By TIOL News Service

MUMBAI, OCT 19, 2015. A rampaging issue laid to rest, perhaps.

These are five appeals decided by the CESTAT, out of which three are filed by Revenue.

All the five manufacturer-assessees availed sales tax incentive scheme known as Package Scheme of Incentives, 1993 declared by Government of Maharashtra. The scheme is a Sales Tax Incentive by way of Deferral. Under the said incentive scheme, the manufacturer-assessees are entitled to collect sales tax at the normal rate applicable to the goods manufactured from its customers and pay the same to the Sales Tax Authorities after a period of time, say from 11th to 15th year in five equal installments. Thus, though the manufacturer assessees collect the sales tax from their customers in a particular year, the payment of the same to the State Government is deferred. In the meantime, money so collected is used by the manufacturer assessees in their business.

In November 2002, the Bombay Sales Tax Act, 1959 was amended so as to provide an optional scheme for payment of sales tax so deferred in advance on its net present value (NPV). Thus, the said amendment in the Act provided an option to prematurely pay in place of the deferred tax amount, an amount equal to the NPV of the deferred tax . This option could be exercised anytime between the normal due date for payment of sales tax to the final deferred date. NPV amount willvary with the date of payment as also the final deferred date. On making payment of NPV, the deferred tax is deemed to have been paid.

All the manufacturer-assessees in these appeals have availed benefit of deferred sales tax scheme and thereafter opted to pay the deferred tax in advance. Amount paid was equal to NPV and not the originally deferred amount. With this payment, total liability to pay sales tax got extinguished.

At the time of clearance of the goods, excise duty was paid based upon the sale price excluding the sales tax payable. The sales tax payable was computed based upon the normal rate of sales tax. However, since the sales tax amount was later on paid as per NPV and not as per the originally projected sales tax amount payable, the Revenue is of the view that the manufacturer-assessees are eligible only to deduct the NPV amount from the selling price.

Thus the Revenue alleged that the differential between the deferred sale tax payable and NPV paid would form part of the assessable value .

Demands of CE duty were, accordingly raised on the assessees. As mentioned, in three cases the Revenue is aggrieved with the decision of the original authority and in the other two cases the assessee is aggrieved with the decision of the original/lower appellate authority.

The assessees have inter alia sought to place reliance on the following Board Circulars where it is clarified that the amount of sales tax paid or payable is permissible to be deducted -

+ Circular No. 378/11/98-CX dated 12/03/1998

+ Circular No. 354/81/00-TRU dated 30/06/2000

+ Circular No. 671/62/2002-CX dated 09/10/2002

So also, CBDT Circular No.496 dated 25.8.1987 is referred. Vide this, it is clarified that if the Sales Tax Act provides that the sales tax deferred under the scheme shall be treated as actually paid, then such a deeming provision will meet the requirements of section 43B of the Income Tax Act, 1961.

Case laws by the dozen were cited and exhaustive submissions were made by both sides.

The Bench noted that in some cases demands are pertaining to period beginning prior to 1.7.2000 and in other cases after 1.7.2000.

The Member (T) writing for the Bench, ina marathon 96-page order inter alia observed thus -

++ As per old Section 4 (prior to 01.07.2000), normal value was defined under Section 4(4)(d)(ii) and  excluded sales tax payable.  The transaction value (w.e.f 01.07.2000) has been defined in new Section 4(3)(d) to mean the price actually paid or payable  for the goods when sold and includes… (not relevant for present case) 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 . Thus under old section, sales tax payable was to be excluded while under new section sales tax actually paid or actually payable is to be excluded. But, both the normal value and the transaction value are at the time of removal. A combined reading of the definition of time of removal, place of removal and normal value or transaction value would indicate that the normal value or transaction value is required to be determined keeping in view the situation/factors prevailing at the time and place of removal.

++ Thus one has to first of all examine what is the overall price of the goods which is actually paid or payable for the goods by the buyer and exclude from it excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. Thus to determine the transaction value for purpose of excise duty, one will have to find out the price actually paid or payable for the goods as also the sales tax which is actually paid or actually payable on such goods.

++ In the situation in hand, when the goods are sold, the sale price which includes excise duty, sales tax etc. is already known. However, for computing the transaction value, one has to exclude the sales tax actually paid or actually payable in addition to excise duty. In the case of Package Scheme of Incentives relating to deferral of the sales tax, the manufacturers/assessees are collecting the normal sales tax chargeable on such goods but the same is not deposited within the normal period (which may be monthly or quarterly) but is permitted to be retained with the assessee for a very long period say 10 to 15 years and after the expiry of the said period, the assessee is required to deposit the said sales tax amount to the Sales Tax authority.

