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Rajasthan Sales Tax Incentive Scheme 1989 & Central Excise duty -Central Excise Tariff Act 1985-Section 4(4)(d)(ii) of the Act – Under the scheme for certain period the manufacturer is entitled to retain 75% of collected tax with him and has to pay 25% sale Tax out of it – Excise duty is payable at 2% for certain period on actual price but not included price of sale tax collected shown in invoice – show-cause notice was that the assessee had not paid the duty on the additional consideration collected towards the sales tax -The explanation of the assessee was that it was extended the benefit of the incentive scheme and not granted any exemption and, therefore, the sales tax collected was not includible in the assessable value and deduction was admissible under the Act – Commissioner negatived the plea of Assesses where as the Tribunal allowed the plea of Assesses – Apex court partly allowed the appeal of Revenue and remit the matter to Tribunal to fix the excise duty as per the observations of Apex court and dismissed the appeals of Assesses who claimed total exemption and held that On a perusal of the circulars dated 12.3.1998 and 1.7.2002 we do not find that they remotely relate to any exemption under the Central Sales Tax imposed on the goods. = Commissioner of Central Excise, Jaipur-II … Appellant Versus M/s. Super Synotex (India) Ltd. and others …Respondents =2014(Feb.Part) judis.nic.in/supremecourt/filename=41272

Rajasthan Sales Tax Incentive Scheme 1989 & Central Excise duty –Central Excise Tariff Act 1985-Section 4(4)(d)(ii) of the Act – Under the scheme for certain period the manufacturer is entitled to retain 75% of collected tax with him and has to pay 25% sale Tax out of it – Excise duty is payable at 2%  for certain period on actual price but not included price of sale tax collected shown in invoice – show-cause notice was that the assessee  had  not  paid  the duty on the additional consideration collected  towards  the  sales tax –The  explanation  of  the assessee was that it was extended  the  benefit  of  the  incentive scheme and not granted any exemption and, therefore, the sales  tax collected was not includible in the assessable value and  deduction was admissible under the Act – Commissioner negatived the plea of Assesses where as the Tribunal allowed the plea of Assesses – Apex court partly allowed the appeal of Revenue and remit the matter to Tribunal to fix the excise duty as per the observations of Apex court and dismissed the appeals of Assesses who claimed total exemption and held that  On  a  perusal  of  the circulars dated 12.3.1998 and 1.7.2002 we do  not  find  that  they remotely relate to  any  exemption  under  the  Central  Sales  Tax imposed on the goods.  =


 The  respondent  herein  is  engaged   in   the

        manufacture of yarn of manmade fibers falling under Chapter  55  of

        the Schedule to the Central Excise Tariff Act, 1985, chargeable  to

        duty.   

A show-cause notice was issued to  the  respondent-assessee

        on the ground that  for  certain  period  it  had  contravened  the

        various provisions of the Act, and the Central Excise  Rules,  1944

        which had resulted in evasion of Central Excise Duty.  

The  fulcrum

        of the show-cause notice was that 

the assessee  had  not  paid  the

        duty on the additional consideration collected  towards  the  sales

        tax.

The case of the Revenue was  that  though  the  assessee  was

        availing exemption from payment of sales tax, it was showing  sales

        tax in the invoices but assessable value was shown  separately  for

        payment of Central Excise Duty as a consequence of  which  the  net

        yarn value was invariably higher  than  the  assessable  value  and

        excise duty paid thereon.  

This led to the difference  between  the

        two amounts which was almost equal  to  the  amount  of  sales  tax

        applicable during  the  relevant  time.   

The  explanation  of  the

        assessee was that it was extended  the  benefit  of  the  incentive

        scheme and not granted any exemption and, therefore, the sales  tax

        collected was not includible in the assessable value and  deduction

        was admissible under the Act.=

 

whether the assessee was entitled to claim deduction under  Section

        4(4)(d)(ii) of the Act in respect  of  full  amount  of  sales  tax

        payable at the rate of 2%.  

The Tribunal took note of the fact that

        the assessee, being entitled for the benefit under  the  Sales  Tax

        New Incentive Scheme for Industries, 1989 (for short “the Scheme”),

        had availed the same with effect from 3.12.1996 and 

under the  said

        Scheme it was entitled to retain with  it  75%  of  the  sales  tax

        collected and pay only  25%  to  the  Government  and,  

accordingly

        claimed the deduction for the entire amount of sales tax payable at

        the rate of 2% and,  

accordingly,  it  did  not  approve  the  view

        adopted by the adjudicating authority that the benefit  granted  to

        the assessee in respect of the sales tax was in the  nature  of  an

        exemption and not an incentive and, therefore, not deductible under

        Section 4(4)(d)(ii) of the  Act.   

The  Tribunal  referred  to  the

        circular dated 12.3.1998 issued by the Central Board of Excise  and

        Customs (CBEC) and came to hold that sales tax was deductible  from

        the wholesale price for determination  of  assessable  value  under

        Section 4 of the Act for levy of Central  Excise  Duty.   

