Inclusion of the value of subsidy received from the State Government in the assessable value of goods for the purpose of levy of central excise duty

CASE STUDY

M/s UMAX PACKAGING FINAL ORDER NO.53316/2018
Prepared By: Arundhati Bajpai and Kartik Singhvi

Introduction:-
M/s Umax Packaging (hereinafter referred to as the appellant) is engaged in manufacture of flexible rolls and plastic pouches falling under sub-heading no. 39219096 and 39239090 of the Schedule to the Central Excise Tariff Act, 1985.A show cause notice no. V (1) Tech/JDR/IAR No-43/292/2015/148 dated 08.01.2016 was issued to the appellant alleging that they have not paid central excise duty amounting to Rs. 28,77,926/- on the sales tax collected from the buyers but not paid to the State Government and retained by them during the period from financial year 2010-11 to 2014-15. It was alleged that the short paid central excise duty of Rs. 28,77,926/- was liable to be recovered along with interest and penalty under section 11AC(1)(c) of the Central Excise Act, 1944. The appellant filed reply to the show cause notice vide letter having reference as PJ/SCN/U-38/16-17/571 dated 09.05.2016.Personal hearing for the case was convened on 17.11.2016.the submissions made by the appellant in their reply to the show cause notice and during the course of personal hearing were not adhered to by the learned adjudicating authority and impugned order in original no. 95/2016-CE dated 15.03.2017 was passed thereby confirming the central excise duty amounting to Rs. 28,77,926/- along with interest and penalty under section 11AC (1)(c) of the Central Excise Act, 1944.Thereafter, appellant has filed an appeal against the said OIO before Commissioner Appeals, Jodhpur. Vide OIA no. 593(CRM)CE/JDR/2018 dated 19.06.2018 wherein the impugned order was upheld and the appeal filed by the appellant was rejected. Being aggrieved appellant filed the appeal before Hon’ble Delhi Tribunal and vide final order no.53316/2018 it was concluded that appellant was not liable to pay Central Excise duty on sales tax retained and the appeal was allowed with consequential refund.

Relevant Legal Provisions:
·      “(d) “transaction value” meansthe price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. [emphasis supplied].
·      clause 7(v) of the RAJ INVESTMENT PROMOTION POLICY- 2003which is produced as follows:-
“(v) For Interest Subsidy the interest actually being paid on the additional capital borrowed shall be the only basis for the computation of subsidy. In case of Wage/Employment Subsidy the wages/salary paid for the additional employment generated shall be the basis for the computation of Wage/Employment Subsidy.”
·      “Demand - Limitation - Suppression - Information not required to be supplied under law if not supplied does not amount to suppression - Proviso to Section 11A(1) of Central Excises and Salt Act, 1944.”

Issue Involved: Inclusion of the value of subsidy received from the State Government in the assessable value of goods for the purpose of levy of central excise duty

Brief Facts: The brief facts of the case is that the appellant have established their factories in the State of Rajasthan and were operating under Rajasthan Investment Promotion Scheme which was notified by the Government of Rajasthan with the objective of facilitating investment in the establishment of new enterprises under the various schemes of Rajasthan Government. The appellant were eligible for subsidies as per the various schemes applicable to assesses and they were required to deposit VAT/CST/SGST at the applicable rate with the government and in terms of the scheme notified, will be entitled to disbursement of the subsidy by the appropriated authorities. The Subsidy concern is sanctioned and disbursed in Form 37B and as such challans in the form VAT 37B can be utilized for discharge of VAT liability of the appellant for the subsequent period. The revenue was of the view that VAT liability discharged by the utilization of the investment subsidy granted in FORM 37B actually paid, for the purpose of section 4 of Central excise Act.

Assessee’s Contention:The appellant submit that the Order-In-Original passed by the learned Assistant Commissioner is wholly and totally erroneous and is liable to be set aside.

