TaxTMI 
TaxTMI 
2015 (12) TMI 41
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.... Rs. 1,17,88,590/- under MAT. Thereafter notice u/s. 148 was issued on 29.03.2011 and the case was re-opened for the reason that the unutilized CENVAT credit was not and taken into consideration while working out the closing stock and thus the value of closing stock was under stated. Subsequently assessment was framed u/s. 143(3) r.w.s. 147 vide order dated 16.11.2011 by making addition of Rs. 18,84,923/- to closing stock u/s. 145A of the Act. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 13.04.2012 granted substantial relief to the Assessee. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us and Assessee has also filed C.O. The grounds raised by the Revenue reads as under:- 1. On the facts and circumstance of the case and in law, the Ld. CIT(A)-I, Surat has erred in restricting the addition of Rs. 18,84,923/-made as per provisions of Section 145A to Rs. 5,03,187/- without appreciating the fact that the amount pertains to raw material which was required to be added to the total income by the assessee, as per the provisions of Section 145A, which it failed to do. 4. On the other hand the grounds r....
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.... amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation : For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequences to such payment " Any right here means cenvat credit available to the assessee. 9.3 Explanatory notes to this amendment by Finance Act, 1998 say that the clarificatory retrospective amendment was made to end the controversy on the issue relating to whether the value of closing stock of the inputs, work in progress and finished goods must necessarily include the element for which MODVAT credit is available. Subsequent to this amendment tax auditors started putting a remark in the audit report that such inclusion does not have any impact on taxable profits. This interpretation that there is no impact of this amendment on taxable profits, puts a question mark on the legislative wisdom of the parliament. If the intention behind this amendment ....
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.... ( @ 10 Consumption 80 Kgs Production 80 Kgs Sale 60Kgs Duty liability on sales Rs. 180 ( @ 3/- Sale price without duty 1500 ( @ 25) Closing stock raw material 20 Kgs Closing stock finished goods 20 Kgs INCLUSIVE METHOD AS PER GUIDANCE NOTES 120 Sales 1500 + 180 1680 O.S 100 + 20 Raw Material 900 + 180 1080 CENVAT CREDIT 160 Production cost 800 C.S finished goods 400 + 60 460 EXCISE liability discharged on goods sold 180 CS Raw material 200 + 40 240 Excise in CS of finished goods (claimed U/s 43B) 60 Profit 300 Total 2540 Total 2540 EXCLUSIVE METHOD AS PER GUIDANCE NOTES TRARDING ACCOUNT O.S 100 Sales Exclusive of excise duty 1500 Raw Material 900 C S finished goods 400 Production cost 800 CS raw material 200 Profit 300 Total 2100 Total 2100 ....
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.... Total 2360 Total 0 i.e the cash profits are Rs. 3407- There will be no debit of excise duty as no excise payment has actually been made. Against this the guidance notes show taxable profits of Rs. 3007- only. The difference of Rs. 60/- actually pertains to set off of advance credit of Cenvat as explained above. 9.10 Had there been no Cenvat scheme, the Trading Account would have appeared as under:- O.S 120 Sales 1680 Raw Material 1080 C S finished goods 200 + 200 + 40 440 Production cost 800 CS raw material 240 Excise Payment 180 Profit 180 Total 2360 Total 2360 The cenvat scheme reduces the excise liability on goods sold from Rs. 180 to 60/- thereby increasing profits to Rs. 3007- However, the assessee 's cash profits go to Rs. 3607- due to set off of advance credit of Cenvat. This income of Rs. 607- escapes assessment in the illustration in the guidance notes of ICAI. 9.11 The correct Trading Account as per section 145A will appear as under INCLUSIVE METHOD AS PER GUIDANCE NOTES &nbs....
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....f Cenvat Credit on Capital goods 8,02,519 It is not understood how A. O. arrived at figure of Rs. 18,84,923/- 9.13 On the above basis the impact on profit U/s 145A is worked out as under :- Decrease in profits Increase in profits Cenvat set off claimed Out of raw material credit Out of Capital goods credit 1,65,30,533 2,25,040 Excise liability 1,78,07,172 PLA Payment 10,42,799 Total 1,78,07,172 Therefore, this adjustment is profit neutral Decrease in profits Increase in profits Excise component of raw./pkg mat cost 1,58,71,813 Cenvat Credit allowed 1,58,71,013 Therefore, this adjustment is also profit neutral Decrease in profits Increase in profits Excise liability on manufactured finished goods paid/payable in Opening Stock NIL Excise liability on manufactured finished goods paid/payable in Closing Stock NIL Therefore, this adjustment is also profit neutral OPENING STOCK DE....
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....inate Bench of Tribunal in the case of Asiatic Industries (supra) had decided the issue in favour of the Assessee by holding as under:- 8.We have heard the rival submission and perused the material on record. We find that the issue in the present appeal is with respect to inclusion of Excise duty and VAT to the value of closing stock, in a case where the Assessee is following exclusion method of accounting of Excise and VAT for valuation of stock. We find similar issue were before the co-ordinate Bench of Tribunal. We further find that in the case of Snehal Pharma Chem (supra) the issue was decided in the favour of Assessee by the co-ordinate Bench of Tribunal by holding as under:- 3.We have considered the submissions of the Ld. D.R. and have gone through the material on record and the orders passed by authorities below. We find that there is submission of the assessee before the authorities below that while the entire amount of excise duty realized on sales was included in the sale amount but out of entire amount of excise duty paid on purchases, only that portion of such excise duty paid which was utilized by way of MOD VAT, had been included in the value of purchases....
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.... the Hon'ble ITAT is reproduced herein as under: "At the time of hearing, both the parties agreed that the issue is now squarely covered by the decision of Hon'ble Jurisdictional High Court in the case of ACIT Vs. Narmada Chematur Petrochemicals Ltd. 327 ITR 369 (Guj.), wherein following was held: "Held, dismissing the appeal, that Tribunal was justified in excluding the excise duty at the time of valuation of the closing stock of finished goods at the end of the accounting period because: (a) No deduct ion for the liability had been claimed by the assessee.The excise duty payable on the finished goods lying in the closing stock at the end of the relevant accounting period had been paid in the subsequent year before the due date of filing of the return of income and that was how the amount was available considering the fact that the assessment had been framed and the show-cause notice was issued much after the close of the accounting year; (b) The Assessing Office had not had recourse to sub-section (3) of section 145 of the Act. The assessee was following the mercantile system of accounting but it was not the case of the assessing Office....