Being  of

        this view, it set aside the order passed  by  the  Commissioner  of

        Excise  and  directed  for  refund  of  the  deposits  made  during

        investigation and the deposit made in pursuance of the order passed

        by the Tribunal.

 

Sec. 4 (4)(d)(ii)-

the  assessee  has  claimed  that  there  is

        difference between grant of incentive and extension of  benefit  of

        exemption, and the scheme, i.e., the “Rajasthan Sales Tax Incentive

        Scheme 1989” does  not  relate  to  exemption  but  incentive.   

To

        elaborate, the assessee, under the said  Scheme,  is  permitted  to

        retain 75% of the sales tax collected as incentive and is liable to

        pay 25% to the department.  75% of the  amount  retained  has  been

        treated as incentive by the State Government.  

It  is  pointed  out

        that such retention of sales tax is a deemed payment of  sales  tax

        to the State exchequer and for the said purpose reliance is  placed

        on Circular No. 378/11/98-CX dated 12.3.1998 issued by C.B.E.C.


    17. In the aforesaid circular, three situations were  envisaged,  viz.,

        (i) exemption from payment of sales tax for  a  particular  period;

        (ii) deferment of payment of sales tax for a particular period; and

        (iii) grant of incentive equivalent to sales  tax  payable  by  the

        unit.  

The aforestated three situations had been  examined  by  the

        Board in  consultation  with  the  Ministry  of  Law.   

As  far  as

        situation (iii) is concerned, the circular stated thus: –


           “6.   Examination of the  situation,  mentioned  above  in  para

           2(ii) & (iii), in the referring note  give  an  indication  that

           sales tax is payable by the assessee in both the situations.  

It

           is payable after a particular period in the second case.  

On the

           other hand, in the third situation, the sales tax is  considered

           payable by the assessee even though it  is  paid  by  the  State

           Government,  the  assessee  keeping  the  said  amount  as  cash

           incentive.  

In this situation sales tax would be  considered  as

           payable  within  the  meaning  of  the  provisions  of   Section

           4(4)(d)(ii) of the Act.


          

We are therefore, of the opinion that in the  category  of

           cases mentioned in  para  2(i),  sales  tax  is  not  deductible

           whereas in the category of cases mentioned  at  (ii)  and  (iii)

           sales  tax  is  deductible  from   the   wholesale   price   for

           determination of assessable value under Section 4 of the Act for

           levy of Central Excise duty.”


    18. To understand the purpose of the aforesaid  two  paragraphs  it  is

        also necessary to refer to the note  given  by  the  Board  seeking

        opinion of the Ministry of Law in respect of situation (iii)  which

        is a part of the said circular.  It reads as follows: –


           “In situation (iii), the manufacturer  collects  the  sales  tax

           from the buyers and retains the same with him instead of  paying

           it to the State Government.  

The State Government on  the  other

           hand grants a cash incentive equivalent to the amount  of  sales

           tax payable and instead of the case incentive being paid to  the

           manufacturer, is credited to State Government account as payment

           towards sales tax by the  manufacturer.  

 In  such  a  situation

           sales tax is also considered payable by the assessee within  the

           meaning of the provisions of Section 4(4)(d)(ii) of the  Central

           Excise Act, 1944.  

Therefore, sales tax is deductible  from  the

           wholesale price for determination of assessable value  for  levy

           of Central Excise duty in category of cases  mentioned  in  para

           (ii) & (iii) above.”

In view of the aforesaid analysis, we are of the considered opinion

        that the assessees in all the  appeals  are  entitled  to  get  the

        benefit  of  the  circular  dated  12.3.1998  which  protects   the

        industrial units availing incentive scheme as there is a conceptual

        book adjustment of the sales tax paid to the Department.  

But  with

        effect from 1.7.2000 they shall only be entitled to the benefit  of

        the amount “actually paid” to the Department, i.e., 25%.   

Needless

        to emphasise, the set off shall operate  only  in  respect  of  the

        amount that has been paid on the raw material and inputs  on  which

        the sales tax/ purchase tax has been paid.  

That being the position

        the adjudication by the tribunal is not sustainable.  

Similarly the

        determination by the original adjudicating authority requiring  the

        assessees to deposit or pay the whole amount and the  consequential

        imposition of  penalty  also  cannot  be  held  to  be  defensible.

        

Therefore, we allow the appeals  in  part,  set  aside  the  orders

        passed by the tribunal as well  as  by  the  original  adjudicating

        authority and remit the matters  to  the  respective  tribunals  to

        adjudicate as far as excise duty is concerned  in  accordance  with

        the principles set out hereinabove.  

We further clarify that as far

        as imposition of penalty is concerned, it shall be  dealt  with  in

        accordance with law governing the field.  

In any  case,  proceeding

        relating to the period prior to 1.7.2000 would stand closed and  if

        any amount has been paid or deposited as per the direction  of  any

        authority in respect of the said period, shall be refunded.  

As far

        as  the  subsequent  period  is  concerned,  the   tribunal   shall

        adjudicate as per the principles stated hereinbefore.