The impugned orderhas stated the terms and conditions of the Rajasthan Investment Promotion Scheme, 2003 and has contended that from the provisions of the Scheme, it is clear that the State Government has given subsidy whereby a portion of sales tax collected by the assessee is retained by the appellant by not depositing the same with the State Government. It is alleged that as per the definition of ‘transaction value’ given in terms of provisions of section 4(3)(d) of the Central Excise Act, 1944, sales tax actually paid or actually payable on goods is only excluded and so if the sales tax is not paid to the State Government, the deduction is not admissible to the appellant. In this regard, the appellant submit that the impugned order has wrongly interpreted the definition of ‘transaction value’ in order to fasten central excise duty liability against them. To clarify the stand of appellant on the issue; it would be better to look into the definition of transaction value under section 4(3)(d) which reads as follows:-

“(d) “transaction value” meansthe price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. [emphasis supplied].
The analysis of above definition makes it clear that the definition of ‘transaction value’ is divided into three parts – the “means part”, “inclusive part” and “exclusive part”. If any definition starts with the word “means”, it indicates that the scope of term so defined cannot be expanded beyond the clause followed by word “means”. When the word “means and includes” are used in any definition, it states that the definition is exhaustive in nature, i.e., it would cover only that meaning which is assigned therein and no other meaning can be given to it. This has been decided by hon’ble Supreme in civil appeal no. 1542 of 2007 in the case of BHARAT CO-OPERATIVE BANK (MUMBAI) LTD. VS CO-OPERATIVE BANK EMPLOYEES UNION on 22/03/2007. The relevant extract from this decision is given as follows:-
“………….When the phrase "means" is used in the definition, to borrow the words of Lord Esher M.R. in Gough vs. Gough , it is a "hard and fast" definition and no meaning other than that which is put in the definition can be assigned to the same. (Also see: P. Kasilingam and Ors. vs. P.S.G. College of Technology and others ). On the other hand, when the word "includes" is used in the definition, the legislature does not intend to restrict the definition; makes the definition enumerative but not exhaustive. That is to say, the term defined will retain its ordinary meaning but its scope would be extended to bring within it matters, which in its ordinary meaning may or may not comprise. Therefore, the use of the word "means" followed by the word "includes" in Section 2(bb) of the ID Act is clearly indicative of the legislative intent to make the definition exhaustive and would cover only those banking companies which fall within the purview of the definition and no other.”
The analysis of above decision makes it ample clear that where the definition starts with word ‘means’, it indicates that the definition is exhaustive in nature. In the instant case the definition starts with “transaction value” means the price actually paid or payable for the goods, when sold...” Therefore, to be included in transaction value, there should be direct connection with price actually paid or payable for the goods sold. In other words, any amount which is not directly linked with sale price cannot be included in transaction value as the definition starts with a restrictive/exhaustive clause. In the instant case, the demand is being proposed on the interest subsidy which is based upon capital investment made by the appellant. Thus, there is no direct connection of subsidy received with goods sold; as such it cannot be included in the transaction value as per discussion done hereabove. The impugned order in original including the subsidy amount in the transaction value is liable to be quashed.
Aligning with above, it is reiterated that the interest subsidy has direct connection with the interest paid on investment made by the company and not with sale price of goods. This fact is clarified by clause 7(v) of the RAJ INVESTMENT PROMOTION POLICY- 2003which is produced as follows:-
“(v) For Interest Subsidy the interest actually being paid on the additional capital borrowed shall be the only basis for the computation of subsidy. In case of Wage/Employment Subsidy the wages/salary paid for the additional employment generated shall be the basis for the computation of Wage/Employment Subsidy.”

