2018 (3) TMI 177 - AT - Central Excise

Tribunal Excludes Manufacturer Subsidies from Excise Duty; Sets Precedent on VAT Liability

The Tribunal held that subsidy amounts received by a manufacturer should not be included in the transaction value for excise duty payment. The appellant's ... Valuation - subsidy - Department has taken the view that to the extent of the subsidy amount, the appellant has retained the VAT recovered from the buyers and hence such amounts are required to be included in the Transaction Value under Section 4(3) (d) of the CEA - Held that: - In the case of the Schemes under the Rajasthan Government, the subsidy amount is paid in the form of VAT Challan whereas in the case of the Scheme of the MP Government, the same is allowed by way of book adjustment against the tax payable for the subsequent period. A similar issue has come up before the Tribunal in the case of Shri Cement Ltd. V/s Commissioner [2018 (1) TMI 915 - CESTAT NEW DELHI], where it was held that There is no justification for inclusion in the assessable value, the VAT amounts paid by the assessee using VAT 37B Challans. Appeal allowed - decided in favor of appellant. Issues:- Inclusion of subsidy amounts in transaction value for payment of excise duty.- Interpretation of Section 4(3)(d) of the Central Excise Act.- Applicability of judgments in similar cases.- Justification for deducting VAT amounts paid using subsidy challans.Analysis:1. Inclusion of Subsidy Amounts in Transaction Value:The appellant, a manufacturer of PP woven sacks, collected VAT from buyers but received a subsidy under the M.P. Industrial Permanent Assistance Scheme, 2010, which was treated as advance tax. The dispute centered on whether the subsidy amounts should be included in the transaction value for excise duty payment. The department argued that since the appellant collected full VAT but remitted only the balance amount after subsidy, the difference should be included. However, the appellant contended that the subsidy was utilized to discharge VAT liability, and therefore, should not be part of the transaction value.2. Interpretation of Section 4(3)(d) of the Central Excise Act:The Tribunal analyzed Section 4(3)(d) of the Central Excise Act, which allows deduction of VAT actually paid from the transaction value for excise duty. The department's stance was that only the actual amount of VAT paid should be considered for deduction. The appellant argued that they paid the full VAT amount collected from buyers to the State Government, and the subsidy received was utilized for subsequent tax liabilities, hence not part of the transaction value.3. Applicability of Judgments in Similar Cases:The Tribunal referred to a similar case involving the Rajasthan Government's Investment Promotion Schemes, where subsidies were disbursed in the form of VAT 37 B challans. The Tribunal in that case held that such subsidy amounts need not be included in the transaction value. This precedent was cited to support the appellant's argument that the subsidy received should not impact the transaction value for excise duty payment.4. Justification for Deducting VAT Amounts Paid Using Subsidy Challans:The Tribunal emphasized that the subsidy received by the appellant was in line with the M.P. Government Scheme, where the subsidy was allowed through book adjustment against tax payable in subsequent periods. Drawing from the Rajasthan case precedent, the Tribunal concluded that there was no justification for including VAT amounts paid using subsidy challans in the assessable value. Therefore, the impugned order was set aside, and the appeal was allowed based on the principles established in previous judgments.In conclusion, the Tribunal's decision in this case clarified the treatment of subsidies received by manufacturers under government schemes concerning VAT payments and their impact on the transaction value for excise duty calculation. The judgment provided a detailed analysis of relevant legal provisions and precedents to resolve the dispute in favor of the appellant.