 

Coming to the appeals preferred by  the  assessees,  the  challenge

        pertains to denial of benefit of the Central  Sales  Tax  Act,  the

        aforesaid reasoning will equally apply. =

On  a  perusal  of  the

        circulars dated 12.3.1998 and 1.7.2002 we do  not  find  that  they

        remotely relate to  any  exemption  under  the  Central  Sales  Tax

        imposed on the goods.  

What is argued by the  learned  counsel  for

        the assessees is that the benefit should be extended to the Central

        Sales Tax as the tax on sales has a broader concept.  

The aforesaid

        submission is noted to be rejected and we, accordingly,  repel  the

        same.  In view of the  aforesaid,  the  appeals  preferred  by  the

        assessees stand dismissed.

 

2014(Feb.Part) judis.nic.in/supremecourt/filename=41272

ANIL R. DAVE, DIPAK MISRA

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICITON
CIVIL APPEAL NOS. 9154-9156 OF 2003
Commissioner of Central Excise, Jaipur-II … Appellant
Versus
M/s. Super Synotex (India) Ltd. and others …Respondents
WITH
CIVIL APPEAL NO. 4621 OF 2008
CIVIL APPEAL NO. 2912 OF 2014
(Arising out of S.L.P. (C) No. 16248 of 2009)
CIVIL APPEAL NOS. 2008-2009 OF 2010

CIVIL APPEAL NOS. 335-336 OF 2005
CIVIL APPEAL NO. 4003 OF 2009
CIVIL APPEAL NO. 4076 OF 2007
CIVIL APPEAL NO. 5987 OF 2010

CIVIL APPEAL NO. 6033 OF 2011

CIVIL APPEAL NOS. 778-779 OF 2009
CIVIL APPEAL NO. 8095-8103 OF 2013

CIVIL APPEAL NO. 8105 OF 2013
J U D G M E N T
Dipak Misra, J.

Leave granted in Special Leave Petition (C) No. 16248 of 2009.

2. This batch of appeals preferred under Section 35L of the Central
Excise Act, 1944 (for brevity, the Act) being inter-connected and
inter-linked was heard together and is disposed of by a common
judgment. It is necessary to clarify that the Revenue has
preferred the appeals against the decisions rendered by the
Customs, Excise & Gold (Control) Appellate Tribunal (for short “the
Tribunal”) at various Benches whereby the assessee-manufacturers
have been extended the benefit of deduction of excise duty in
respect of sales tax imposed by the State Government but not
entirely paid to the State exchequer while determining the
assessable value for the purpose of central excise, and some of the
assessee-manufacturers have preferred appeals being grieved by the
rejection for grant of similar relief pertaining to the payment
made under the Central Sales Tax Act. For the sake of convenience,
the facts from Civil Appeal Nos. 9154-9156 of 2003 are adumbrated
herein as far as appeals by the Revenue are concerned. In respect
of the challenge made by the assessee-manufacturers we shall take
the facts from Civil Appeal No. 4621 of 2008.

3. First we shall advert to the issue involving the appeals preferred
by the Revenue. The respondent herein is engaged in the
manufacture of yarn of manmade fibers falling under Chapter 55 of
the Schedule to the Central Excise Tariff Act, 1985, chargeable to
duty. A show-cause notice was issued to the respondent-assessee
on the ground that for certain period it had contravened the
various provisions of the Act, and the Central Excise Rules, 1944
which had resulted in evasion of Central Excise Duty. The fulcrum
of the show-cause notice was that the assessee had not paid the
duty on the additional consideration collected towards the sales
tax. The case of the Revenue was that though the assessee was
availing exemption from payment of sales tax, it was showing sales
tax in the invoices but assessable value was shown separately for
payment of Central Excise Duty as a consequence of which the net
yarn value was invariably higher than the assessable value and
excise duty paid thereon. This led to the difference between the
two amounts which was almost equal to the amount of sales tax
applicable during the relevant time. The explanation of the
assessee was that it was extended the benefit of the incentive
scheme and not granted any exemption and, therefore, the sales tax
collected was not includible in the assessable value and deduction
was admissible under the Act.

4. The Commissioner of Excise repelled the stand of the assessee,
interpreted the benefit granted to the assessee as partial
exemption and, taking certain other facts into consideration, came
to hold that the assessee had deliberately with an intent to evade
payment of duty had suppressed the fact that though it was availing
partial sales tax exemption under the Sales Tax Incentive Scheme of
1989 for the relevant period upto 75% of tax liability, yet it was
paying only 25% of the tax leviable despite collecting additional
consideration to the extent of the amount of sales tax and,
therefore, the additional amount collected under the camouflage of
incentive tax had to be taken note of and, accordingly, price was
to be declared and formed as a part of the value for the levy of
excise duty.