The analysis of this clause makes it clear that the interest subsidy shall be calculated on the basis of interest paid on additional capital borrowed. Thus, the subsidy is directly dependent on the interest paid on additional capital borrowed and it has no relation with the sale of goods. Therefore, when the subsidy has no connection with the sale of goods; rather it is related with expansion of project/additional capital borrowed; it doesn’t fall in the definition of transaction value which says that transaction value means the price payable for goods sold. Hence, the subsidy does not fall in the very first, “means/main” part of the definition of transaction value. Thus, the impugned order in original including the subsidy amount in the transaction value is not tenable and is liable to be quashed.
In continuation to above it is submitted that the second part of the definition of transaction value, i.e. the inclusive part states that any amount in addition to price charged by seller which the buyer is liable to pay to him is also included whether or not payable at the time of sale. Also, the inclusive part covers the expenses incurred in relation to sale of goods like advertisement, handling charges, warranty, etc. It is worthwhile to mention here that the inclusive part of a definition expands the scope of definition and it will cover all the expenses which are specifically covered in this part alongwith other expenses of similar nature. In the instant case, the subsidy is neither specifically mentioned in the inclusive part nor it is an expense related to those categorically mentioned herein. Therefore, the subsidy neither falls in main part nor in the inclusive part of the definition of transaction value. The third part of the definition is exclusion clause. The exclusion clause in a definition gives the list of specific items which shall not be included in the definition regardless of the fact that these are otherwise includible therein by virtue of main clause. In the instant case, the order is alleging that since the sales tax retained by the appellant is not covered in the exclusion clause, it will automatically get covered in the main clause. This allegation is wholly and totally erroneous on the grounds that if any item is not covered in exclusion clause of definition; it will not get suo motto covered in definition. To be covered therein, it should either be specifically mentioned in the list given after inclusive clause or it should be of similar nature. An item which even does not get covered by the main clause cannot be said to be included in the inclusion clause merely because the exclusion clause does not cover the same. On this ground also, the impugned order is not viable and deserves to be set aside.

It is further reiterated that the transaction value is the price actually paid or payable for goods sold. It includes the amount charged as price and any amount that the buyer is liable to pay. Thus, to be included in the transaction value, first and foremost thing is that there should be any amount which flows from buyer to seller, whether directly or indirectly; in or in relation to sale of goods. Any amount which does not flow from buyer to seller cannot be counted towards calculation of “transaction value” as per definition discussed above. In the instant case, the impugned order is alleging the inclusion of value of “subsidy” which in fact flows from government to the appellant and not from buyer to the appellant; thus, as per above stated definition, it cannot be included while calculating the transaction value. Therefore, the impugned order demanding the duty on subsidy which does not flow from buyer to seller is wholly and totally erroneous and is liable to be set aside.

The impugned order has further placed reliance on the Supreme Court decision given in the case of CCE Vs Super Synotex India Limited [2014 (301) E.L.T. 273 (SC)] in order to justify their contention that the amount of sales tax retained by the appellant will form part of the assessable value. In this regard, the appellant submits erroneous reliance has been placed on the above cited decision as the facts and circumstances of the present case are different. The appellant submits that in the present case, they have not retained sales tax but rather they have discharged their sales tax liability by way of adjustment through VAT 37B which is also one of the modes of payment of sales tax. The appellant submits that the definition of ‘transaction value’ excludes taxes actually paid or actually payable on the goods which means that what is required to be considered is the amount of sales tax/VAT actually payable. They have not been granted any exemption from payment of sales tax but rather they have paid sales tax by way of adjustment against subsidy receivable to them from the State Government. As such, the impugned order in original confirming central excise duty demand is not at all tenable and is liable to be quashed.

The appellant further submits that erroneous reliancehas been placed upon the decision of Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE, DELHI-III VERSUS MARUTI SUZUKI INDIA LTD. [2014 (307) E.L.T. 625 (S.C.)] to confirm central excise duty demand against them. To analyze the decision in detail, the brief facts of this case are given as follows:-

·       The assessee was manufacturing and selling vehicles in the State of Haryana.

·       Show cause notice was issued to assessee on the grounds that the assessee had retained 50% of the sales tax collected by it from its customers. The retention allegedly was on the strength of an entitlement certificate issued by the Deputy Excise and Taxation Commissioner in Haryana. This certificate mentioned that the assessee would be allowed to retain 50% of the tax collected by it subject to the ceiling of Rs. 564.35 crores and the benefit would be extended to 14 years.

·       The basis of issuing the show cause notice was that the retained sales tax was neither actually paid nor actually payable to the State Government, thus it will be included in transaction value. The demand proposed in the show cause notice was confirmed by the adjudicating authority.

·       Appeal was filed in the Tribunal on the grounds that they were not exempted from payment of sales tax upto 50%, rather it was the deferment of sales tax. It was also contended by the assessee that the sales tax so deferred was permitted to be converted into capital subsidy to the extent mentioned in the entitlement certificate.

