2014 (3) TMI 42 - SC - Central Excise

Supreme Court clarifies deduction rules pre & post 1.7.2000, remits matter to Tribunals

The Supreme Court allowed the appeals in part, setting aside the orders passed by the Tribunal and the original adjudicating authority. The Court ... Deduction of sales tax from assessable value - Sales Tax Incentive Scheme treated as incentive not exemption - transaction value defined by reference to amounts 'actually paid' - CBEC Circular No. 378/11-98-CX dated 12.3.1998 - CBEC Circular No. 671/62/2000-CX dated 9.10.2002 - imposition of penalty for suppression and evasionDeduction of sales tax from assessable value - Sales Tax Incentive Scheme treated as incentive not exemption - CBEC Circular No. 378/11-98-CX dated 12.3.1998 - Entitlement to deduct the full amount of sales tax retained under the State Sales Tax Incentive Scheme from the wholesale/assessable value for periods before 1.7.2000. - HELD THAT: - The Court held that the Rajasthan Sales Tax Incentive Scheme 1989 is an incentive scheme and not an exemption; under that factual matrix the position envisaged in CBEC Circular No. 378/11-98-CX dated 12.3.1998 applies. Where the State treats retention of a portion of sales tax as a cash incentive and the amount retained is credited as payment to the State account, the sales tax in that category (situation (iii) in the circular) is to be regarded as 'payable' for the purposes of Section 4(4)(d)(ii) as it then stood, and deduction from wholesale price for computing assessable value is permissible. The Tribunal's contrary conclusion treating the scheme as an exemption was reversed to the extent it disallowed the circular's application for the pre-amendment period; consequential demands and deposits for that period are to be refunded. [Paras 16, 17, 18, 19, 26]For the period prior to 1.7.2000 the assessees are entitled to claim deduction under the circular dated 12.3.1998 in respect of the incentive scheme; orders denying that benefit are set aside and deposits relating to that period shall be refunded.Transaction value defined by reference to amounts 'actually paid' - deduction of sales tax from assessable value - Effect of the statutory amendment (with effect from 1.7.2000) introducing 'transaction value' and the requirement of amounts 'actually paid' on the availability of deduction for sales tax retained under incentive schemes. - HELD THAT: - After substitution of Section 4 (Act 10 of 2000) the concept of 'transaction value' expressly excludes only sales tax and other taxes 'actually paid or actually payable' to the State. The Court construed the amended provision to give primacy to amounts 'actually paid'; where an assessee retains part of the sales tax as incentive and does not actually pay that retained portion to the State, that retained amount constitutes part of the price and is not excludible from transaction value. Accordingly, for periods with effect from 1.7.2000 an assessee can claim exclusion/deduction only to the extent of the sales tax actually paid to the State (in the present facts, 25%), and not the amount retained as incentive. [Paras 20, 21, 22, 23, 26]For periods on and after 1.7.2000 deduction from transaction value is available only for the amount of sales tax actually paid to the State; retained incentive amounts are part of the transaction value and subject to excise duty.CBEC Circular No. 671/62/2000-CX dated 9.10.2002 - binding effect of executive circulars vis-a -vis statute - Whether reliance on the CBEC circular dated 9.10.2002 could validate exclusion of amounts not actually paid after the statutory amendment. - HELD THAT: - The Court examined the 9.10.2002 circular which interpreted the amended Section 4 and explained set-off and deductibility. It concluded that the circular cannot operate to override the statutory text which requires amounts to be 'actually paid'; reliance on the circular to claim exclusion of amounts not actually paid would be inconsistent with legislative intent. The Court reiterated that while Board circulars bind departmental authorities, they cannot prevail over the clear statutory provision or the interpretation adopted by the Court. [Paras 21, 24, 25, 26]The circular of 9.10.2002 cannot be used to grant deduction contrary to the legislative requirement of amounts 'actually paid'; reliance upon it for that purpose is legally impermissible.Imposition of penalty for suppression and evasion - remand for adjudication in accordance with stated principles - Validity of demands and penalty imposed by original adjudicating authority and consequential direction to remand matters to the tribunals for adjudication under the principles declared. - HELD THAT: - The Court held that the original adjudicating authority's findings requiring payment of the whole amount and imposing penalties could not be sustained in view of the clarified principles on deductibility for periods before and after 1.7.2000. The matters were remitted to the respective tribunals to determine excise liability