By TIOL News Service

ALLAHABAD, AUG 02, 2018: THE ISSUE BEFORE THE COURT IS - Whether as per the amended Sec. 145A vide Finance Act No.2, 1988, computation of valuation of closing stock of finished goods will include any excise & cess duty which was payable or incurred by the assessee towards such goods. YES IS THE ANSWER.

Facts of the case:

The assessee company, engaged in the manufacture and sale of sugar, had filed its return showing a loss of Rs. 30,18,43,756/- for the relevant AY. During the assessment proceedings, the assessee had filed a revised return by declaring a loss of Rs.7,17,01,310. The AO noted that while valuing the closing stock of sugar and molasses, the assessee had failed to include Central Excise Duty, Cess Duty and thus, the value of the closing stock was shown at lower figure. Accordingly, the AO had issued a notice u/s 154 to which the assessee had filed its reply. Thereafter, the AO initiated the proceedings u/s 147 and issued notice u/s 148 to the assessee. The AO completed the assessment after making additions towards the amount of excise duty not included in the value of closing stock of the finished goods. On appeal, the CIT(A) directed the AO to recompute the assessee's total income by allowing the incurred excise duty u/s 43B in the finished goods which were added by the AO in the valuation of the stock.

On further appeal, the ITAT held that the excise duty was payable on goods lying in the bounded warehouse and thus, the assessee had not incurred any cost on account of excise duty payable which could be added towards closing stock.

The High Court held that,

++ the assessee was adopting the mercantile system of accounting. The true value of closing stock would include the amount of any tax duty, cess or having fully paid, payable or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation which is evident from the provisions of Sec. 145A. It is also to be noted that the provisions of Sec. 145A were introducted by the Finance Act No.2 of 1988 w.e.f. 01.04.1999 which are infact clarifactory in nature and, therefore, it would be applicable even for AYs prior to AY 1999-2000. Thus, provisions of Sec. 145A would be applicable for the AY in question;

++ excise duty becomes payable, the moment excisable goods are manufactured as the taxable event u/s 3 of the Central Excise Act is manufacturing or production of the excisable goods. It would be immaterial whether the assessee has paid the excise duty or not for the purposes of arriving at the correct valuation of the closing stock. Even if the excise duty has not been paid and the assessee has postponed its payment, the valuation of the goods will not get affected. Accounting system of the assessee would be of no consequence to arrive at the true and correct valulation of the closing stock.

(See 2018-TIOL-1510-HC-ALL-IT)