·       The appeal of assessee was allowed by the Tribunal and the decision was cited at 2004 (166) E.L.T. 360 (Tri.-Del.). In this decision it was held that Rule 28C prescribed a procedure relating to deferment of tax under Section 25A of the Act and, therefore, what was granted to the assessee was a deferment of payment of sales tax and not a sales tax concession. The deferment was for a period of 14 years during which period the amount was adjusted against capital subsidy due to the assessee, subject to a maximum limit of Rs. 564.35 crores. Instead of the assessee depositing the amount in the Treasury and the State Government giving the amount back to the assessee towards capital subsidy the amount was adjusted and therefore it could not be argued that the assessee was claiming abatement in respect of sales tax not actually paid or payable.

·       Aggrieved by the order of Tribunal, Department preferred the appeal before Supreme Court.

·       Supreme Court reversed the order of Tribunal on the grounds that the entitlement certificate does not give any indication of deferment of tax or capital subsidy. On the contrary, it only refers to a “tax concession” for the period from 1st August, 2001 to 31st July, 2015 and the quantum of tax concession is mentioned as Rs. 564.35 crores. It was further held that the entitlement certificate issued to the assessee is clearly in line with the decision of the HPC and also does not support the case of the assessee. While deciding the case against the assessee, Circular dated 30.6.2000 was also relied.

The appellant has analyzed the ratio laid down by Supreme Court in this decision. As every decision is passed and is applicable only under specific facts and circumstances; the decision of hon’ble Supreme Court is also applicable under the given conditions. Also, this decision is silent on some issues, i.e. some questions which were not put before Apex Court; have obviously not been answered in the decisions. Some of such areas are as follows:-
It is reiterated that the contention of the assessee was rejected by the Apex Court on following grounds:-
·      The High Powered Committee (HPC) vide its order dated 14.6.2001 had permitted the assessee to retain 50% of the sales tax collected from the customers for a period of 14 years. The ceiling of Rs. 564.35 crores was decided. However, the order of HPC did not mention the fact that this amount can be adjusted against any scheme or any capital subsidy.
·      The entitlement certificate issued to the assessee also did not give any indication of deferment of tax or capital subsidy. On the contrary, it only refers to a “tax concession” for the period from 1st August, 2001 to 31st July, 2015. The quantum of tax concession is mentioned as Rs. 564.35 crores.
·      Both the order of HPC and the entitlement certificate are the main documents of the case and both of them did not indicate that the 50% of the sales tax retained by the assessee on the sale of its vehicles was liable to be adjusted against any capital subsidy entitlement.
·      Since there was no indication of the fact that the retention amount could be adjusted against any subsidy; it was held that the 50% of the sales tax amount was neither actually paid nor it was actually payable to the government and the HPC permitted the assessee to retain the said amount.
However, present case is different in facts and circumstances in view of following:-
·      There is clear cut indication of the fact that the interest subsidy is allowable to us under RAJ INVESTMENT PROMOTION POLICY- 2003.
·      The manner of calculation of interest subsidy has direct connection with the interest paid on investment made by the company as per clause 7(v) of the RAJ INVESTMENT PROMOTION POLICY- 2003.
·      The subsidy amount (or sales tax retained amount) is adjusted through VAT 37B challan as confirmed by the show cause notice itself at para 5.
·      The ceiling of subsidy amount is 50% of the sales tax and this fact is mentioned in the entitlement certificate itself.

All the above facts prove that there is no doubt that there was interest subsidy allowable to them which was adjusted against the sales tax payable by the appellant. Further, the sales tax paid through VAT 37B challan will also be deemed as actual payment of sales tax. Thus, the facts and circumstances of the present case are different than those referred in the decision of Maruti Suzuki India. Therefore, the demand of excise duty confirmed by relying upon this decision is not valid and the impugned order is liable to be set aside.

