Commissioner of Income Tax vs Groz Beckert Asia Ltd.

This is an appeal by the Revenue against the order dated September 24, 2004, passed by the Income Tax Appellate Tribunal, Chandigarh Bench "B", Chandigarh (for short, "the Tribunal"), in I. T.A. No. 375/Chandi/99, raising the following substantial questions of law:

(i) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that central excise duty component could not be included in the value of closing stock?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that for the purpose of calculation of deduction u/s 80HHC of the Income Tax Act, 1961, sales tax and excise duty component cannot be included in the total turnover?

As far as question No. (i) is concerned, the Tribunal, while rejecting the appeal of the Revenue, against the order passed by the Commissioner of Income Tax (Appeals), relied upon the order passed by it for the earlier year in the case of the assessee, wherein it was held as under:

Similar issue had come up before the Tribunal in the assessee''s own case for the assessment years 1991-92 to 1995-96 and the same was decided in favour of the assessee vide 9 of order dated October 3, 1997, in I.T.A. No. 462/Chandi/1995 and paragraph 11 of order dated May 13, 2003, in I.T.A. Nos. 99 and 198/Chandi/1996, I. T.A. Nos. 85, 299 and 1237/Chandi/1998. The relevant paragraph 9 of the order of the Tribunal in I.T.A. No. 462/Chandi/1995 is reproduced below:

Coming to ground No. 5, the Deputy Commissioner of Income Tax has dealt with the issue in paragraph 8 of the assessment order, which mentions that the assessee had not included excise duty on stock of finished needles as on March 31, 1991. The assessee''s contention that the excise duty does not form part of the cost of goods where the goods have been manufactured but have not been cleared for excise, was not accepted by the Deputy Commissioner of Income Tax. It was observed by him that the liability for payment of excise duty accrues on completion of production but collection of the same is postponed to the date of removal of the goods. Before the Commissioner of Income Tax (Appeals), it was submitted that the assessee has been consistently valuing inventory at cost. Other contentions put forth by the assessee have been recorded in paragraphs 6.2 to 6.5 of the impugned order and the learned Commissioner of Income Tax (Appeals) ultimately deleted the addition. The learned Departmental Representative relied on the order of the Deputy Commissioner of Income Tax and submitted that the case law cited before the learned Commissioner of Income Tax (Appeals) stands overruled in CIT v. British Paints India Ltd. : [1991]188ITR44(SC) and it was urged for restoration of the Assessing Officer''s order. Learned Counsel, on the other hand, submitted that since this excise duty amount was added by the Deputy Commissioner of Income Tax in valuing closing stock and added, it cannot form part of the closing stock, as it has not been expended during the year under consideration and thus cannot form part of the value of closing stock. Reliance was placed on (1994) 49 ITD 21 and it was urged that the learned Commissioner of Income Tax (Appeals) has rightly deleted the addition. In view of the facts and circumstances of the case, we uphold the order of the learned Commissioner of Income Tax (Appeals) on the point for the reasons given therein and find no merit in the ground of the Revenue, which fails

Further, while dealing with an issue involving Modvat credit on unconsumed raw material, the hon''ble Supreme Court in Commissioner of Income Tax Vs. Indo Nippon Chemicals Co. Ltd., held that merely because the Modvat credit was an irreversible credit available to manufacturers upon purchase of duty-paid raw material, that would not amount to income which was liable to be taxed under the Act : income was not generated to the extent of the Modvat credit on unconsumed raw material

It cannot be disputed that excise duty is to be paid to the State and the same is not a kind of profit in the hands of the assessee.

Accordingly, while accepting the findings of the Tribunal, the issue is decided against the Revenue.

As far as question No. (ii) is concerned, while delivering judgment in I.T.A. No. 293 of 2005� Commissioner of Income Tax Vs. Vardhman Polytex Ltd., �decided on May 22, 2006, we have already decided an identical issue against the Revenue and in favour of the assessee. For the reasons recorded therein, we reject the appeal of the Revenue.

Accordingly, finding no merit, the appeal of the Revenue is dismissed on both counts.