Closing stock valuation excludes excise duty not yet due and payable under the levy scheme, the article explains.

Excise duty on finished goods included in closing stock was not required to be added for income-tax valuation where, under the Central Excise Act scheme, the liability became enforceable only on removal of the goods and was not yet due and payable. The article applies the settled stock-valuation rule that closing stock is valued at cost or market price, whichever is lower, and that unrealised liabilities are excluded unless a statute clearly mandates inclusion. Section 145A of the Income-tax Act was stated to be inapplicable to the assessment year in question, and accounting treatment could not override the statutory position. The assessee's valuation was therefore upheld and the revenue's addition not sustained.

---

---

Issues: Whether excise duty payable on finished goods lying in closing stock as on the last day of the accounting year had to be included in the valuation of closing stock for income-tax purposes.

Analysis: Excise duty was treated as a duty on manufacture, but the scheme of levy and collection under sections 3 and 4 of the Central Excise Act showed that the liability became enforceable only on removal of the goods and determination of the transaction value. Until that stage, the duty was not due and payable in law. For valuing closing stock, the settled rule is cost or market price, whichever is lower, and unrealised or not-yet-incurred liabilities do not form part of stock valuation unless the statute clearly requires otherwise. Section 145A of the Income-tax Act, 1961 was not applicable to the assessment year in question, and even otherwise it contemplated tax or duty actually paid or liability actually incurred under the relevant law. The accounting entry or accounting practice could not override the statutory position.

Conclusion: Excise duty on finished goods in closing stock was not required to be added to the closing stock valuation for the assessment year in question.

Final Conclusion: The valuation adopted by the assessee was upheld and the revenue's addition was not sustained.

Ratio Decidendi: A duty that is not yet due and payable under the charging and collection scheme of the relevant statute cannot be treated as an incurred liability for the purpose of valuing closing stock under the Income-tax Act, unless a specific statutory provision requires such inclusion.

---