The impugned order has also placed reliance on the directions given vide Instruction no. 6/8/2014-CX.1 dated 17.09.2014 on the issue of Sales Tax incentive scheme wherein it is clarified that the amount actually paid to the State Government only is excludible from the transaction value. It is contended that what is not payable or to be paid as sales tax/VAT should not be charged from the third customer/party but if it is charged and is not payable or paid, it is a part and should not be excluded from the transaction value. It is contended that this is the position after the amendment because as per the amended provisions, the words ‘transaction value’ mean payment made on actual basis or actually paid by the assessee. The words that gain significance are ‘actually paid’ and since the appellant is retaining portion of sales tax by way of incentive given by the state government, they are not entitled for deduction of the same from the transaction value. In this regard, it is reiterated that payment through VAT 37B challan will also be considered as good as payment in cash so long as it is not challenged under sales tax law. Thus, the sales tax payment through VAT 37B challan will be considered as actual payment of sales tax. Therefore, the circular has been issued ignoring the fact that there is payment of sales tax in such case, only difference being that the same is paid through VAT 37B challan which is considered as good as payment in cash. Furthermore, the impugned order has misinterpreted the words ‘actually paid’ as paid in cash or by utilizing credit. The appellant submits that when the payment of sales tax by way of VAT 37B is also one of the modes of payment, they have actually paid the sales tax and the contention of the impugned order that deduction of sales tax is not admissible is totally erroneous. Thus, the clarification given by the circular is not proper and even otherwise also, the Board circulars are not binding on assessees as held in the case of BIRLA JUTE AND INDUSTRIES LTD. V/S ASSISTANT COLLECTOR OF C. EX. [1992 (57) E.L.T. 674 (CAL.)]. In this case it was held that Board Circulars are not binding on the assessees and they may opt not to follow these Circulars. The verdicts of hon’ble Calcutta High Court are produced as follows:-
“Departmental circulars and trade notices - Binding on departmental officers but not binding on quasi-judicial authorities and assessees - Court can compel Central Excise officers to comply with such instructions as are for benefit of assessee - Section 37B of Central Excises and Salt Act, 1944 - Rule 233 of Central Excise Rules, 1944”

Similar decision was given in the case of COMMISSIONER OF CENTRAL EXCISE V/S ESWARAN & SONS ENGINEERS LTD. [2005 (179) E.L.T. 272 (S.C.)]. In the light of above judgments rendered by hon’ble Supreme Court, the reliance placed by the impugned order on this circular is totally erroneous and not binding on them. The impugned order is thus liable to be quashed.

The contention of the appellant that the amount of sales tax was deposited with the State Government by way of adjustment and so the same is deductible from the transaction value has been rejected on the grounds that had the subsidy been paid in cash by the State Government, no demand could have been raised by the department. It is further alleged that the amount paid or payable to the State Government towards sales tax, VAT is excluded because it is not an amount paid to the manufacturer towards the price but an amount paid or payable to the State Government for sale transaction, i.e. transfer of title from the manufacturer to the third party and so amount actually paid to the State Government as sales tax is only excludible from the transaction value. It is contended that in the present case, sales tax has been collected from the customers but not paid to the State Government and therefore it is part of transaction value and appellant is required to pay central excise duty on the said amount of sales tax collected from the customers and retained by them. In this regard, it is submitted that even the payment of sales tax through VAT 37B challan will be considered as actual payment of sales tax. Payment through VAT 37B is nothing but a manner of adjustment of sales tax against the subsidy due to the appellant. Once the amount is paid through this challan, it will be considered as good as payment in cash. If there was any short payment, proceedings would have been initiated to recover the same. When there is no short payment as per sales tax law; the same can also not be considered in central excise law to the extent of amount of sales tax. In this respect, it is also worthwhile to mention here that manner of payment of sales tax cannot be debated under central excise law. When the payment of sales tax through VAT 37B challan is considered valid under sales tax, the same should be approved in central excise law also. Moreover, an absurd stand is being taken by the impugned order in original that if the amount of subsidy was paid in cash, there would have been no central excise duty demand but since the sales tax has been paid by way of adjustment, the deduction of sales tax is not admissible. The appellant submits that the sales tax liability is adjusted through VAT 37B challan only to avoid unnecessary paperwork and transactions. The appellant submits that when payment of sales tax by way of VAT 37B challan is valid in law, the contention that the sales tax was retained by the appellant is totally erroneous. Thus, the impugned order demanding the excise duty by challenging the manner of payment of sales tax is not tenable and is liable to be dropped.

