Whether sales tax incentive includible in assessable value?

PJ/CASE LAW/2015-16/2938

Case:-COMMISSIONER OF C. EX., JAIPUR VERSUS SHREE RAJASTHAN SYNTEX LTD.

Citation:- 2015 (318) E.L.T. 626 (S.C.)

Brief facts:- The respondent was engaged in the manufacture of yarn and waste of the man-made fibre. It was availing sales tax exemption under the Sales Tax Incentive Scheme of 1989 on the yarn and waste, as issued by the State of Rajasthan. Under this Incentive Scheme though the respondent was collecting the full incidence of sales tax from its buyer, 75% thereof was retained by the respondents and only 25% of the said sales tax collected was payable and paid to the State Government in terms of the Incentive Scheme. Since the remaining 75% of the amount of sales tax collected was not included for the purpose of payment of excise duty, the appellant/Revenue Department issued show cause notice dated 26-11-2001 demanding a sum of Rs. 37,03,161/- alleging that the excise was payable on the amount after including the aforesaid 75% sales tax as well. After giving opportunity to the respondent to reply to the said show cause notice and after hearing the respondent the Commissioner vide order dated 10-3-2003 confirmed the aforesaid amount of demand and also imposed penalty of equal amount. The penalty was also imposed on the individual officers of the respondents.

Aggrieved by the said order, the respondent preferred an appeal before CEGAT. CEGAT allowed the appeal on merits and set aside the order of the Commissioner holding that the aforesaid amount of 75% of the sales tax component retained by the respondents was not includible while calculating the excise amount.Against the said judgment this appeal was preferred.

Appellant’s contention:- It was contended that the value of incentives received must be added to the assessable value and excise duty is payable on the amount inclusive of such incentive.

Respondent’s contention:-The respondent, apart from arguing the matter on merits had raised the issue of limitation with the plea that it was not a case where extended period of limitation could be applied. It was contended that the incentive was received from the State Government and hence, the same could not be added to the value of clearance to arrive at assessable value.

Reasoning of judgement:- It was stated that the period involved was November 1996 to July, 2001. Show cause notice in this behalf, as noted above, was issued on 26-11-2001. The valuation of the excisable goods had to be in terms of Section 4 of the Central Excise Act, 1944. The said Section was amended in the year 2000 which amendment came into effect on 1-7-2000. The legal position relating to identical sales tax incentives Scheme which prevailed in view of the unamended provision as well as amended provision, came up for consideration before the Court in Commissioner of Central Excise, Jaipur-II v. Super Syncotex (India Ltd.) - 2014 (301)E.L.T.273 (S.C.). The Court took the view, after analysing the provision of Section 4 which provided prior to the amendment, that the assessee would be entitled to claim deductions towards sales tax from the assessable value and sales tax incentive which was retained by the assessee namely 75% sales tax amount in this case. The Court also held that this position changed after the amendment in Section 4 with effect from 1-7-2000 and in arriving “the transaction value” the amount of 75% which was retained by the assessee, would be included. As per the aforesaid decision, the assessee/respondent therein was not liable to pay any excise duty on the sales tax amount which was retained under the Incentive Scheme up to 30th June, 2000. However, this component of sales tax which was retained by the assessee after 1-7-2000 would be includible in arriving at the transaction value and excise duty shall be paid thereon.

Insofar as the question of extended period of limitation was concerned, they went through the order of the Commissioner and were of the opinion that he had rightly held that the extended period of limitation as per the proviso of Section 11A(1) of the Central Excise Act, 1944 would be applicable in the given circumstances.

However, they were of the opinion that in a case like the present one, where the legal position and interpretation of unamended Section 4 and the position after the amendment in the said provision with effect from 1-7-2000 was in a fluid state, it would not be appropriate to levy the penalty.

Decision:- Appeal partly allowed.

Comment:- The main issue involved in the case was whether the incentive provided by the State Government amounting to 75% of the sales tax amount charged from the customers be added to arrive at the assessable value or not? Along with the merits of the present case, a similar case was also referred to while passing the judgement. In the said case, such amount of incentive received was not added to compute the assessable value. However, the notable point here was that the Section 4 of the Central Excise Act, 1944, which deals with the valuation of excisable goods, was amended w.e.f 01-07-2000. After this amendment came into effect, it was held that while arriving at “the transaction value” the amount of 75% which was retained by the assessee, would be included. Hence, it was held that the amount of incentiverelating to the period from 1-7-2000 to July 2001 would be chargeable to excise duty. However, since the issue involved interpretation of law, the penalty was set aside.

Prepared By- Sharad Bang

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PJ/CASE LAW/2015-16/2938

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