5. Be it noted, in its reply the assessee had placed reliance on
C.B.E. & C Circular No. 378/11-98-CX dated 12.3.1998 and claimed
that one of the situations as stipulated therein covered the likes
of the assessee and hence, it was not liable to be fastened with
any further liability. The Commissioner distinguished the said
circular and came to hold that the assessee, with an intention to
evade payment of duty, had wilfully suppressed the facts that it
was availing partial exemption of sales tax and collecting
additional consideration to the extent of the amount of sales tax
not payable by it. In this backdrop, the Commissioner treated it
as short payment by the assessee and directed for recovery of duty
and imposed penalty under Sections 11A, 11AC and 11AB of the Act
and further imposed penalty on the persons responsible for the said
suppression and evasion.

6. Being grieved by the order passed by the Commissioner of Central
Excise, Jaipur, the assessee preferred three appeals, namely,
Appeal NO. E/2279-2281 of 2002. The Tribunal posed the question
whether the assessee was entitled to claim deduction under Section
4(4)(d)(ii) of the Act in respect of full amount of sales tax
payable at the rate of 2%. The Tribunal took note of the fact that
the assessee, being entitled for the benefit under the Sales Tax
New Incentive Scheme for Industries, 1989 (for short “the Scheme”),
had availed the same with effect from 3.12.1996 and under the said
Scheme it was entitled to retain with it 75% of the sales tax
collected and pay only 25% to the Government and, accordingly
claimed the deduction for the entire amount of sales tax payable at
the rate of 2% and, accordingly, it did not approve the view
adopted by the adjudicating authority that the benefit granted to
the assessee in respect of the sales tax was in the nature of an
exemption and not an incentive and, therefore, not deductible under
Section 4(4)(d)(ii) of the Act. The Tribunal referred to the
circular dated 12.3.1998 issued by the Central Board of Excise and
Customs (CBEC) and came to hold that sales tax was deductible from
the wholesale price for determination of assessable value under
Section 4 of the Act for levy of Central Excise Duty. Being of
this view, it set aside the order passed by the Commissioner of
Excise and directed for refund of the deposits made during
investigation and the deposit made in pursuance of the order passed
by the Tribunal.

7. We have heard Mr. K. Radhakrishnan, learned senior counsel,
appearing for the Revenue and learned counsel appearing for the
respondents in the appeals preferred by the Revenue.

8. Mr. Radhakrishnan, learned senior counsel, questioning the legal
pregnability of the impugned order, has contended that the tribunal
has clearly erred in applying the circular dated 12.3.1998 as the
stipulations in the said circular do not cover the cases of the
present nature inasmuch as the assessee was extended the benefit of
incentive scheme. It is his further stand that in the obtaining
circumstances sales tax was collected but not paid to the State
exchequer and, therefore, it would be includible in assessable
value. Learned senior counsel would contend that the Tribunal has
not dealt with the issue pertaining to “payable”, for the issue of
“payability” depends on the language employed in the statute. Mr.
Radhakrishnan has urged that, in any case, after the amendment has
come into force effecting “transaction value” under Section 4(3)(d)
of the Act with effect from 1.7.2000 there is a schematic change
but unfortunately the same has not been addressed to by the
tribunal which makes the order absolutely vulnerable. He has
commended us to the decision in Modipon Fibre Company, Modinagar,
U.P. v. Commissioner of Central Excise, Meerut[1].

9. Learned counsel appearing for the assessee submitted that the order
passed by the tribunal is absolutely inexceptionable inasmuch as it
has correctly applied the circular issued by the CBEC and the
respondent being exempted under the incentive scheme issued by the
State Government is entitled to avail the benefit. He has
commended us to the Scheme issued by the State Government and
brought on record the assessment orders passed by the sales tax
authorities. Learned counsel would further submit that as per the
Scheme they are entitled to retain 75% of the sales tax collected
and pay only balance 25% to the State Government and despite the
same being the admitted position, the adjudicating authority has
committed grave illegality by treating it as an exemption which has
been appositely corrected by the tribunal and hence, the order
impugned is impeccable. It is propounded that the amended
provision that came on the statute book with effect from 1.7.2000
does not change the situation and, in fact, the earlier circular on
principle has been reiterated by the subsequent circular dated
9.10.2002.

10. Having regard to rivalised submissions raised at the Bar, we deem
it appropriate to first refer to the ratio and principle stated in
Modipon Fibre Company (supra). In the said case, the show cause
notice was dated 19th March, 1999 and related to the period March,
1994 to March, 1997. Section 4(4)(d)(ii) as applicable was as
under:-

“4. Valuation of excisable goods for purposes of charging of
duty of excise.—(1) to (3) * * *

(4) For the purposes of this section,—

(a) to (c) * * *

(d) ‘value’, in relation to any excisable goods,—

(i) * * *

(ii) does not include the amount of the duty of excise,
sales tax and other taxes, if any, payable on such goods
and, subject to such rules as may be made, the trade
discount (such discount not being refundable on any account
whatsoever) allowed in accordance with the normal practice
of the wholesale trade at the time of removal in respect of
such goods sold or contracted for sale;

Explanation.—For the purposes of this sub-clause, the
amount of the duty of excise payable on any excisable goods
shall be the sum total of—