It is further submitted that it is the policy of Government to promote new industries and expansion of existing industrial units. To achieve this objective, every government plans for and distribute various subsidies/incentives in cash or otherwise in order to boost the industrial development. Here in the given case, the subsidy is not given in cash directly but it is allowed in form of retention of sales tax amount collected from buyers. Alternatively, government can collect the sales tax amount in full and can disburse the interest subsidy in cash. If this is done, the entire sales tax is deposited and subsidy is released in cash. But this process will increase the procedural formalities which is not desirous. Therefore, the government has adopted the system of sales tax retention in which subsidy due to industry (being calculated on the basis of interest paid on investment done). The ceiling of subsidy is being decided as 50% of sales tax payable. The subsidy so calculated is paid by way of sales tax retention which is an easier form of disbursement of subsidy involving lower procedural formalities. Thus, the government aims to provide maximum benefit with least formalities and hassle. If the contention of impugned order is accepted for the sake of argument also, it will mean that the excise duty is payable on the subsidy amount. It will obviously lower down the amount of subsidy, i.e. the benefit given to industrial unit. This is not the intention of government. Thus, the order passed against the intention of government is not tenable and is liable to be set aside.

The impugned order has also rejected the reliance placed on various case laws cited for invocation of extended period of limitation on the grounds that each case is based on its own facts and circumstances and since the facts of the relied upon cases are not identical to the present case, the same are not applicable in the present case. As far as the applicability of facts and circumstances is concerned, it is submitted thatthough the verdict of case has been delivered in different circumstances but still its ratio is applicable in the instant case because while interpreting any decision, ratio laid down by it has to be seen rather than going rigidly by the facts and circumstances. This is known as principle of ratio decidendia. The ratio decidendia is "the point in a case that determines the judgment" or "the principle that the case establishes". In other words, ratio decidendi is a legal rule derived from, and consistent with, those parts of legal reasoning within a judgment on which the outcome of the case depends. It has been held by the Gujarat High Court that it is the ratio decidendi that forms a binding precedent, not the entire facts and circumstances of the case. This decision has been given in the following case:-

·      DHRANGADHRA MUNICIPALITY, DHRANGADHRA AND OTHERS Versus DHRANGADHRA CHEMICAL WORKS LTD. AND OTHERS [1988 (35) E.L.T. 88 (GUJARAT)]

Precedent - Ratio decidendi constitutes a precedent and not the entire contents of a judgment.
- It is not everything said by a judge when giving judgment that constitutes a precedent. The only thing in a judge’s decision binding a party is the principle upon which the case is decided and for this reason, it is important to analyse a decision and isolate from it, the ratio decidendi. [A.I.R. 1979 S.C. 1384 cited; XXIV (1) G.L.R. 1 & A.I.R. 1987 S.C. 1073 referred]. [para 27]

From the above decision, it is ample clear that while interpreting any decision; we have to see the ratio laid down by the Court rather than by looking into the facts and circumstances. If the ratio decidendi is applicable, the benefit of decision is equally extendable to the assessee. Therefore, the benefit of above relied upon decisions is extendable and the impugned order is liable to be quashed.
The appellant reiterates that the present demand is also barred by the clause of limitation as prescribed under section 11A of the Central Excise Act, 1944. The appellant submit that for invoking the extended period, the fraud, collusion or willful misstatement should be there. It was held in the case of RAINBOW INDUSTRIES V/S. CCE [1994 (74) ELT 3 (SC)] that for invoking the extended period, two ingredients are essential – (i) Willful suppression, mis-declaration, etc. and (ii) Intention to evade payment of duty. In absence of both of these extended period cannot be invoked. This has also been held in the case of CHEMPHAR DRUG & LIMITS REPORTED IN (2002-TIOL-266-SC-CX) wherein hon’ble Supreme Court held as under:-

“Demand – Central Excise – Limitation –Invoking extended period of five years – something positive other than mere inaction or failure on part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months.”

