VAT retained under remission scheme forms part of assessable value, but extended limitation needs proof of suppression.

Sales tax/VAT retained by an assessee under a State remission scheme is includible in the assessable value for central excise because the amount, though shown in invoices, is not actually remitted to the State and forms part of the price under the transaction value principle. However, the extended period of limitation and penalty cannot be invoked where the department was aware of the scheme, records were audited, and the retained VAT was disclosed in books and invoices; in the absence of suppression or wilful concealment, only the normal period remains available and penalty is unsustainable.

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Issues: (i) Whether the sales tax/VAT concession retained under the State remission scheme was includible in the assessable value for levy of central excise duty; (ii) Whether the extended period of limitation and penalty could be invoked in the absence of suppression.

Issue (i): Whether the sales tax/VAT concession retained under the State remission scheme was includible in the assessable value for levy of central excise duty.

Analysis: The goods were cleared on payment of VAT in the invoices, but the assessee was entitled under the remission scheme to retain 99% of the VAT collected and remit only 1% to the State. The governing principle applied was that amounts collected as sales tax/VAT but retained by the assessee under an incentive arrangement, and not actually paid to the State exchequer, form part of the price for the goods and are includible in the assessable value. The decision treated the point as covered by the settled law on transaction value.

Conclusion: The sales tax/VAT concession retained by the assessee is includible in the assessable value, against the assessee.

Issue (ii): Whether the extended period of limitation and penalty could be invoked in the absence of suppression.

Analysis: The department was aware of the incentive scheme, the audit had examined the relevant records, and the retained VAT was reflected in the books and invoices without tampering. On these facts, no positive act of suppression was established. The normal limitation period remained available for recovery, but the ingredients for invoking the extended period were not made out. In the same circumstances, penalty was also not sustainable.

Conclusion: The extended period of limitation and penalty are not invocable, in favour of the assessee.

Final Conclusion: The demand was upheld only to the extent permissible within the normal period, while the demand raised by invoking the extended period and the consequential penalty were set aside.

Ratio Decidendi: Sales tax or VAT retained by an assessee under a remission scheme is includible in assessable value, but the extended period of limitation and penalty cannot be invoked without proof of suppression or wilful concealment.

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