(a) the effective duty of excise payable on such
goods under this Act; and
(b) the aggregate of the effective duties of excise
payable under other Central Acts, if any, providing for
the levy of duties of excise on such goods under each Act
referred to in Clause (a) or Clause (b) shall be,—

(i) in a case where a notification or order providing for
any exemption [not being an exemption for giving credit
with respect to, or reduction of duty of excise under such
Act on such goods equal to, any duty of excise under such
Act, or the additional duty under Section 3 of the Customs
Tariff Act, 1975 (51 of 1975), already paid on the raw
material or component parts used in the production or
manufacture of such goods] from the duty of excise under
such Act is for the time being in force, the duty of excise
computed with reference to the rate specified in such Act,
in respect of such goods as reduced so as to give full and
complete effect to such exemption; and
(ii) in any other case, the duty of excise computed with
reference to the rate specified in such Act in respect of
such goods.”

11. The contention of the assessee was that they were entitled to
deduction in respect of Turnover Tax (TOT) at the rate of 2% though
Government of Gujarat by notification dated 19th October, 1993 had
exempted sale of yarn under certificate in Form 26 to the extent of
TOT exceeding .5% of the total turnover if the processed yarn was
sold in the State of Gujarat. Thus, there was dual rate of 2% and
.5% TOT in the State of Gujarat, with the lower rate being
applicable to sales in backward area. Relying upon the
word/expression “payable” used in Section 4(4)(d)(ii), it was
submitted by the assessee that it refers to the duty payable in the
tariff and not any concession or exemption. The contention was
rejected by the Court observing that the word “payable” was
descriptive and one has to see the context in which the said word
finds place and accordingly proceeded to opine: –

“As can be seen from the abovequoted section, excise duty can be
deducted if it had not been included in the invoice price.
According to the Explanation, what is deductible is the
effective rate of duty. Where any exemption has been granted,
that exemption has to be deducted from the ad valorem duty. In
other words, it is only the net duty liability of the assessee
that can be deducted in computing the assessable value. The
said principle stands incorporated in the Explanation. For
example, if the assessee recovers duty at the tariff rate but
pays duty at concessional rate, then excise duty has to be a
part of the assessable value. Similarly, refund of excise duty
cannot be treated as net profit and added on to the value of
clearances. There is no provision in Section 4 of the 1944 Act
to treat refund as part of assessable value. If excise duty
paid to the Government is collected at actuals from the
customers and if, subsequently, exemption becomes available,
such excise duty which is not passed on to the assessee (sic
customer), would become part of assessable value under Section
4(4)(d)(ii).”
12. The aforesaid observations were made in the context of TOT which
could be deducted, if it had not been included in the invoice
price. The excise duty, it was observed, was the effective rate of
duty and where any exemption was granted, the exemption was to be
deducted from ad valorem duty. Only the net duty liability of the
assessee was to be reduced from the invoice price for computing the
assessable value. Thus, where an assessee had recovered duty at a
higher rate but was paying duty at a concessional rate, then that
part of unpaid excise duty was to be part of taxable or assessable
value. But refund of excise duty was not to be added to the value
of clearances and similarly if subsequently an exemption had become
available it could not be reduced to lower to the assessable value.

13. After so stating the bench referred to the decisions of the Bombay
High Court in Tata Oil Mills Co. Ltd. v. Union of India[2] and B.K.
Paper Mills Pvt. Ltd. v. Union of India[3] and approving the
principle laid down therein, observed thus: –
“In our view, the above two judgments of the Bombay High Court
lay down the correct principle underlying the Explanation to
Section 4(4)(d)(ii). As held in TOMCO case the exemption was not
by way of a windfall for the manufacturer assessee but on
account of cotton seed oil used by TOMCO in the manufacture of
Pakav. Similarly, in B.K. Paper Mills the Bombay High Court has
correctly analysed Section 4(4)(d)(ii) with the Explanation to
say that only the reduced rate of duty can be excluded from the
value of the goods and that Explanation explains what was
implicit in that section. That, the said Section 4(4)(d)(ii) did
not refer to duty leviable under the relevant tariff entry
without reference to exemption notification that may be in
existence at the time of clearance/removal. That, Section 47 of
the Finance Act, 1982 which inserted the Explanation expressly
sets out what is meant by the expression “the amount of duty of
excise payable on any excisable goods”. By the amount of duty of
excise what is meant is the effective duty of excise payable on
such goods under the Act and, therefore, effective duty of
excise is the duty calculated on the basis of the prescribed
rate as reduced by the exemption notification. This alone is
excluded from the normal price under Section 4(4)(d)(ii).”
After so stating the Court stated: –
Therefore, the test to be applied is that of the “actual value
of the duty payable” and, therefore, there is no merit in the
argument advanced on behalf of the assessee that the Explanation
is restricted to the duty of excise. This principle can
therefore apply also to actual value of any other tax including
TOT payable. Even without the Explanation, the scheme of Section
4(4)(d)(ii) shows that in computing the assessable value, one
has to go by the actual value of the duty payable and,
therefore, only the reduced duty was deductible from the value
of the goods.