Thus, in the light of above decision, extended period cannot be invoked blindly in every case. Where the assessees have been acting in the boundaries of law, the extended period cannot be invoked. Similar decision is given in the following cases:-
·      NESTLE INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH [2009 (235) E.L.T. 577 (S.C.)]
·      COLLECTOR OF CENTRAL EXCISE VERSUS H.M.M. LIMITED [1995 (76) E.L.T. 497 (S.C.)]
·      COSMIC DYE CHEMICAL VERSUS COLLECTOR OF CENTRAL EXCISE, BOMBAY [1995 (75) E.L.T. 721 (S.C.)]
·      PADMINI PRODUCTS V/S COLLECTOR OF CENTRAL EXCISE–[1989 (43) ELT 195 (SC)
·      TAMIL NADU HOUSING BOARD V/S COLLECTOR OF CENTRAL EXCISE, MADRAS[1994 (74) ELT 9 (SC)]

In the above cases, it was held that mere inaction would not be a valid ground for invoking the extended period of limitation. There should be deliberate withholding of information with an intent to evade payment of duty without which extended period is not invokable. In the present case, the fact of availment of subsidy was duly reflected in relevant accounts. Since the subsidy amount is linked to interest paid on capital investment, it does not fall in the definition of transaction value. Thus, it cannot be included in transaction value. Due to this reason, the appellant have not paid excise duty on the same. This act is well within the boundaries of law. As such, extended period cannot be invoked in the present case and the impugned order should be quashed.
The impugned order is further alleging that the appellant have not disclosed the fact of availment of subsidy to the department with an intent to evade payment of duty. In this regard, it is submitted that there is no legal requirement to inform the department about availment of subsidy from government. When there is no requirement of furnishing these details, it cannot be said that non-furnishing of the same amounts to suppression. Further, there is no provision in the Central excise law which states that each and every act and procedure followed by the assessee should be intimated to department and that too suo motto as alleged in the impugned order. It has been held by hon’ble Gujarat High Court in the case of APEX ELECTRICALS PVT. LTD. VERSUS UNION OF INDIA [1992 (61) E.L.T. 413 (Guj.)] that non-furnishing of the information not required under law does not amount to suppression. The verdicts of hon’ble High Court are given as follows:-

“Demand - Limitation - Suppression - Information not required to be supplied under law if not supplied does not amount to suppression - Proviso to Section 11A(1) of Central Excises and Salt Act, 1944.”
Similar decision was given in the following cases:-
·      GUFIC PHARMA VS. CCE - 1996 (85) ELT 67 (T) [AFFIRMED BY SUPREME COURT AT 1997 (93) ELT A186]
·      PROLITE ENGINEERING CO. VS UNION OF INDIA [1995 (75) ELT 257 (GUJ.)]
·      UNIQUE RESIN INDUSTRIES VS. CCE - 1995 (75) ELT 861 (T)
In all the above cases, it was held that the information not required to be submitted under law, if not submitted, will not amount to suppression of facts. Thus the impugned order confirming the demand of central excise duty on subsidy amount received from the State Government on the grounds of non-furnishing of information (that was not required to be submitted under law), is not sustainable and is liable to be set aside.
It is also submitted that when the excise duty demand is not sustainable in view of the above cited submissions, the question of paying interest at the rates applicable under section 11AA does not arise. Hence, the impugned order in original confirming interest is not tenable and deserves to be dropped.
The appellant further submit that penalty has also been confirmed under section 11AC of the Central Excise Act, 1944. The appellant reiterate that as there was no fraud, collusion, wilful misstatement or suppression of facts or contravention of the provisions deliberately, and so the provisions of section 11AC cannot be invoked against them. The appellant submit that section 11AC is a very harsh penal provision and it cannot be invoked in every case without even proving the malafide or fraudulent intention of the assessee. In support of their contention that penalty under section 11AC cannot be imposed under every case, they have place reliance on the recent judgment of Hon’ble Madras High Court, wherein the appeal filed by the Revenue for imposition of penalty under section 11AC was dismissed on account of the fact that there was no discussion as regards the various requirements which are necessary for the purpose of levy of penalty under Section 11AC of Central Excise Act 1944. The citation and the synopsis are reproduced as follows for the sake of convenient reference:

