CIT vs. HOLOSTIK INDIA LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 85/2012 . . . CIT ..... Appellant . Through Mr. Sanjeev Sabharwal, sr. standing counsel . . . versus . . . HOLOSTIK INDIA LTD ..... Respondent . Through Mr. P C Yadav and Mr. Ravi Gupta, Advs. . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE R.V.EASWAR . . . O R D E R . 14.02.2012 . . . Issue notice. . 2. Notice is accepted by Mr. P C Yadav, Adv. for the respondent. . 3. This appeal by the Revenue under Section 260A of the Income Tax Act, 1961 is directed against the order dated 16.11.2010 passed by the Income Tax Appellate Tribunal (tribunal, for short), in the case of Holostik India Ltd., and relates to the assessment year 2003-04. . 4. The assessee is in the business of manufacturing and trading hologram and holographic films. As per the accounts, the assessee had total turnover of manufactured goods of Rs.32,99,34,000/-. This included excise duty of Rs.3,21,06,490/-. The net sales after deducting the excise duty of Rs.29,78,27,000/- was taken to the profit and loss account. The figure of net sales declared was exclusive of and did not include the excise duty of Rs. 3,21,06,490/-. This was shown separately. The assessee had made purchases of Rs.8,49,97,000/- as per the schedule to the audited accounts. This excluded an amount of Rs.1,45,24,853/- by way of Cenvat credit available on the said purchases. This amount was not included in the purchases of the raw material. The assessee had an opening Cenvat credit of Rs.41,53,151/-. Out of the aforesaid amount of Rs.41,53,151/- and fresh Cenvat credit of Rs.1,45,24,853/-, the assessee utilized Cenvat credit of Rs.1,79,16,028/-. This left a closing balance of Rs.7,61,976/-. This amount was declared as a part of the assets in the balance sheet. . The Assessing Officer had made an addition of Rs.1,79,16,028/- i.e. the Cenvat credit which was utilized by the assessee during the assessment year in question. The addition was deleted by the CIT(Appeals). The tribunal has agreed with the CIT(Appeals). It will be appropriate to reproduce the reasons and findings recorded by the CIT(Appeals): . ?(a) Cenvat credit has been claimed under the Cenvat Credit Rules, 2002. Under Rule 3 of the said Rule, the manufacturer or producer of final products shall be allowed to take credit of the excise duty specified in the first and second schedule of the Central Excise Tariff Act etc. paid on any input used in the manufacture of final or intermediate products. Under sub-clause (3) of Rule 3 of Cenvat Credit Rules, 2002, it has been stated that Cenvat credit may be utilized for payment of any duty of Excise on my final product. It is under the mandate of the said Rules that the appellant has availed the Cenvat credit and utilized a part of the credit towards payment of excise duty. . . . (b) As per accounts the appellant had an opening balance of Rs.4153151/- of Cenvat Credit, and during the year under appeal, it had recognized a further amount of Rs.14524853/- by way of Cenvat Credit on the inputs. From out of the opening balance and fresh Cenvat credit, the appellant utilized an amount of Rs.1,79,16,028/- for payment of excise duty of clearance of excisable finished goods. . . . (c) The appellant has taken to the profit and loss account net sales i.e. sales less excise duty. The appellant has taken to the PandL account net value of purchases i.e. purchase less Cenvat credit. If both excise . duty and cenvat credit are consolidated to the sales and purchases respectively, then also there would have been not case of under assessment of income equivalent to the amount of Cenvat Credit utilized for payment of excise duty. This is on account of the fact that Cenvat credit to an extent of Rs.17916028/- has been utilized for payment of excise duty, which otherwise is allowable under sub-clause (3) of Cenvat Credit Rules, 2002. . . . In view of the analysis above I hold that the Assessing Officer has erred in assessing the amount of Cenvat credit utilized for payment of excise duty as appellant?s income for the year under appeal.? . . . 5. We concur with the aforesaid reasons. Utilization of Cenvat credit which is included in the price paid, is not income earned. The sales made includes the Cenvat credit utilized. The balance unutilized Cenvat credit at the end of the year has been accounted for and not touched by the Assessing Officer. The book entries mentioned above clearly indicate that the accounts did not distort the profit or reduce the income. We do not find any substantial question of law arises for consideration. The appeal is dismissed with no order as to costs. . . . SANJIV KHANNA, J . . . . . . . R.V.EASWAR, J . FEBRUARY 14, 2012 . vld . . . $ 1 . . .