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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 17TH DAY OF AUGUST 2020
PRESENT
THE HON’BLE MR. JUSTICE ALOK ARADHE
AND
THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD
I.T.A. NO.16 OF 2012
BETWEEN:
COMMISSIONER OF INCOME-TAX-III
CENTRAL REVENUE
BUILDINGS, QUEENS ROAD
BANGALORE – 560 001.
THE COMMISSIONER OF INCOME TAX
CENTRAL
BANGALORE ... APPELLANTS (By Sri.E.I.SANMATHI, ADV.,)
AND:
M/S SPR GROUP HOLDINGS PVT. LTD., 34/2, 5TH MAIN GANDHINAGAR BANGALORE – 560 009. ... RESPONDENT (By Sri.V.CHANDRASHEKAR, ADV. AND SRI.M.LAVA, ADV.) - - -
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 12.08.2011 PASSED IN ITA
NO.569/BANG/2003 FOR THE ASSESSMENT YEAR 1999-00, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) SET ASIDE THE APPELLATE ORDER DATED 12.08.2011 PASSED BY THE ITAT, ‘A’ BENCH, BANGALORE IN APPEAL PROCEEDINGS ITA NO.569/BANG/2003 AS SOUGHT FOR IN THIS APPEAL, IN THE INTEREST OF JUSTICE AND EQUITY.
THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 1999-00. The appeal was admitted by a bench of this Court vide order dated 02.04.2012 on the following substantial question of law:
(i) Whether on the facts and in the circumstances of the case, the tribunal is justified in holding that as per provisions of Section 145A the value of closing stock need not be increased by State excise duty as Excise duty was neither paid nor incurred without
appreciating the law that the goods became dutiable on the day of manufacturing and the liability, therefore, stand incurred on that day and consequently the value of closing stock should have been increased by the amount of liability incurred?
Facts giving rise to filing of this appeal briefly stated are that the assessee is a private limited company engaged in the business of manufacture of Indian Made Foreign Liquor (IMFL). The assessee filed return of income for the Assessment year 1999-2000 declaring the total income on 31.12.1999, of Rs.3.85,12,715/-, wherein value of closing stock of finished goods did not include the excise duty leviable at the time of their removal from the premises of the respondent. The assessment for Assessment year 1999-00 was completed under Section 143(3) of the Act accepting the valuation of the closing stock of the finished goods. Subsequently, Commissioner of Income
Tax (Appeals) on account of revenue audit of objections ordered revision of the assessment by passing an order under Section 263 of the Act on 28.08.2003 directing the Assessing Officer to reframe the assessment after including the value of excise duty on the finished goods in the value of closing stock of finished goods and also apply the provisions of Section 43B of the Act. The Assessing Officer after complying with the directions, passed an order on 30.03.2004.
The respondent preferred an appeal to the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’, for short). The Tribunal by an order dated 12.08.2011 held that excise duty payable on goods manufactured but not removed and shown as closing stock of finished goods need not be part of finished goods valuation. The aforesaid order was subject matter of challenge before this court in I.T.A No.103/2006. A bench of this court by an order dated 22.11.2010 inter alia held that Tribunal has not taken
into consideration the method of accounting under Section 145A, which came into force with effect from 01.04.1999. The matter was therefore, remitted for decision afresh with reference to Section 145A of the Act. The Tribunal by an order dated 12.08.2011l inter alia by placing reliance on decision of the Supreme Court in ‘COMMISSIONER OF CENTRAL EXCISE VS. POLYSET CORPORATION AND ANOTHER’, 115 ELT 41 (SC) held that till date of clearance of goods, excise duty payable on such goods does not get crystallized and assessee cannot be said to have incurred the excise duty liability. Thus, it was held that in respect of the excise goods not being removed, no liability is accrued and there is no question of payment of excise duty. Being aggrieved, the revenue is in appeal before us.
Learned counsel for the revenue submitted that the Tribunal ought to have appreciated that the liability to pay excise duty accrues as soon as goods are
manufactured and not on its transportation as incidence of taxation is manufacture of goods. On the other hand, learned counsel for the assessee has invited the attention of this court to Section 145A of the Act as well as Section 16(3) of the Karnataka State Excise Act, 1965 and has submitted that assessee’s liability to pay duty on the goods manufactured arises only at the time of removal of the same. It is further submitted that the aforesaid issue is no longer res integra and has been answered in favour of assessee by the Supreme Court in COLLECTOR OF CENTRAL EXCISE VS. POLYSET CORPORATION SUPRA AND ‘WALLACE FLOUR MILLS COMPANY LTD., VS. COMMISSIONER OF CENTRAL EXCISE’, (1989) 4 SCC 592.
We have considered the submissions made by learned counsel for the parties and have perused the record. The question which arises for consideration in this appeal is whether liability to pay excise duty is incurred immediately n manufacture of liquor or it arises
only when the same is sought to be removed from the premises of the manufacturer, either for the purposes of sale or otherwise. Section 16(3) of the Karnataka State Excise Act, 1965 reads as under:
“Without the sanction of the State Government no intoxicants shall be removed from any distillery, brewery, warehouse or other place of storage established or licensed under this Act, unless the duty, if any, imposed under this Act has been paid or a bond has been executed for the payment thereof.”
Thus, it is evident that assessee’s liability to pay duty on the goods manufactured arises only at the time of removal of the same from its premises, be it distillery, or a warehouse or any other place of storage established or licensed under the Karnataka State Excise Act and not at any time earlier. The aforesaid issue is no longer res integra in view of decisions of Supreme Court in Polyset Corporation supra and Wallace Flour Mills Co.
Ltd. The same view has been reiterated in ‘MARUTI SUZUKI (INDIA) LIMITED VS. COMMISSIONER OF INCOME TAX, DELHI’, (2020) 3 SCC 718. The aforesaid legal position has also been reiterated by various high courts in ‘CIT VS. LOKNETE BALASAHEB DESAI SSK LTD.’, 339 ITR 288 (BOMBAY), ‘CIT VS. RAJASTHAN STATE GANGANAGAR SUGAR MILLS LTD’, 392 ITR 421 (RAJ), ‘ACIT VS. NARMADA CHEMATURE PETROCHEMICALS LTD’, 327 ITR 369 (GUJ) and ‘ACIT VS. D & H SECHERON ELECTRODES P. LTD’, 173 TAXMAN 188 (MP).
In view of preceding analysis, the substantial question of law framed is answered against the revenue and in favour of the assessee. In the result, the appeal fails and is hereby dismissed.
Sd/- JUDGE
Sd/- JUDGE ss