Transaction value under excise law includes retained sales tax where an incentive is only a concession, not a deferment scheme.

Retained sales tax under a Haryana industrial incentive arrangement formed part of transaction value under the Central Excise Act because the exclusion applies only to tax actually paid or actually payable. The assessee's entitlement certificate showed a tax concession allowing retention of 50% of sales tax collected, not a deferment scheme or capital subsidy, so the retained amount was neither paid to the exchequer nor payable. The duty demand was therefore upheld. Although the duty liability stood, the penalty was set aside because the assessee acted on a bona fide understanding supported by correspondence and earlier Tribunal acceptance, making the punitive element unwarranted.

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Issues: (i) Whether the sales tax retained by the assessee under the Haryana industrial incentive arrangement formed part of the transaction value under the Central Excise Act. (ii) Whether the penalty imposed on the assessee was sustainable.

Issue (i): Whether the sales tax retained by the assessee under the Haryana industrial incentive arrangement formed part of the transaction value under the Central Excise Act.

Analysis: Rule 28-C(5)(a) was held inapplicable because it excludes a prestigious unit, and the assessee's case fell under Rule 28-C(5)(b), under which the High Powered Committee alone decides the grant of tax concession. The Committee's decision and the entitlement certificate described the benefit as a tax concession permitting retention of 50% of the sales tax collected, with no indication of deferment or conversion into capital subsidy. The exclusion in the definition of transaction value extends only to tax actually paid or actually payable; the retained amount was neither paid to the exchequer nor payable under a deferment scheme.

Conclusion: The retained sales tax was includible in the transaction value, and the Revenue's position on duty liability was upheld.

Issue (ii): Whether the penalty imposed on the assessee was sustainable.

Analysis: Although the duty demand was sustained, the assessee had proceeded on a bona fide understanding drawn from the correspondence and from the Tribunal's earlier acceptance of its stand. In that situation, the punitive element was considered unwarranted.

Conclusion: The penalty was not sustainable and was set aside.

Final Conclusion: The duty demand was restored, but the penalty was deleted, leaving the Revenue successful on the substantive excise issue and the assessee successful on the penal consequence.

Ratio Decidendi: For exclusion from excisable value, a tax amount must be actually paid or actually payable; where an incentive arrangement merely permits retention of collected tax as a concession and does not create a deferment liability, the retained amount forms part of transaction value.

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