Whether the amount of sales tax collected but retained under a scheme of Rajasthan Government is eligible for deduction from transaction value u/s 4(3)(d) of Central Excise Act, 1944?

PJ/CASE LAW/2016-17/3170

Case:-M/s INSUCON CABLES AND CONDUCTORS PVT LTD Vs COMMISSIONER OF CENTRAL EXCISE, JAIPURI

Citation:- 2016-TIOL-1601-CESTAT-DEL

Issue:- Whether the amount of sales tax collected but retained under a scheme of Rajasthan Government is eligible for deduction from transaction value u/s 4(3)(d) of Central Excise Act, 1944?

Brief Facts:-The appeal is against order dated 31/5/2007 of Commissioner (Appeals), Jaipur. The appellants are engaged in the manufacture of Cables and Conductors liable to Central Excise duty. In terms of scheme implemented by Government of Rajasthan the appellants were availing exemption from sales tax to the extent of tax paid on raw material used in manufacture of final product.
Revenue entertained a view that the appellants have not arrived at correct assessable value for discharging Central Excise duty and initiated proceedings against them. It is contended that the scheme of abatement of sales tax provides for retention of certain amount which is not a sales tax actually paid or payable on goods and, as such, the amount of sales tax collected but retained by the appellant is not eligible for abatement under Section 4 (3) (d) of Central Excise Act, 1944. The Revenue alleged that claiming excess abatement in the name of sales tax resulted in under valuation of excisable goods. The proceedings initiated resulted in the confirmation of demand of Rs. 4,04,037/.
The Original Authority apart from confirming the differential duty, imposed penalty of equivalent amount on the appellant. On appeal, the Commissioner (Appeals) upheld the original order and rejected the appeal. Against the said order, the appellant filed this appeal.

Appellant’s Contention:-The exemption granted by the Sales Tax Department is to the extent of tax already paid on inputs used in the manufacture of final product which are now subject matter of dispute for Central Excise Valuation. The appellants paid tax on the inputs and the scheme of the State Government allows to deduct that amount from the sales tax payable on the final product. Such payment of tax on the inputs is termed and treated as "advance payment towards turnover tax payable to the Government". It is not proper to disallow the abatement of entire amount of turnover tax on the ground that the appellant had paid only lesser amount to the State Government. The learned Counsel also submitted to distinguish the appellants case from the facts of CCE, Jaipur II vs. Super Synotex (India) Ltd. reported in 2014 (301) E.L.T. 273 (S.C.) = 2014TIOL19SCCX.
He submitted that the Hon'ble Supreme Court was dealing a matter of incentive scheme where the assessee was permitted to retain 75% of sales tax collected. In the appellants case they have already suffered sales tax on the inputs and the concession is not to include that much tax while discharging the total turnover tax. It is the case of the appellant that such payment of sales tax on the inputs should be considered as payment of tax on the final product for the purpose of abatement in value for Central Excise.
The Learned Counsel also strongly pleaded on the point of demand hit by time bar stating that there are many decisions in favour of the assessees in similar matters and, hence, the appellant cannot be accused of suppression or willful misstatement in calculating the assessable value for excise purpose. He also made submission regarding the eligibility of cum duty value in case of allowing abatement only to the extent of actual payment of sales tax.

Respondent’s Contention:-The learned AR on the other hand strongly contested the submissions made by the appellants. He relied on the decision of Hon'ble Supreme Court in CCE, Jaipur II vs. Super Synotex (India) Ltd. (supra). He submitted that the appellants in the present case also were availing an incentive scheme in terms of local sales tax law. The Hon'ble Supreme Court categorically held that unless the sales tax is actually paid to the Government, no benefit towards Excise duty can be given under the concept of transaction value under Section 4 (3) (d). Any amount retained by the appellant has to be considered as price of goods and no abatement is eligible on such price.

Reasoning Of Judgment: The short point for decision in this appeal is the correctness of the claim made by the appellant regarding the correct quantum of exclusion towards sales tax from the transaction value for Central Excise purpose. We find that the Hon'ble Supreme Court in CCE, Jaipur II vs. Super Synotex (India) Ltd. (supra) examined the scope of the abatement available under Section 4 (3) (d) and held that any amount collected towards sales tax if not paid to the State and retained by the Assessee shall form part of a transaction value. The Hon'ble Supreme Court held that after 01/7/2000, the assessees shall only be entitled to the benefit of the amount "actually paid to the Department". We find that the appellant's plea that they have paid sales tax on inputs and such amount is being adjusted to arrive at the tax payable on the final products and as such it should be treated, when taken together, they have discharged full sales tax on the final product. We find that this submission is not factually or legally admissible. The Central excise valuation is being done for the final product and the sales tax actually payable or paid on such final product only can be given exclusion. The appellant's argument as above is against the concept of transaction value in terms of Section 4. The principle laid down by the Hon'ble Supreme Court in the abovementioned case is equally applicable to the facts of the present case. The legal position that emerges is that if the assessee charged and collected amount towards sales tax but not paid the said full amount to the State, the amount retained under whatever name shall not be eligible for exclusion in terms of Section 4 (3) (d).
The demand was contested on the ground of time bar also. We find that the actual quantum of abatement available in case the assessee availing incentive schemes under sales tax has been a subject matter of interpretation and dispute till the law is laid down by the Hon'ble Supreme Court in CCE, Jaipur II vs. Super Synotex (India) Ltd. (supra). As contended by the appellant there were many decisions by the Tribunal to the effect that sales tax collected by the Assessee from their buyers can be considered as "sales tax payable" for exclusion within the meaning of transaction value as defined in Section 4. One such recent case is Lifelong India Pvt. Ltd. vs. CCE, Delhi III reported in 2013 (292) E.L.T. 88 (Tri. Del.).
Considering the above position, we find allegation of suppression, fraud or willful misstatement with the intend to evade duty cannot be sustained in this case. On perusal of the original order and the impugned order, we find no reasoning to support the allegation of suppression of facts. The only reference made by the lower Authorities that the improper valuation was revealed during the course of audit and scrutiny of sales tax returns and as such it was concluded that the assessee had intention to evade Central Excise Duty. We find that considering the above factual background, the invocation of extended period in the present case is not legally sustainable. Accordingly, the demand of differential duty is to be restricted to the normal period which shall be payable with applicable interest by the appellants. On the same reasoning, we find imposition of penalty equal to the duty amount is also not sustainable. Since, the excise duty applicable on retained sales tax amount has not been collected by the assessee from the buyers, they are eligible for calculation of duty liability taking the differential value as cum duty value.

Decision:- Appeal Dismissed.

Comment:- Section 4(3)(d) allows the deduction of sales tax actually paid or payable by the manufacturer. In this case, the manufacturer was receiving a subsidy from State Government in which a part of sales tax collected by him was to be retained. Department held that since this amount of sales tax is neither actually paid nor payable, its deduction is not allowable. Hon’ble Tribunal by interpreting the phrase “Actually paid or payable” rejected the appeal filed by the appellant and held that the amount of sales tax retained by the manufacturer is not deductible while calculating the transaction value. Accordingly, the excise duty is payable on the same. However, the demand was confined to the normal period and benefit of cum duty price was also allowed. Penalty was also set aside.

Prepared By: - Alakh Bhandari

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PJ/CASE LAW/2016-17/3170

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