in accordance with the Court's principles; penalty issues are to be considered in accordance with the law governing penalties. Proceedings relating to periods prior to 1.7.2000 are closed and any amounts deposited for those periods are to be refunded; subsequent periods are to be re-adjudicated by the tribunals applying the decision on 'actually paid'. [Paras 26, 27]Orders requiring payment of the entire collected amount and the penalties are set aside; matters remitted to the tribunals to re-adjudicate excise liability and penalties in accordance with the judgment; pre-1.7.2000 proceedings closed and deposits refundable.Final Conclusion: The appeals are partly allowed: for periods prior to 1.7.2000 assessees availing the State incentive scheme are entitled to deduction under CBEC circular dated 12.3.1998; for periods with effect from 1.7.2000 deduction is limited to the sales tax 'actually paid' to the State (retained incentive amounts form part of transaction value and are taxable); reliance on the 9.10.2002 circular cannot displace the statutory requirement; penalties and demands are remitted for fresh adjudication in accordance with these principles, pre-1.7.2000 proceedings are closed and deposits for that period are refundable. Issues Involved:1. Deduction of sales tax from assessable value for excise duty purposes.2. Nature of sales tax incentive scheme (incentive vs. exemption).3. Applicability of CBEC Circulars.4. Impact of amendment to Section 4 of the Central Excise Act, 1944.5. Imposition of penalty for alleged evasion of excise duty.6. Applicability of benefits under the Central Sales Tax Act.Detailed Analysis:1. Deduction of Sales Tax from Assessable Value for Excise Duty Purposes:The primary issue involved was whether the sales tax collected but not entirely paid to the State exchequer could be deducted from the assessable value for the purpose of central excise duty. The Tribunal had allowed such deductions, but the Revenue contested this, arguing that the sales tax collected but not paid should be included in the assessable value.2. Nature of Sales Tax Incentive Scheme (Incentive vs. Exemption):The assessee claimed that the sales tax collected under the Sales Tax New Incentive Scheme for Industries, 1989, was an incentive and not an exemption. The Tribunal accepted this view, stating that the scheme allowed the assessee to retain 75% of the sales tax collected as an incentive, only paying 25% to the State Government. The Revenue, however, argued that this was a partial exemption, and thus the entire sales tax collected should be included in the assessable value.3. Applicability of CBEC Circulars:The assessee relied on CBEC Circular No. 378/11-98-CX dated 12.3.1998, which allowed deduction of sales tax from the assessable value under certain conditions. The Tribunal upheld this circular, but the Revenue contended that the circular did not apply to the present case due to the nature of the incentive scheme. The Supreme Court affirmed that the circular applied to the incentive scheme, allowing the deduction of sales tax from the assessable value.4. Impact of Amendment to Section 4 of the Central Excise Act, 1944:The amendment to Section 4 of the Act, effective from 1.7.2000, introduced the concept of 'transaction value,' which includes the price actually paid or payable for the goods. The Supreme Court emphasized that post-amendment, only the amount of sales tax 'actually paid' to the State Government could be excluded from the assessable value. Thus, the assessee could only deduct the 25% of sales tax actually paid, not the 75% retained as an incentive.5. Imposition of Penalty for Alleged Evasion of Excise Duty:The Commissioner of Excise imposed penalties on the assessee for allegedly evading excise duty by not including the sales tax collected but not paid in the assessable value. The Tribunal set aside these penalties, and the Supreme Court remitted the matter back to the Tribunal for re-adjudication in light of the principles laid down, particularly focusing on the period before and after the amendment to Section 4.6. Applicability of Benefits Under the Central Sales Tax Act:The assessees also sought similar deductions under the Central Sales Tax Act. The Supreme Court rejected this claim, stating that the circulars relied upon by the assessees did not pertain to exemptions under the Central Sales Tax Act. Thus, the benefits extended under the incentive scheme for local sales tax did not apply to central sales tax.Conclusion:The Supreme Court allowed the appeals in part, setting aside the orders passed by the Tribunal and the original adjudicating authority. The Court clarified that for the period before 1.7.2000, the assessees were entitled to deductions as per the CBEC circular. For the period after 1.7.2000, only the sales tax actually paid could be deducted. The matter was remitted to the respective Tribunals for re-adjudication in accordance with these principles. Appeals by assessees regarding the Central Sales Tax Act were dismissed.