14. It is seemly to note that the Court approved the ratio laid down in
the judgment of Bombay High Court in Central India Spinning Weaving
and Manufacturing Co. Ltd. v. Union of India[4] by reproducing the
following observations: –
“9. … It is true that according to Section 4(4)(d)(ii) of the
Central Excise Act, the value does not include the amount of
duty of excise, if any payable on such goods, but in view of
Explanation to Section 4(4)(d)(ii), the ‘duty of excise’ means
the duty payable in terms of the Central Excise Tariff read with
exemption notification issued under Rule 8 of the Central Excise
Rules. In this view of the matter, the only deduction that is
permissible is of the actual duty paid or payable while fixing
the assessable value. Thus, where the company/manufacturer whose
goods were liable to excise duty at a reduced rate in
consequence of an exemption notification, while paying duty at
reduced rate collected duty at a higher rate i.e. tariff rate
from its customers the authorities were justified in holding
that what was being collected by the company as excise duty was
not excise duty but the value in substance of the goods and,
therefore, the excess value collected by the petitioner from the
customers was recoverable under Section 11-A of the Central
Excises and Salt Act, 1944.”

After explaining as aforesaid the Court ruled that though in
respect of backward areas sales, the rate of TOT was .5%, whereas TOT
rate in normal area sales was 2%, yet the assessee had suppressed the
aforesaid data to claim TOT deduction @ 2% to compute the assessable
value on the entire sales including sales made in backward area. This
was wrong and the department was justified in calling upon the
assessee to pay the differential excise duty.

15. The Court in the said decision has observed that by claiming higher
deduction @ 2% instead of .5%, the assessee was gaining a windfall
and this was not justified. It was further observed that TOMCO’s
case was decided on 24th July, 1980 and at that time there were
conflicting decisions and thereafter the Legislature had inserted
explanation to Section 4(4)(d)(ii) of the Act by using the words
“the effective duty of excise payable on goods under this Act”.

16. In the case at hand, the assessee has claimed that there is
difference between grant of incentive and extension of benefit of
exemption, and the scheme, i.e., the “Rajasthan Sales Tax Incentive
Scheme 1989” does not relate to exemption but incentive. To
elaborate, the assessee, under the said Scheme, is permitted to
retain 75% of the sales tax collected as incentive and is liable to
pay 25% to the department. 75% of the amount retained has been
treated as incentive by the State Government. It is pointed out
that such retention of sales tax is a deemed payment of sales tax
to the State exchequer and for the said purpose reliance is placed
on Circular No. 378/11/98-CX dated 12.3.1998 issued by C.B.E.C.

17. In the aforesaid circular, three situations were envisaged, viz.,
(i) exemption from payment of sales tax for a particular period;
(ii) deferment of payment of sales tax for a particular period; and
(iii) grant of incentive equivalent to sales tax payable by the
unit. The aforestated three situations had been examined by the
Board in consultation with the Ministry of Law. As far as
situation (iii) is concerned, the circular stated thus: –

“6. Examination of the situation, mentioned above in para
2(ii) & (iii), in the referring note give an indication that
sales tax is payable by the assessee in both the situations. It
is payable after a particular period in the second case. On the
other hand, in the third situation, the sales tax is considered
payable by the assessee even though it is paid by the State
Government, the assessee keeping the said amount as cash
incentive. In this situation sales tax would be considered as
payable within the meaning of the provisions of Section
4(4)(d)(ii) of the Act.

7. We are therefore, of the opinion that in the category of
cases mentioned in para 2(i), sales tax is not deductible
whereas in the category of cases mentioned at (ii) and (iii)
sales tax is deductible from the wholesale price for
determination of assessable value under Section 4 of the Act for
levy of Central Excise duty.”

18. To understand the purpose of the aforesaid two paragraphs it is
also necessary to refer to the note given by the Board seeking
opinion of the Ministry of Law in respect of situation (iii) which
is a part of the said circular. It reads as follows: –

“In situation (iii), the manufacturer collects the sales tax
from the buyers and retains the same with him instead of paying
it to the State Government. The State Government on the other
hand grants a cash incentive equivalent to the amount of sales
tax payable and instead of the case incentive being paid to the
manufacturer, is credited to State Government account as payment
towards sales tax by the manufacturer. In such a situation
sales tax is also considered payable by the assessee within the
meaning of the provisions of Section 4(4)(d)(ii) of the Central
Excise Act, 1944. Therefore, sales tax is deductible from the
wholesale price for determination of assessable value for levy
of Central Excise duty in category of cases mentioned in para
(ii) & (iii) above.”