++ When the goods are being cleared (i.e. time of removal) actual sales tax paid is nil but sales tax actually payable is the normal sales tax or what has been collected by the assessee from its customers. Among the terms "actually paid or actually payable" used in transaction value, actually paid is not relevant in the present set of appeals. What is relevant is "actually payable". Actually payable at the time of clearance is the deferral sales tax. Thus, in our view, the amount of deferral sales tax will require to be excluded.

The Bench also jotted down the Boards' understanding about the treatment of deferment of sales tax as depicted through its various Circulars -

+ Old Section 4 - Circular No. 378/11/98-CX dated 12.3.1998

It is seen that the present situation is covered by (ii) [ Deferment of payment of sales tax for a particular period ] above and for the period prior to 1.7.2000 i.e. under old Section 4, the Board was of the view that sales tax payable is deductible from the whole sale price for the determination of assessable value for levy of central excise duty in category (ii).

+ New Section 4 w.e.f 01.07.2000 - Circular F.No. 354/81/2000-TRU dated 30.6.2000

It will be seen that in para 11, the Board has observed that the words actually payable in the context of the amount of duty of excise, sales tax and other taxes would normally come into play only on those situations where the amount of  excise, sales tax  or other taxes  is not paid at the time of transaction but paid subsequently , for example,  sales tax payable under a deferment scheme . Thus even at the time of introduction of new Section 4, the Board recognised the fact that the term actually payable will come into play in the deferment scheme. Thus amount of sales tax which is actually payable under the deferment scheme will be excluded for determining the transaction value.

+ Circular No. 679/70/2002-CX dated 4.12.2002 (Financial benefit - no interest payable on Sales Tax collected and retained)

Thus Board was of the view that interest earned cannot be added to the assessable value in such facts and circumstances both under Valuation Rules, 1975 or Valuation Rules, 2000 i.e. under old Section 4 or new Section 4.

It would thus be seen from the above three circulars that the Board has all along been of the view that under the deferment scheme of sales tax, the sales tax is payable though after a long period of time and since the sales tax is payable, the same will stand excluded from the normal value or the transaction value.

++ It will be seen that the said section ( 38 of the Bombay Sales Tax Act, 1959 or the corresponding section of the Maharashtra Value Added Tax Act, 2002) provides for pre-payment of the sales tax on net present value and on payment of net present value, it is deemed that the whole of the sales tax amount payable is paid. Thus as far as the Sales Tax Act authorities are concerned, whole of the deferred sales tax amount payable has been paid by the assessee/dealer. The fact that the said amount has been paid after the clearances of the goods and before the deferred date of payment, to our view will not make any difference. Further, the actual amount paid is equal to NPV (which is less than originally payable), cannot make the amount actually payable at the time and place of removal different, particularly when under Sales Tax Law such a payment is considered as deemed payment of the sales tax payable. Quantum of sales tax payable does not change in the above scheme of pre-payment.

There can be a view that since the retention period is very long say 10 to 15 years and the value of the money changes with time. Therefore, the sales tax payable at the time of clearance should be the net present value of the deferred sales tax payable at the time of clearance.

However, we note that this is not the understanding of the Central Board of Excise and Customs.

Moreover, no rules or any notification has been provided for computing a net present value or how to enforce such a scheme for purpose of excise duty. In Maharashtra, the State Government has specified Net Present Value by way of notification but that may not be so in other States or NPV may be different. In any case there should be legal sanctity to take net present value at the time of clearance for purpose of determination of transaction value under the Central Excise Act. In the absence of such provisions in law, NPV at the time of clearance cannot be taken. In any case the notices in the present appeals do not propose any such demand. What is proposed is to consider the deferred amount of tax minus actual NPV paid as part of assessable value and duty liability on such an amount.

In some of the appeals, the period involved is prior to 1.7.2000. Prior to 1.7.2000, the law did not stipulate exclusion of the amount actually paid or actually payable but stipulated the sales tax payable. Thus prior to 1.7.2000, in any case, the demands will not be sustainable. In view of the above position, in our considered view, the transaction values (w.e.f 01.07.2000) determined by the manufacturer assessees are in order.

As for the maze of case laws cited, this is what the Bench had to say -

“Both the sides have quoted large number of judgments in support of various propositions made by them. We have gone through these judgments and also the facts of these cases and relevant laws. Most of these judgments are not in the context of Central Excise Act but some other Act. Even the words used in those Acts are very different. Facts and issues in the present case are totally different. We do not consider it necessary to discuss each one of them.”

In fine, all the three appeals filed by the Revenue were dismissed and the two appeals filed by the appellant-assessees were allowed.

In passing: In all probability, this long-awaited decision would debilitate the ongoing controversy before it blooms into a hydra headed monster…

(See 2015-TIOL-2242-CESTAT-MUM)