Excise duty on closing stock is not accrued until removal from licensed premises, so stock valuation excludes it.

For valuation under section 145A of the Income-tax Act, closing stock of manufactured liquor was not required to be increased by excise duty on goods still lying in the licensed premises. Excise duty under the Karnataka State Excise Act crystallises only on removal of the goods, not on manufacture alone, so unpaid duty on unsold stock had not become an accrued liability. The Court treated the issue as settled by binding precedent and answered the question of law against the Revenue and in favour of the assessee, upholding the Tribunal's view.

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Issues: Whether, for purposes of section 145A of the Income-tax Act, 1961, the value of closing stock of manufactured liquor was required to be increased by the excise duty attributable to goods manufactured but not removed from the premises.

Analysis: The liability to pay excise duty was held to arise only on removal of the goods from the distillery, warehouse, or other licensed place of storage, and not merely on manufacture. Relying on the statutory scheme under section 16(3) of the Karnataka State Excise Act, 1965 and the settled position that excise duty does not crystallize until removal, the Court held that the unpaid duty on stock remaining within the premises could not be treated as an accrued liability for valuation purposes. The issue was treated as no longer res integra in view of binding precedent.

Conclusion: The question of law was answered against the Revenue and in favour of the assessee; the Tribunal's view that the excise duty on closing stock not yet removed need not be included was upheld.

Ratio Decidendi: Excise duty becomes an accrued liability only upon removal of the manufactured goods from the licensed premises, and not at the stage of manufacture alone; therefore, such duty on unsold closing stock is not required to be added to stock valuation under section 145A of the Income-tax Act, 1961.

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