19. On perusal of the assessment orders brought on record, it is quite
clear that in pursuance of the Scheme 75% of the sales tax amount
was credited to the account of the State Government as payment
towards sales tax by the manufacturer. On a studied scrutiny of
the scheme we have no scintilla of doubt that it is a pure and
simple incentive scheme, regard being had to the language employed
therein. In fact, by no stretch of imagination, it can be
construed as a Scheme pertaining to exemption. Thus, analysed,
though 25% of sales tax is paid to the State Government, the State
Government instead of giving certain amount towards industrial
incentive, grants incentive in the form of retention of 75% sales
tax amount by the assessee. In a case of exemption, sales tax is
neither collectable nor payable and if still an assessee collects
any amount on the head of sales tax, that would become the price of
the goods. Therefore, an incentive scheme of the present nature
has to be treated on a different footing because the sales tax is
collected and a part of it is retained by the assessee towards
incentive which is subject to assessment under the local sales tax
law and, as a matter of fact, assessments have been accordingly
framed. In this factual backdrop, it has to be held that circular
entitles an assessee to claim deduction towards sales tax from the
assessable value. The fact situation in Modipon Fibre Company
(supra), as is manifest, was different. In our considered opinion
what has been stated in Modipon Fibre Company (supra) cannot not be
extended to include the situation (iii). We are inclined to think
so as the definition of term “value” under Section 4(4)(d) was
slightly differently worded and the CBEC had clarified the same in
the circular dated 12.3.1998 and benefits were granted.

20. The question that would still remain alive is that what would be
the effect of amendment of Section 4 which has come into force with
effect from 1.7.2000. The Section 4(3)(d) which defines
“transaction value”, reads as follows: –

“4. Valuation of excisable goods for purposes of charging of
duty of excise. –

(1) & (2) * *

(3) For the purposes of this section, –

(a) to (cc) * * *

(d) “transaction value” means the price actually paid or payable
for the goods, when sold, and includes in addition to the amount
charged as price, any amount that the buyer is liable to pay to,
or on behalf of, the assessee, by reason of, or in connection
with the sale, whether payable at the time of the sale or at any
other time, including, but not limited to, any amount charged
for, or to make provision for, advertising or publicity,
marketing and selling organization expenses, storage, outward
handling, servicing, warranty, commission or any other matter;
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.”

21. After the substitution of the old Section 4 of the Act by Act 10 of
2000 as reproduced hereinabove, the Central Board of Excise and
Customs, New Delhi, issued certain circulars and vide circular No.
671/62/2000-CX dated 9.10.2002 clarified the circular issued on
1.7.2000. In the said circular reference was made to the earlier
circular No. 2/94-CX 1 dated 11.1.1994. It has been observed in
the circular that after coming into force of new Section 4 with
effect from 1.7.2000 wherein the concept of transaction value has
been incorporated and the earlier explanation has been deleted, the
circular had lost its relevance. However, after so stating the
said circular addressed to the representations received from the
Chambers of Commerce, Associations, assessees as well as the field
formations and in the context stated thus: –

“5. The matter has been examined in the Board. It is observed
that assessees charge and collect sales tax from their buyers at
rates notified by the State Government for different
commodities. For manufacture of excisable goods assessees
procure raw materials, in some State, by paying sales tax/
purchase tax on them (in some States, like New Delhi), raw
materials are purchased against forms ST-1/ST-35 without paying
any tax). While depositing sales tax with the Sales Tax Deptt.
(on a monthly or quarterly basis), the assessee deposits only
the net amount of sales tax after deducting set off/rebate
admissible, either in full or in part, on the sales tax/purchase
tax paid on the raw materials during the said month/quarter.
The sales tax set off in such cases, therefore, does not work
like the central excise set off notifications where one to one
relationship is to be established between the finished product
and the raw materials and the assessee is allowed to charge only
the net central excise duty from the buyer in the invoice. The
difference between the set off operating in respect of central
excise duty and that for sales tax can be best illustrated
through an example. If the sales tax on a product ‘A’ of value
Rs.100/- is, say 5% and the set off available in respect of the
purchase tax/ sales tax paid on inputs going into the
manufacture of the product is, say, Re.1/-, then the sales tax
law permits the assessee to recover sales tax of Rs.5/-. But
while paying to the sales tax deptt. be deposits an amount of
Rs.5-1 = Rs.4 only. On the central excise duty payable would
have been Rs.5-1 = Rs.4, in view of the set off notification,
and the assessee would recover an amount of Rs.4 only from the
buyer as Central Excise duty. Thus, it is seen that the set off
scheme in respect of sales tax operate in these cases somewhat
like the CENVAT Scheme which does not have the effect of
changing the rate of duty payable on the finished product.

6. Therefore, since the set off scheme of sales tax does not
change the rate of sales tax payable/ chargeable on the finished
goods, the set off is not to be taken into account for
calculating the amount of sales tax permissible as abatement for
arriving at the assessable value u/s 4. In other words only
that amount of sales tax will be permissible as deduction under
Section 4 as is equal to the amount legally permissible under
the local sales tax laws to be charged/billed from the customer/
buyer.”

