2023 (3) TMI 1120 - AT - Central Excise

VAT subsidy under promotion policy cannot be included in transaction value for central excise duty under Section 4

M/s Harit Polytech Pvt. Ltd. Versus Commissioner, Central Excise & CGST- Jaipur I, Ganpati Plastfab Ltd., M/s Apex Aluminium Extrusion Pvt. Ltd., M/s Maha Mayay Steels, M/s. Tirupati Balaji Furnaces Pvt. Ltd., M/s. Trans ACNR Solutions Pvt. Ltd., M/s. Frystal Pet Pvt. Ltd. Versus Commissioner of Central Excise, Customs & CGST- Alwar

CESTAT New Delhi ruled that VAT subsidy received under a promotion policy should not be included in transaction value for central excise duty purposes. ... Valuation - inclusion of subsidy - Third Member Decision - Difference of opinion - capital/wage subsidy in question reduces the selling price of goods or not - amount of subsidy under dispute is not an independent amount received by the appellant - facts in this appeal are similar to the facts in the case of Super Synotex India Ltd. [2014 (3) TMI 42 - SUPREME COURT] or not - appellant have received VAT subsidy (directly affecting the selling price of the goods) - provisions of Section 9 of Rajasthan VAT Act has not been considered in the case of Shree Cement Ltd. [2018 (1) TMI 915 - CESTAT NEW DELHI] leading to erroneous judgment in the said case. HELD THAT:- Section 4 of the Excise Act, which deals with valuation of excisable goods for the purposes of charging of duty of excise, provides that where the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods such value shall, in a case where the goods are sold by the assessee, be the transaction value provided the assessee and the buyer of the goods are not related and the price is the sole consideration. Transaction Value, in terms of section 4 (3) (d) of the Excise Act, means the price actually paid or payable for the goods when sold but does not include the amount of duty of excise, sales tax and other taxes, if any actually paid or actually payable on such goods. The Scheme that came for consideration before the Supreme Court in Super Synotex was “Sales Tax New Incentive Scheme for Industry, 1989 (Sales Tax Incentive Scheme)”. Under the said Scheme, an assessee was entitled to retain 75% of the sales tax collected from the customers and was required to deposit only 25% with the Government. The Commissioner held that the assessee was availing partial sales tax exemption under the Sales Tax Incentive Scheme upto 75% of the tax liability and was paying only 25% of the sales tax, despite collecting the entire consideration from the customers and, therefore, the additional amount collected under the camouflage of incentive tax would form part of the value for levy of excise duty - it was held by Supreme Court that since 25% of the amount collected as sales tax from the customers was paid by the assessee and the remaining 75% of the amount collected was retained, it became profit or the effective cost paid to the assessee by the purchaser and this 75% was, therefore, to be treated as the price of the goods. The Supreme Court emphasised that the amount paid as sales tax was only 25%. Under the promotion policy involved in these appeals, the subsidy does not reduce the sales tax that is required to be paid by the assessee. The entire amount of sales tax collected by the assessee from the customers is required to be paid. A portion is deposited through VAT 37B challan issued to the assessee by the State Government as subsidy under the promotion policy and the balance amount is deposited by the assessee in cash through VAT 37A challan. What has been retained by the appellant is basically the subsidy amount and it is not the case of the Department that subsidy amount has to be included in the transaction value. In COMMISSIONER OF CENTRAL EXCISE, MUMBAI-I VERSUS M/S WELSPUN CORPORATION LTD. [2017 (5) TMI 177 - CESTAT MUMBAI], the Scheme that was under consideration was the “Incentive Scheme 2001” under the Economic Development of Kutch. The assessee was allowed to recover the sales tax amount/VAT amount but it could be retained as an incentive amount. The Tribunal held that the liability to pay sales tax/VAT was not extinguished at the time of removal of goods since it is not exempted from payment of sales tax/VAT and it was clear from the Scheme as well as the eligibility certificate that the amount of sales tax allowed to be remitted to the respondent was towards capital subsidy. Thus, it was not a case where sales tax was not payable but was a case where it stood actually paid as the remission was an incentive or a capital subsidy which the State