·      CCE VS M/S CROCODILE INDIA PVT LTD. [2013-TIOL-518-HC-MAD-CX]:
CE - Reversal of CENVAT Credit before issue of Show Cause Notice - SCN does not detail grounds for imposing penalty application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section - No penalty : A cursory reading of the notice shows that except for mere reference to the proposal to levy penalty under Section 13(1) of CENVAT Credit Rules, 2002, there is no discussion as regards the various requirements which are necessary for the purpose of levy of penalty under Section 11AB of Central Excise Act 1944. The Apex Court pointed out that the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable, the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. In so holding, the Apex Court held that in every case of non payment or short payment of duty, penal provisions cannot be automatically invoked; in other words, the conduct of the assessee in each of the case, before imposing penalty, has to be looked at on the bona fides of the assessee as regards his claim which otherwise would not be sustained in law. - Revenue Appeal Dismissed : MADRAS HIGH COURT.
In light of the above cited decision, no penalty is imposable on us because the ingredients that are essential for levying penalty under section 11AC have not been proved against them. As such, the impugned order imposing penalty under section 11AC is not tenable and should be dropped. It is pertinent to mention that the above decision was relied upon in the reply to the show cause notice but the same has not been discussed and distinguished which leads to passing of non-speaking order which is not tenable in light of the decision given in the case of COMMISSIONER OF CENTRAL EXCISE, BANGALORE VERSUS SRIKUMAR AGENCIES [2008 (232) E.L.T. 577 (S.C.)].
It is further submitted that asthe charge of willful misstatement or deliberate suppression has not been proved, as such, the penal provisions cannot be invoked. It is also submitted that for imposing penalty, presence of mens-rea is a mandatory requirement and in the absence of which imposition of penalty is unjustified, as enshrined by the Hon'ble Supreme Court in the case of HINDUSTAN STEEL LTD V/S. STATE OF ORISSA - [1978 (2) ELT (J-159)] and number of subsequent judgments from various judicial fora based thereupon. It is submitted that none of the acts were backed up with any ulterior motive or malafide intention to evade duty and therefore, imposition of penalty is incorrect and uncalled for based on settled position on the issue. It is further submitted that the Hon’ble Punjab & Haryana High Court, following the ratio of Apex Court judgment in Hindustan Steel Ltd. (supra), has held that mens-rea is a mandatory requirement for imposition of penalty, in support of which reliance is placed on the ratio of following judgments:

·      2010 (258) ELT 465 (SC) – Sanjiv Fabrics

·      2007 (207) ELT 27 (P &H) – UT Ltd

·      2007 (5) STR 251 (P & H) – Kamal Kapoor

In the above decisions, it was held that the penalty is imposable only if there was malafide intention on part of the assessee, else it will not sustain. In the instant case, no malafide intention is proved but they have proved their case that there was no ulterior motive. They have simply followed the practice adopted by similar assessees. This proves their case. In view of the above submissions, the impugned order is not sustainable and should be set aside. It is pertinent to mention that the above cited decisions were relied upon in the reply to the show cause notice but the reliance placed on these decisions has been rejected by stating that they are not applicable in the facts of the case. The order in original has not even discussed and distinguished the cases cited and so it turns to be a non-speaking order which is not tenable in view of decision given in the case of CC VS ESSAR OIL LIMITED [2010-TIOL-560-HC-AHM-CUS].
Reasoning adopted by the adjudicating authority: -After looking into the matter the Hon’ble Delhi Tribunal by placing reliance on the identical issue in the case of SHREE CEMENTS LTD. V/s CCE, ALWAR 2018-TIOL-748-CESTAT-DEL concluded that there is no justification for inclusion in the assessable value, the VAT amount paid by the assessee using VAT 37B challans.
Conclusion:-The kernel of the case is that the sales tax amount paid by the assessee using VAT 37B Challans cannot be included in assessable value as they are in nature of subsidy and as per the concept of transaction value outlined in section 4 any sales tax and VAT actually paid can be deducted from the transaction value for the payment of excise duty. Such challans are as good as cash and payment of sales tax using such challans are considered as legal payment of tax. Thus the contention that the sales tax was retained by the appellant is totally wrong and therefore no liability of payment of excise duty on part of appellant arises.

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PJ/Case Study/2018-19/140
21 December 2018

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PJ/Case Study/2018-19/140 21 December 2018

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PJ/Case Study/2018-19/140
21 December 2018