1999 (2) TMI 24 - HC - Income Tax

Excise duty liability and closing stock valuation: duty must stay a separate liability; petition dismissed for inflated stock claim

Whether excise duty liability could be included in valuing closing stock was the dominant issue. The HC held that an accrued excise duty liability remains ... Valuation Of Stock - inclusion of excise duty liability in the value of closing stock - HELD THAT:- The assessee's liability for payment of duty would then be regarded as part of the assets held by the assessee in the form of the higher value assigned to the closing stock. A liability cannot be converted into an asset in that manner. If the assessee is to show in the accounts the liability incurred by it in relation to excise duty that is to be done by showing separately the extent of liability incurred in that year towards payment of excise duty. The liability, if so exhibited, would become an item which would have to be deducted for the purpose of arriving at the profit for the year. It is only when such deduction is given that the amount may be added to the value of the closing stock. We, therefore, do not see any merit in this petition. This petition is dismissed. Issues involved: Valuation of closing stock for assessment year 1984-85, inclusion of excise duty liability in the value of closing stock.Valuation of Closing Stock: The assessee, a manufacturer of electrical goods, valued its closing stock at cost for the assessment year 1984-85. The Assessing Officer contended that the valuation was incorrect as it did not include the liability for payment of excise duty. The Commissioner upheld this view, but the Tribunal ruled that excise duty payable on the closing stock should not be part of its value.Liability for Excise Duty: The Revenue argued that excise duty liability arises at the point of manufacture, increasing the value of the stock awaiting sale. However, the Court clarified that the closing stock should be valued at cost, including all costs incurred for manufacturing the goods or at market price. The liability for excise duty is incurred when the manufacturing process is complete, and it should be separately shown in the accounts as a deduction to arrive at the profit for the year.Conclusion: The Court dismissed the petition, stating that the assessee's liability for excise duty cannot be considered part of the assets held as closing stock. The liability should be separately exhibited in the accounts and deducted to determine the profit for the year before adding it to the value of the closing stock.