Respondent)
Appellant by: Shri. Ajay Kumar, D.R.
Respondent by: Shri. P. K. Kapoor, C.A.
Date of hearing: 03 07 2014
Date of pronouncement: 21 08 2014
ORDER
PER SUNIL KUMAR YADAV:
This appeal is preferred by the Revenue against the order of the ld. CIT(A) deleting the addition of Rs.17,14,390/- made by the Assessing Officer on account of excise duty not included in the closing stock of the finished goods.
2. The facts in brief borne out from the record are that the assessee is a private limited company engaged in the business of manufacture and sale of M.S. Bars and M.S. Rolls. Assessment was completed under section 143(3) of the Income-tax Act, 1961 (hereinafter called in short "the Act") at a loss of Rs.35,70,924/-. Subsequently, the audit party raised an objection on 9.8.2000 to the effect that the assessee has not included excise duty in the valuation of closing stock of finished goods i.e. M.S. Bars and thus directed the Assessing Officer to consider the impugned issue and take Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/) :-2-:
necessary action. Thus the Assessing Officer has issued a notice under section 154 of the Act on 19.8.2002 requiring the assessee to show cause as to why excise duty at Rs.17,14,390/- leviable on closing stock of finished goods (M.s. Bards) be not included in the value of closing stock under section 43B of the Act. The Assessing Officer accordingly passed an order under section 154 of the Act making an addition of Rs.17,14,390/- to the income of the assessee.
3. Assessee preferred an appeal before the ld. CIT(A) assailing the validity of reopening of the assessment and also addition on merit. The validity of reopening was upheld by the ld. CIT(A), but on merit he deleted the addition having observed that the assessee's case relates to the period prior to the amended provisions of section 145A of the Act when there was no such condition that any tax, duty, cess or fee was to be included notwithstanding any right arising as a consequent to such payment, as the relevant provisions of section 145A of the Act has brought on the statute by the Finance Act, 1998 w.e.f. 1.4.1999. While deleting the addition, the ld. CIT(A) has also taken cognizance of the earlier assessment years where no such addition was made on this account and the method of accounting was regularly employed by the assessee. The relevant observations of the ld. CIT(A) is extracted hereunder for the sake of reference:-
"The facts of the case as well as submissions made by the appellant have been carefully considered. It is observed that the relevant provisions of section 145A of the Act were brought on the statute by the Finance Act (No.2) Act, 1998 with effect from 01-04- 1999 as under:-
Section 145A says that -
"Notwithstanding anything to the contrary contained in section 145, the valuation of purchase and sale of goods and inventory Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/) :-3-:
for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be
(a) in accordance with the method of accounting regularly employed regularly employed by the assessee; and
(b) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.
Explanation: For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a" consequence to such payment. "
The appellant's case relates to the period prior to the amended provisions of section 145 A of the Act when there was no such condition that any tax, duty, cess or fee was to be included notwithstanding any right arising as a consequence to such payment Thus amended provisions of section 145A of the Act were not attracted in the appellant's case. Further, central excise duty is leviable on the goods manufacture i.e. excisable goods manufactured by the assessee. It is neither the cost of goods purchased nor is part of manufacturing cost. It can be termed as post manufacturing cost. Therefore, unless and until it is entered on one side as an item of cost, it cannot be taken as a component of the value of the closing stock on the other side. The true purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account. That the levy is incomplete, in as much as the assessee under the Excise Act is not required to discharge the liability to pay duty levied upon the manufacture or excisable goods, till such goods are removed from factory premises or from the warehouse. The test to determine as to whether the liability had Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/) :-4-:
been incurred or not would be as to whether a corresponding right is available with the excise authority to enforce such a liability. Mere production or manufacture by itself would not be sufficient. Though there might be levy under section 3 of the Excise Act, yet neither the rate nor the value would be determinable till the point of time of removal of the excisable goods from the factory premises and, hence, the scheme itself indicates that so far as an assessee is concerned, it incurs liability to pay excise duty only upon both the events taking place, viz. manufacture of excisable goods and removal of excisable goods. This position has to be necessarily adopted considering that the duty of central excise is levied and collected on an ad-valorem basis. In other words, unless and until the value is known, the levy and collection would not be correct and valid. Further during the preceding years and also during relevant period the appellant was adopting method of valuation in accordance with the method of accounting regularly employed by it and the same had continuously been accepted by the A.O. In view of the facts and circumstances of the case, it is held that the A.O. was not justified in making addition of Rs.17,14,390/- being Excise Duty not included in the value of closing stock of finished goods. Addition of Rs.17,14,390/- is directed to be deleted. Grounds Nos.7 & 8 are allowed."
