2003 (1) TMI 8

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....ure of excisable goods. When they manufacture the goods and sell them, the proportionate part of the modvat credit is set off against their excise duty liability. In each of these cases, the Assessing Officer took the view that the Modvat credit that is available should be treated as an income or an advantage in the nature of income, and, therefore, added back the said amount to the income of each of these assessees. The Commissioner of Income-tax, in some of the cases, agreed with the view of the Assessing Officer, and, in some cases, differed. However, when the matter came to the Tribunal, the Tribunal uniformly took the view that the Modvat credit could not be added back to the income of the assessee. Upon appeal to the High Court un....

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....this, Modvat credit would be available. If this method is to be adopted, then uniformly the same method must be adopted while valuing the unconsumed stock at the end of the year. Whichever method one adopts, the result would be the same. We are unable to accept the view of the Assessing Officer that merely because Modvat credit is an irreversible credit available to the manufacturers upon purchase of duty paid raw material, it would amount to income which is liable to be taxed under the Act. Mr. P. J. Pardiwala, learned counsel for the respondent in C. A. No. 2161 of 2002 and 2164-2165 of 2002, points out that the assessees have all uniformly adopted the "net method", namely, valuing the raw materials at the purchase price minus Modvat ....

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....ng the raw material and by virtue of the Modvat Scheme, I have become entitled to the credit of Rs. 10 with the excise authorities and can utilise this credit when I pay excise duty on my finished product. The real cost of the raw material (exclusive of freight, insurance and the like) to me is, therefore, Rs. 90. In reckoning the cost of the final product I would include Rs. 90 on this account.' This, in real terms, is the cost of the raw material (exclusive of freight, insurance and the like) and it is this, in our view, which should properly be included in computing the cost of the excisable product." Learned counsel emphasised these observations to support his case. In our view, these observations have been misunderstood. This court ....