2026 (2) TMI 602 - AT - Central Excise

Sales tax and VAT incentives: state scheme incentives do not increase excise transaction value and related demands set aside

Sales tax and VAT incentives granted under a state package scheme that are assessed or deemed to be paid under the scheme do not constitute additional ... Inclusion of sales tax incentives in assessable value - transaction value - exclusion of sales tax actually paid or actually payable - deemed payment under Package Scheme of Incentives (PSI/NPV) - benefits of PSI vide Certificate of Entitlement No. TIN-27560000028-V/PSI2001/Nashik/Mega/IPS-126 - penalty u/s 11AC - Whether the Sales Tax Incentives received by the appellants under PSI scheme is includable in the assessable value as per Section 4(1)(a) and Section 4(3)(d) of the Central Excise Act, 1944 read with Rule 6 of the Central Excise (Valuation) Rules, 2000 or otherwise? HELD THAT:- On perusal of the above legal provisions, it transpires that sales tax amount payable under the Sales Tax Incentive schemes of PSI/NPV is nothing but deferment of the sales tax amounts payable in future based on the eligibility certificate issued for a validity period. The proviso clause to Section 38 of BST or Section 94 of MVAT also specifically state that the amount paid as per PSI is equal to the full amount payable in future date, that the entire sales tax liability is deemed to have been discharged. Therefore, we are of the considered view that the differential amount arising on account of payment of sales tax liability as per PSI after adjusting the incentives received and total sales tax amount, shall not be treated as additional consideration. Hence, such amounts cannot be included in the transaction value in terms of Rule 6 of the Central Excise (Valuation) Rules, 2000. The Sales Tax Incentives received by the appellants under PSI/NPV scheme were in terms of the policy pronouncements, operation of the scheme as notified by the Government of Maharashtra; and the amount of sales tax incentives were duly accounted for by the appellants in their books of accounts. Therefore, there is no ground for imposition of penalty under Section 11AC of the Act of 1944. In view of the settled position of law, as discussed in the above referred cases enunciated by the various orders of the Tribunal and in view of the judgement of the Hon’ble Supreme Court dated 05.04.2024, the issue arising out of the present dispute is no more open for any debate. Therefore, the impugned order passed by the learned Commissioner of Central Excise to the extent it had confirmed the adjudged central excise duty demands is liable to be set aside, as it cannot stand for legal scrutiny. In the result, the impugned order dated 11.09.2018 is set aside and the appeal is allowed in favour of the appellants. Issues: Whether sales tax/VAT incentives received by the assessee under the Package Scheme of Incentives (PSI/NPV) are includable in the transaction value/assessable value for central excise duty under Section 4(1)(a) and Section 4(3)(d) of the Central Excise Act, 1944 read with Rule 6 of the Central Excise (Valuation) Rules, 2000.Analysis: The Tribunal examined statutory provisions governing excise valuation and the State incentive schemes. Section 4(1)(a) and the definition in Section 4(3)(d) exclude sales tax actually paid or actually payable from transaction value. The Tribunal relied on statutory provisions in the State laws (Section 38 of the Bombay Sales Tax Act, 1959 and Section 94 of the Maharashtra VAT Act, 2002) which provide that tax liabilities under the incentive schemes, or payments made in terms of the scheme/NPV, are to be treated as deemed payment of sales tax. The Tribunal also considered earlier coordinate Tribunal decisions and a recent Supreme Court dismissal of a departmental appeal upholding the view that state subsidies/remissions under promotion/incentive schemes, where sales tax is assessed/treated as paid, do not constitute additional consideration for valuation. Applying these principles to the facts - where sales tax was assessed/treated as paid/deemed paid under the PSI/NPV mechanism and the incentive operated as a state-authorised remission/subsidy recorded in the accounts - the differential arising from the incentive could not be treated as additional consideration to be included in transaction value under Rule 6.Conclusion: The sales tax/VAT incentives received under the PSI/NPV scheme are not includable in the transaction value/assessable value for central excise duty. The impugned order to the extent it confirmed central excise duty, interest and penalty on that basis is set aside and the appeal is allowed in favour of the assessee.Final Conclusion: The decision confirms that state-provided sales tax/VAT incentives, when the sales tax is assessed or deemed paid under the incentive scheme, do not increase the transaction value for excise valuation purposes; accordingly, departmental demand and penalty based on inclusion of such incentives are not sustainable.Ratio Decidendi: Where sales tax/VAT attributable to a sale is assessed or deemed to have been paid under a state incentive/remission scheme, that tax (including amounts paid or deemed paid under NPV/prepayment options) falls within the exclusion in Section 4(3)(d) and therefore the related incentive/subsidy cannot be treated as additional consideration and cannot be included in the transaction value for central excise valuation under Rule 6.