S. 145A: Irrespective of the method of accounting followed, the unutilized Cenvat credit does not constitute income and cannot be directly added to the closing stock. The assessee is entitled to follow the exclusive method and value the closing stock by excluding the modvat credit

(i) It is not disputed that the assessee was liable to excise duty. The assessee got credit in the excise duty already paid on the raw materials purchased by it and utilized in the manufacturing of excisable goods. 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 Commissioner of Income Tax Vs. Indo Nippon Chemicals Co. Ltd. reported in 261 ITR 275 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.

(ii) 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.

(iii) Considering the above, the amount of the unutilized Cenvat credit could not have been directly added to the closing stock. The Tribunal has not committed any error.