Tribunal excludes state subsidy from duty payment, citing MOU terms. Appellant's appeal allowed.

The Tribunal held that the subsidy received under the MOU with the State Government should not be included in the assessable value for duty payment. The appellant's argument that the subsidy was not out of VAT recovered from customers was supported by Tribunal decisions, which distinguished the case from Supreme Court decisions. The Tribunal emphasized the specific process outlined in the MOU, where the subsidy was credited directly to the appellant's account. As a result, the impugned order demanding duty and penalties was set aside, and the appeals were allowed in favor of the appellant.

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Issues:
- Inclusion of subsidy received from the State Government in the transaction value of the final product for payment of duty.

Analysis:
The appeal was filed against the order dated 15.2.2017, concerning the period from July 2011 to December 2013. The appellant, engaged in manufacturing scooters and motorcycles in Rajasthan, entered into an MOU with the State Government, entitling them to a cash subsidy equivalent to 100% of the output tax on vehicles sold in the state. The dispute arose when the department contended that the subsidy should be included in the transaction value of the final product under section 4(3)(d) of the Central Excise Act, leading to a duty demand of Rs. 24,36,20,192 and penalties. The appellant argued that the subsidy was not out of VAT recovered from customers, citing Tribunal decisions supporting their stance. The Department, however, relied on Supreme Court decisions and CBEC instructions to justify the inclusion of the subsidy amount.

Upon review, the Tribunal observed that the subsidy was received as per the MOU terms, where the appellant deposited VAT/CST recovered from customers to the State Government, with a portion claimed back as subsidy. The Tribunal noted that the VAT/CST paid was credited to the State Exchequer, emphasizing the specific process outlined in the MOU. Referring to previous Tribunal decisions, the Tribunal found that subsidy amounts could not be included in the transaction value for duty payment, aligning with the specific circumstances of the present case where the subsidy was sanctioned and credited directly to the appellant's account.

The Tribunal highlighted the Tribunal's consistent view on similar issues, citing specific cases to support their decision. They differentiated the present case from Supreme Court decisions referenced by the Department, concluding that the subsidy received under the MOU should not be included in the assessable value for duty payment. Ultimately, the impugned order was deemed unsustainable and set aside, with the appeals allowed, based on the specific terms of the MOU and the Tribunal's interpretation of relevant legal provisions and precedents.

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