Industrial subsidies from state government under promotion policy cannot be included in transaction value under section 4 for central excise duty purposes.

CESTAT New Delhi held that industrial subsidies comprising 75% of Sales Tax/VAT/CST paid, received from Madhya Pradesh Government under Industrial Promotion Policy 2010, cannot be included in transaction value under section 4 of Central Excise Act 1944. The tribunal determined such subsidies do not constitute additional consideration flowing from buyers to assessee. Following precedent in interim orders involving multiple appellants, CESTAT ruled subsidy amounts cannot be included in transaction value for central excise duty levy purposes. Principal Commissioner's order dated 31.12.2018 was set aside and appeal allowed.

---

---

Issues involved:
The issue involved in this appeal is whether the incentive/industrial subsidy received from the Government of Madhya Pradesh under the Industrial Promotion Policy, 2010 would be includable in the transaction value under section 4 of the Central Excise Act, 1944 by treating the same as an additional consideration flowing directly or indirectly from the buyers to the assessee.

Details of the Judgment:

1. The appellant sought the quashing of the order confirming the levy of central excise duty with interest and penalty.

2. The appellant established a new unit in Mandideep, Madhya Pradesh, for manufacturing parts of transformers under the Industrial Promotion Policy.

3. The Industrial Promotion Policy provided for investment promotion assistance equivalent to 75% of VAT/CST paid for 10 years for investments above Rs. 10 crores.

4. The appellant claimed assistance for the period 03.03.2010 to 02.03.2020, with 75% of VAT/CST paid being remitted as subsidy by the Industrial Department.

5. The State Government allowed the subsidy to be adjusted against subsequent years' tax liability, not as an exemption or refund of VAT/CST.

6. A show cause notice was issued, treating the subsidy as additional consideration under the Central Excise Act, resulting in a demand for central excise duty.

7. The appellant contended that since VAT/CST was paid to the State exchequer, the subsidy should not be included in the transaction value.

8. An interim order in a similar case favored the appellant, stating that the subsidy does not reduce the selling price and is not an additional consideration affecting the selling price of goods.

9. The Tribunal held that the subsidy under the promotion policy does not impact the selling price and cannot be included in the transaction value for levy of central excise duty.

10. The order confirming the demand was set aside, and the appeal was allowed in favor of the appellant.

---