4. Aggrieved, the Revenue is in appeal before the Tribunal and the ld. D.R. has placed reliance upon the order of the Assessing Officer as well as the provisions of section 145A of the Act.
5. The ld. counsel for the assessee has contended that provisions of section 145A of the Act cannot be invoked for making addition in the impugned assessment year, as it was brought on the statute w.e.f. 1.4.1999. The ld. counsel for the assessee has further contended that excise duty is leviable on the goods manufactured i.e. excisable goods manufactured by the assessee. It is neither the cost of goods purchased nor is part of manufacturing cost. It can be termed as post manufacturing Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/) :-5-:
cost and unless and until it is entered on one side of an item of cost, it cannot be taken as a component of the value of the closing stock on the other side. It was further contended that levy of excise duty is incomplete inasmuch as assessee under the Excise Act is not required to discharge the liability to pay duty levied upon the manufacture or excisable goods, till such goods are removed from factory premises or from the warehouse. The test to determine as to whether the liability had been incurred or not would be as to whether a corresponding right is available with the excise authority to enforce such a liability. Mere production or manufacture by itself would not be sufficient. The ld. counsel for the assessee has further contended that assessee has been following similar method of accounting for the last so many years and no addition was ever made in any of the year under the said provision. He has also placed reliance upon various judicial pronouncements in support of his contention that duty of central excise is levied on the goods manufactured. It is not a cost of goods purchased and also it is not a part of manufacturing cost. Therefore, unless and until it is entered on one side, as an item of cost, it cannot be taken as a component of the value of the closing stock on the other side. The judgments referred by the assessee are as under:-
1. ACIT vs. Narmada Chematur Petrochemicals Ltd. [2010] 327 ITR 369 (Guj)
2. CIT vs. Loknete Balasahem Desai S.S.K. Ltd. [2011] 339 ITR 288 (Bom)
3. CIT vs. Parry Confectionary Ltd. [2008] 299 ITR 321 (Mad)
4. CIT vs. Indian Telephone Industries [2011] 202 Taxman 307 (Kar)
5. CIT vs. English Electric Co. of India Ltd. [2000] 243 ITR 512 (Mad)
6. CIT vs. Dynavision Ltd. [2004] 267 ITR 600 (Mad) Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/) :-6-:
7. CIT and Another vs. Sangam Structurals in I.T.A. No.344 of 209 (Alld)
6. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the authorities below, judgments referred to by the assessee and the documents placed on record, we find that undisputedly section 145A of the Act was introduced w.e.f. 1.4.1999, therefore, it cannot be invoked for recasting the closing stock of the assessee. It is also an undisputed fact that the assessee has been following similar method of accounting in earlier years and no addition was ever made in the closing stock by the Assessing Officer. We have carefully perused the judgments referred to by the assessee and we find that in those judgments, it has been repeatedly held that central excise duty is levied on the goods manufactured by the assessee. It is not the cost of goods purchased and also it is not a part of manufacturing cost. It can be termed as post manufacturing cost. Therefore, unless and until it is entered on one side of an item of cost, it cannot be taken as a component of the value of the closing stock on the other side. It is also held that levy of excise duty is incomplete inasmuch as assessee under the Excise Act is not required to discharge the liability to pay duty levied upon the manufacture of excisable goods, till such goods are removed from factory premises or from the warehouse. The test to determine as to whether the liability had been incurred or not would be as to whether a corresponding right is available with the excise authority to enforce such a liability. Mere production or manufacture by itself would not be sufficient. Though there might be levy under section 3 of the Excise Act, yet neither the rate nor the value would be determinable till the point of time of removal of the excisable goods from the factory premises, hence, the scheme itself indicates that so far as an assessee is concerned, it incurs liability to pay excise duty only upon both the events taking place, namely manufacture Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/) :-7-:
and removal of excisable goods. This position has to be necessarily adopted considering that the duty of central excise is levied and collected on an ad- valorem basis. In other words, unless and until the value is known, the levy and collection would not be correct and valid. We have also carefully examined the order of the ld. CIT(A) and we find that the ld. CIT(A) has adjudicated the impugned issue judiciously in the light of the legal position. Since no specific infirmity has been pointed out in the order of the ld. CIT(A), we confirm the same.
7. In the result, appeal of the Revenue stands dismissed.
Order pronounced in the open court on 21.8.2014.
Sd/- Sd/-
[A. K. GARODIA] [SUNIL KUMAR YADAV]
ACCOUNTANT MEMBER JUDICIAL MEMBER
DATED: 21st August, 2014
JJ:0108
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
Assistant Registrar
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