VAT remission after duty discharge is not includible in excisable value, and demand, interest and penalty fail.

VAT remission granted under the Rajasthan Investment Promotion Scheme, effected through VAT 37B challans, was treated as a post-discharge adjustment rather than retention of sales tax. Because the assessee had already discharged the VAT liability to the State, the remitted amount was not regarded as tax retained by the assessee and could not be added to the assessable value for central excise duty. The demand for duty, interest and penalty was therefore unsustainable, and the remission-based subsidy was excluded from transaction value.

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Issues: Whether the VAT subsidy/remission received through VAT 37B challans was liable to be included in the assessable value for central excise duty and whether the demand, interest and penalty were sustainable.

Analysis: The subsidy under the Rajasthan Investment Promotion Scheme was found to operate as remission rather than exemption, because the assessee had already discharged the VAT liability to the State and the subsequent adjustment through VAT 37B challans was a legally sustainable mode of payment for the later period. On those facts, the amount could not be treated as retention of sales tax so as to be added to transaction value. The case was distinguished from a sales tax incentive scheme where tax itself is retained by the assessee, and the view was adopted that once the sales tax/VAT had been assessed and discharged, the excise authorities could not proceed on the footing that no tax had been paid.

Conclusion: The subsidy amount was not includible in the assessable value, and the demand of duty, interest and penalty was unsustainable; the appeal was allowed in favour of the assessee.

Ratio Decidendi: Where VAT liability has been duly discharged and the State later grants remission by way of subsidy or adjustment, the amount so remitted is not includible in the assessable value for central excise duty and cannot sustain penalty absent any basis for tax evasion.

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