Accrued excise duty liability remained deductible on mercantile accounting despite stay orders and pending challenge.

Disputed excise duty liability was treated as an accrued statutory liability under the Central Excises and Salt Act, 1944 because the charge arose on manufacture and became chargeable on removal from the specified premises. Recovery stayed by court orders on furnishing bank guarantees did not extinguish the liability, and the distinction between demand notices and show-cause-cum-demand notices was immaterial. On mercantile accounting, an accrued statutory liability remained deductible despite pending challenge or postponed recovery, so the disallowance was not sustainable.

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Issues: Whether the disputed excise duty liability, covered by demand and show-cause-cum-demand notices and stayed by court orders, had accrued so as to be allowable as a deduction in computing income on the mercantile system.

Analysis: The liability under the Central Excises and Salt Act, 1944 arose on manufacture of excisable goods, while the duty became chargeable on removal from the specified premises. The fact that recovery was stayed by court orders on furnishing bank guarantees did not extinguish the statutory liability. The distinction sought to be drawn between regular demand notices and show-cause-cum-demand notices was held to be immaterial because both related to an existing duty liability that had already arisen under the charging scheme. The Court followed the earlier Tribunal view and the governing principle that a statutory liability, once accrued, remains deductible on mercantile accounting notwithstanding pendency of challenge or postponement of recovery.

Conclusion: The disputed excise duty liability was deductible and the disallowance was not sustainable.

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