Upholding the Tribunal order deleting addition in respect of unutilized Cenvat credit to closing stock, a division bench of the Bombay High Court held that irrespective of the method of accounting followed, the unutilized Cenvat credit does not constitute income as per the provisions of Section 145A of the Income Tax Act.
A bench comprising Justices S.V Gangapurwala and A.M Badar observed that it cannot be directly added to the closing stock.
M/s Diamond Dye Chem Ltd has paid excise duty. They got credit in the excise duty already paid on the raw materials purchased by it and utilized in the manufacturing of excisable goods.
The department said that the unutilized credit pertain to purchase and sale of goods and inventory and not to any capital goods and services as per the provisions of Section 145A of the Act.
While dismissing the departmental appeal, the bench noted that the assessee is entitled to follow the exclusive method and value the closing stock by excluding the modvat credit.
“The assessee was adopting the exclusive method i.e. valuing the raw materials on the purchase price minus () the Modvat credit. The same would be permissible. The Apex Court in the case of Indo Nippon Chemicals Co. Ltd. (supra) while affirming the order of High Court, has observed that the income was not generated to the extent of Modvat credit or unconsumed raw-material. Merely because the Modvat credit was irreversible credit offered to manufacturers upon purchase of duty paid raw-materials, that would not amount to income which was liable to be taxed under the Act. It is also held that whichever method of accounting is adopted, the net result would be the same.”
Read the full text of the Order below.
