CX - Once Dept. has assessed Sales Tax as paid, CE dept. cannot contend that since State Govt has remitted amount as incentive, Sales Tax was not paid: CESTAT
By TIOL News Service
MUMBAI, APRIL 18, 2017: THESE are appeals filed by the Revenue.
The facts are that the Respondent was recovering sales tax/VAT from their customers on sales made by them. The assessee was eligible to ‘Incentive Scheme 2001' under Economic Development of Kutch District, Government of Gujarat. Under the said scheme they were allowed to recover the sales tax amount / VAT amount and retain with themselves as an incentive.
The Revenue contention is that as per the provisions of Rule 6 of Valuation Rules, 2000 r/w section 4 of the CEA, 1944 and Para 10, 11 of Board's letter F.No. 354/81/2000-TRU dt. 30.06.2000 the amount of sales tax retained by the Respondent as an incentive was required to be added/considered for levy of Central Excise duty since the same is an additional consideration. The apex court decision in Super Synotex (India) Ltd - 2014-TIOL-19-SC-CX relied upon.
The assessee paid excise duty on the said incentive amount "Under Protest" but subsequently claimed refund of the same. The apex court decision was distinguished by submitting that in case of Super Synotex there was exemption from sales tax and since the said amount was not chargeable, the recovery thereof from the customer is liable for excise duty as being part of the assessable value.
The adjudicating authority rejected the refund claim on the ground that the Sales tax was collected by the Respondent from their customers and retained by them and that since the said amount was not actually payable, the same is liable to be included in assessable value and is liable for duty.
However, since the Commissioner (Appeals) allowed the appeals filed by the Respondent, the Revenue is aggrieved and has hence filed an appeal in CESTAT.
After considering the exhaustive submissions made by both sides, the Bench observed -
+ The Respondent company opted for "Remission of Tax Scheme" and was thus eligible for the Capital subsidy in the form of remission of Sales Tax subject to the conditions to be fulfilled. After applying to the Commissioner of Sales Tax/VAT, the eligible units were issued entitlement certificate and Form 110 to make them entitle to the benefit of tax deferment or tax remission, as the case may be. The subsidy in the form of remission of sales tax was, in fact,a percentage of capital investment. The intention of the State Government was, thus, instead of granting the capital subsidy to the units setting up their manufacturing facility, the subsidy be granted by remitting sales tax amount.
+ The remission of tax is thus directly related to capital investment in fixed asset. There was no option to claim exemption from payment of sales tax. The quantum of remission was based upon the investment made in the fixed assets.
+ The remission amount was adjusted against the incentive amount receivable as per the Eligibility Certificate. The Sales tax assessment orders indicated that the finished goods cleared by the appellants were assessed to full rate of tax and allowed as remission under Section 41 of Gujarat value Added Tax Act, 2003. This shows that the Sales Tax was actually payable to the government. The revenue has relied upon the definition of ‘transaction value' in Section 4 (3) of the Central Excise Act, 1944 and on the Board Circular No. 354/81/2000-TRU dated 30.06.2000 and also on judgment of Hon'ble Apex Court in case of M/s. Super Synotex case (supra).
+ In the present case, the tax was actually payable and there was as such no blanket exemption from sales tax. The term "remission" from sales tax itself means that the sales tax was actually payable at the time of clearance of goods but was remitted at a later date by passing of assessment orders by the Sales Tax authorities.
+ In terms of section 4, the duty is chargeable on excisable goods on its value which is to be determined at the time and place of removal. Thus, whatever transaction value of the goods prevailing at the time of its removal shall be liable to excise duty, which, however, shall not include the amount of duty of excise, sales tax and other taxes, if any, "actually paid" or "actually payable" on such goods. In the present case we find that the "sales tax" is "actually payable" to the government at the time of removal of goods from the "place of removal". The liability to pay the sales tax/VAT is not extinguished at the time of removal of goods since it is not exempted from sales tax/VAT. It is only after the assessment of the sales tax officer and subject to the condition that the Respondent's liability to the Sales tax is "remitted". Thus when the sales tax/VAT is payable at the time of removal, in that case in terms of Section 4 (d) of the Central Excise Act, the same is not includible in the transaction value. Further the sales tax amount was adjusted against the remission granted by the sales tax authority under an assessment.
+ In the case in hand it is very much clear from the Scheme as well as from the Eligibility Certificate, that the amount of Sales Tax allowed to be remitted to the respondent was towards capital subsidy. Even the requirement to re-invest 50% of the incentive in projects in the State of Gujarat further emphasizes the point that the amount of Sales Tax retained was only as capital subsidy.
+ We further find from the facts narrated in the impugned order that the incentive receivable as capital subsidy by the appellants was from the Department of Industries, whereas the Sales Tax amount collected was payable to the Department of Sales Tax but allowed to be retained and adjusted against such incentive by their very department which also granted refund of tax paid on raw materials and CST paid. This scheme was thus operated by Department of Sales Tax and accordingly Commercial Tax officer has necessarily to pass order for each tax period. It implies that the State Government of Gujarat under which both the departments fall, would have put in place some mechanism whereby the incentive paid to the appellants by way of retention of Sales Tax collected from their customers and refund granted on other two items (VAT on purchases and CST) is reimbursed by the Department of Industries to the Department of Sales Tax. Hence for the above reason also we find that such amount, allowed to be remitted to the respondents as incentive, which was otherwise payable to the Sales Tax department, cannot form part of the transaction value.
+ Even sub section (7A) of Section 11 of the Gujarat Value Added Tax Act, 2003 states that the tax that remitted is deemed to have been statutorily paid.
+ Thus, once the Sales Tax Department has assessed the Sales Tax as paid, the Central Excise department cannot contend that since the State Government has remitted the amount back to the appellants as incentive, Sales Tax was not paid by them…, the condition of Section 4(3)(d) of the Central Excise Act, 1944 stands fulfilled.
+ In case of exemption no tax is actually paid or actually payable, whereas in the case of remission, tax is actually payable and paid which is allowed to be remitted by way of retention or by way of refund. …Consequently like CST since VAT which was payable was actually paid the same is required to be excluded from the transaction value. Hence for this reason also the sales tax remitted by the Government towards incentive of Capital investment cannot be a part of the transaction value.
Concluding that the impugned orders require no interference, the same were upheld and the Revenue's appeals were dismissed.
(See 2017-TIOL-1287-CESTAT-MUM)