Government granted with respect to the investment made in the earthquake ravaged region of Kutch in the State of Gujarat. The decision of the Supreme Court in Super Synotex India would not be applicable to the facts of the present case as that was a case where 25% of the amount collected as sales tax from the customers was paid by the assessee and the remaining 75% of the amount was retained by the assessee, which amount was treated to be the price of the goods. In the promotion policy involved in the present case, the subsidy does not reduce the sales tax that is required to be paid by the assessee as the entire amount of sales tax collected by the assessee from the customer is paid. The subsidy amount, therefore, cannot be included in the transaction value for the purpose of levy of central excise duty under section 4 of the Excise Act. The reference is answered in the following manner: a- Subsidy under the promotion policy does not reduce the selling price; b- The amount of subsidy under the promotion policy is not an additional consideration; c- The decision of the Supreme Court in Super Synotex India would not be applicable to the present case; d- The subsidy amount under the promotion policy does not affect the selling price of the goods; e- Section 9 of the Rajasthan VAT Act, 2003 would have no application to the facts of the present case; and f- As regards appropriate case for reference to the ld. Third Member on the questions framed by the ld. Member (Technical), as neither party raised any objection on this issue, the reference has been answered. The matter shall now placed before the regular bench hearing the excise appeals. Issues Involved:1. Whether the capital/wage subsidy reduces the selling price of goods.2. Whether the subsidy is an independent amount or an additional sales consideration.3. Applicability of the Supreme Court ruling in the case of Super Synotex India Ltd.4. Whether the VAT subsidy directly affects the selling price of goods.5. Applicability of Section 9 of the Rajasthan VAT Act.6. Whether the case should be referred to a third member.Summary:Issue 1: Reduction of Selling Price by SubsidyThe judgment addressed whether the capital/wage subsidy reduces the selling price of goods. The Member (Technical) held that the subsidy reduces the selling price, while the Member (Judicial) disagreed, stating that the subsidy does not reduce the selling price nor does it amount to an indirect flow from the buyer to the seller.Issue 2: Nature of Subsidy as Additional ConsiderationThe Member (Judicial) viewed the subsidy as an independent amount received from the Government based on capital investment and employment generation, not as an additional sales consideration. Conversely, the Member (Technical) argued that the subsidy is computed with reference to the sales tax paid and thus constitutes an additional consideration for sales.Issue 3: Applicability of Super Synotex India Ltd. CaseThe Member (Technical) believed that the facts of the present case were similar to those in the Super Synotex India Ltd. case, making the Supreme Court ruling applicable. However, the Member (Judicial) found the facts to be different and thus the ruling inapplicable.Issue 4: Impact of VAT Subsidy on Selling PriceThe Member (Technical) held that the appellant received a VAT subsidy that directly affected the selling price of goods. In contrast, the Member (Judicial) maintained that it was not a case of VAT subsidy affecting or depressing the selling price.Issue 5: Applicability of Section 9 of the Rajasthan VAT ActThe Member (Technical) argued that the provisions of Section 9 of the Rajasthan VAT Act were not considered in the Shree Cement Ltd. case, leading to an erroneous judgment. The Member (Judicial) countered that Section 9 had no application in the present case.Issue 6: Reference to a Third MemberThe Member (Technical) suggested referring the case to a third member due to the differences in opinion. The Member (Judicial) disagreed, asserting that the appeal was fit to be allowed without such a reference.Conclusion:The reference was answered as follows:a. The subsidy under the promotion policy does not reduce the selling price.b. The subsidy amount is not an additional consideration.c. The Supreme Court decision in Super Synotex India Ltd. is not applicable.d. The subsidy does not affect the selling price of goods.e. Section 9 of the Rajasthan VAT Act, 2003 has no application in this case.f. The reference has been answered without objection from either party.The matter will now be placed before the regular bench for further hearing.