Whether sales tax collected from customer but not paid to government includible in assessable value?

PJ/CASE LAW/2015-16/2574

Case:- COMMISSIONER OF CENTRAL EXCISE, NOIDA VERSUS TOSHU INTERNATIONAL LTD.

Citation:-2014 (310) E.L.T. 897 (Tri. - Del.)

Brief facts:-The respondent manufactures Cathode Ray PictureTubes (CRT) chargeable to central excise duty under sub-heading No. 8540.12 of the Central Excise Tariff. In course of scrutiny of their records, it was found that during the period from November, 90 to September, 95, while they were collecting an amount representing sales tax from their customers, they were not paying any tax to the Sales Tax Department and as such, were retaining the same and at the same time, they were claiming deduction of the ‘sales tax’ for determining their assessable value under Section 4 of the Central Excise Act, 1944. Since the appellant were not paying any sales tax, the department was of the view that they were not eligible for deduction of the sales tax for determining their assessable value. It is on this basis that a show cause notice, dated 28-11-1995 were issued to the respondent for recovery of allegedly short paid duty amounting to Rs. 16,49,851/- for the period from November 1990 to September, 1995 and also for imposition of penalty on them under Rule 173Q(1). This show cause notice was adjudicated by the Commissioner of Central Excise, Noida vide order-in-original dated 2-7-1996 by which the above mentioned duty demand was confirmed against the respondent and besides this, penalty of Rs. 4,00,000/- was imposed on them under Rule 173Q(1) of the Central Excise Rules.
On appeal being filed to the Tribunal against thisorder, the Tribunal vide Final Order No. 3517/96-A, dated 31-10-1996 while upholding the duty demand for the period from November, 1990 to 16-7-1991 and from 9-3-1994 to September, 1995, set aside the duty demand for the remaining period 17-7-1991 to 8-3-1994 and remanded the matter to the Commissioner for de novo adjudication in respect of the duty demand for period from 17-7-1991 to 8-3-1994 on the ground that it appeared that for this period, there was provisional assessment which was yet to be finalized. The Commissioner was directed to verify as to whether the price list for the period from 17-7-1991 to 8-3-1994 were approved provisionally or finally and the approval of the price lists and finalization of assessment for the period has to be taken up and necessary orders passed. It was also directed that if it is found that the price list for this period had been approved finally, the question of further inquiry into the provisional nature would not arise and the duty amount already found due would be confirmed. Thus, in terms of the Tribunal’s order, the dispute was to be adjudicated de novo for the period from 17-7-1991 to 8-3-1994.
Thede novo adjudication was done, by the Commissioner, Central Excise, Noida vide order-in-original dated 25-10-2004 by which the Commissioner while giving finding that the assessments were provisional during the period from 17-7-1991 to 8-3-1994 only due to non-availability of the quantum of deduction towards freight, and insurance on equalized basis, the deduction of sales tax for determining the assessable value was not an issue and that the Asstt. Commissioner while finalizing the provisional assessment had not at all taken up the issue of deduction of sales tax, still did not confirm the differential duty demand but merely imposed penalty of Rs. 4 Lakh on the respondent. This order of the Commissioner was reviewed by the Committee of Chief Commissioners vide Review Order No. 1/MRT/05, dated 31-8-2005 directing the Commissioner to file an appeal before the Tribunal against this order for correct determination of the points arising out of this order, as mentioned in the review order. One of the points on which, the Commissioner (Appeals)’s order has been held to be not legal and proper is that the Commissioner has not specifically ordered confirmation of the duty demand as per the directions of the Tribunal, when he has given a clear finding that in the provisional assessment finalized by the Asstt. Commissioner, the issue of deduction of the sales tax had not been decided. In pursuance of this review order of the Committee, this appeal has been filed by the Revenue.

Appellant’s contention:-.Ms. Sweta Bector, ld. Departmental Representative,pleaded that there is no dispute that during the period from 17-7-1991 to 8-3-1994, the appellant were enjoying the sales tax exemption but they were still collecting an amount representing sales tax from their customers, that in view of this, they were not eligible for deduction of sales tax for determining the assessable value, that in this regard, she relies upon the Apex Court’s judgment in the case of CCE v. Super Synotex (I) Ltd. reported in 2014 (301)E.L.T.273 (S.C.) and that in view of this, the impugned order, which has not confirmed the demand for the duty short paid on account of wrong deduction of sales tax, is not correct.

Respondent’s contention:- None appeared for the respondent though a notice of hearing had been issued to the respondent well in time and it is seen that on earlier occasion also on 9-1-2014 when this matter had been listed for hearing, nobody representing the respondent had appeared. Therefore, in accordance with the Rule 21 of the CESTAT (Procedure) Rules, so far as the respondent are concerned, the matter is being decided ex parte.

Reasoning of judgment:-For the period from 17-7-1991 to 8-3-1994, there is no dispute that the respondents were enjoying sales tax exemption and as such, were not paying any sales tax to the State Government. However, it is seen that they were still collecting an amount towards sales tax from their customers and at the same time, they were also claiming sales tax deduction for determining the assessable value. When they were collecting an amount towards sales tax from their customers, while they were not under any obligation to pay the same to the State Government and as such, they were not paying any sales tax to the State Government, the amount collected from customers as sales tax has to be treated as part of the transaction value and hence, its deduction would not be admissible. In any case, since the sales tax was not payable in view of the exemption, its deduction would not be admissible in view of the provisions of Section 4(3)(d)(ii) of the Central Excise Act, 1944. Though the Commissioner on this point has given a clear finding that this issue had not been decided by the Asstt. Commissioner while finalizing the provisional assessment but still, he has not confirmed the demand of the differential duty on account of wrong deduction of sales tax for determining the assessable value. The impugned order, therefore, is incorrect to this extent. The duty demand for the period from 17-7-1991 to 7-4-1994 (sic), as made in the show cause notice, is, therefore, confirmed and the impugned order to this extent stands modified. The Revenue’s appeal is allowed.

Decision:- Appeal allowed.

Comment:- The gist of the case is that the sales tax collected and recovered from the customers but not paid to the government under incentive scheme is includible in the assessable value by placing reliance on the decision given by the Apex Court in the case of Super Synotex (I) Ltd. However, it is worth mentioning here that the appeal filed by revenue was allowed even if the period was prior to 2000 whereas in the Apex Court decision, it was held that sales tax was includible in the assessable value after 01.07.2000 when the concept of transaction value was introduced in the Central Excise Act, 1944.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2574

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