[Emphasis added]

22. It is evincible from the language employed in the aforesaid
circular that set off is to be taken into account for calculating
the amount of sales tax permissible for arriving at the
“transaction value” under Section 4 of the Act because the set off
does not change the rate of sales tax payable/ chargeable, but a
lower amount is in fact paid due to set off of the sales tax paid
on the input. Thus, if sales tax was not paid on the input, full
amount is payable and has to be excluded for arriving at the
“transaction value”. That is not the factual matrix in the present
case. The assessee in the present case has paid only 25% and
retained 75% of the amount which was collected as sales tax. 75%
of the amount collected was retained and became the profit or the
effective cost paid to the assessee by the purchaser. The amount
payable as sales tax was only 25% of the normal sales tax. Purpose
and objective in defining “transaction value” or value in relation
to excisable goods is obvious. The price or cost paid to the
manufacturer constitutes the assessable value on which excise duty
is payable. It is also obvious that the excise duty payable has to
be excluded while calculating transaction value for levy of excise
duty. Sales tax or VAT or turnover tax is payable or paid to the
State Government on the transaction, which is regarded as sale,
i.e., for transfer of title in the manufactured goods. The amount
paid or payable to the State Government towards sales tax, VAT,
etc. is excluded because it is not an amount paid to the
manufacturer towards the price, but an amount paid or payable to
the State Government for the sale transaction, i.e., transfer of
title from the manufacturer to a third party. Accordingly, the
amount paid to the State Government is only excludible from the
transaction value. What is not payable or to be paid as sales
tax/VAT, should not be charged from the third party/customer, but
if it charged and is not payable or paid, it is a part and should
not be excluded from the transaction value. This is the position
after the amendment, for as per the amended provision the words
“transaction value” mean payment made on actual basis or actually
paid by the assessee. The words that gain signification are
“actually paid”. The situation after 1.7.2000 does not cover a
situation which was covered under the circular dated 12.3.1998. Be
that as it may, the clear legislative intent, as it seems to us, is
on “actually paid”. The question of “actually payable” does not
arise in this case.

23. In view of the aforesaid legal position, unless the sales tax is
actually paid to the Sales Tax Department of the State Government,
no benefit towards excise duty can be given under the concept of
“transaction value” under Section 4(4)(d), for it is not
excludible. As is seen from the facts, 25% of the sales tax
collected has been paid to the State exchequer by way of deposit.
The rest of the amount has been retained by the assessee. That has
to be treated as the price of the goods under the basic fundamental
conception of “transaction value” as substituted with effect from
1.7.2000. Therefore, the assessee is bound to pay the excise duty
on the said sum after the amended provision had brought on the
statute book.

24. What is urged by the learned counsel for the assessee is that
paragraphs 5 and 6 of the circular dated 9.10.2002 do protect them,
as has been more clearly stated in paragraph 5. To elaborate,
sales tax having been paid on the inputs/raw materials, that is
excluded from the excise duty when price is computed. Eventually,
the amount of tax paid is less than the amount of tax payable and
hence, the concept of “actually paid” gets satisfied. Judged on
this anvil the submission of the learned counsel for the assessee
that it would get benefit of paragraph 6 of the circular, is
unacceptable. The assessee can only get the benefit on the amount
that has actually been paid. The circular does not take note of
any kind of book adjustment and correctly so, because the
dictionary clause has been amended. We may, at this stage, also
clarify the position relating to circulars. Binding nature of a
circular was examined by the Constitution Bench in CCE v. Dhiren
Chemicals Industries[5], and it was held that if there are
circulars issued by CBEC which placed different interpretation upon
a phrase in the statute, the interpretation suggested in the
circular would be binding on the Revenue, regardless of the
interpretation placed by this Court. In CCE v. Ratan Melting &
Wire Industries[6], the Constitution Bench clarifying paragraph 11
in Dhiren Chemicals Industries (supra) has stated thus: –
“7. Circulars and instructions issued by the Board are no
doubt binding in law on the authorities under the respective
statutes, but when the Supreme Court or the High Court declares
the law on the question arising for consideration, it would not
be appropriate for the court to direct that the circular should
be given effect to and not the view expressed in a decision of
this Court or the High Court. So far as the
clarifications/circulars issued by the Central Government and of
the State Government are concerned they represent merely their
understanding of the statutory provisions. They are not binding
upon the court. It is for the court to declare what the
particular provision of statute says and it is not for the
executive. Looked at from another angle, a circular which is
contrary to the statutory provisions has really no existence in
law.”

25. The legal position has been reiterated in the State of Tamil Nadu
and Anr. v. India Cement Ltd.[7] Therefore, reliance placed on the
circular dated 9.10.2002 by the tribunal is legally impermissible
for two reasons, namely, the circular does not so lay down, and had
it so stated that would have been contrary to the legislative
intention.

26. In view of the aforesaid analysis, we are of the considered opinion
that the assessees in all the appeals are entitled to get the
benefit of the circular dated 12.3.1998 which protects the
industrial units availing incentive scheme as there is a conceptual
book adjustment of the sales tax paid to the Department. But with
effect from 1.7.2000 they shall only be entitled to the benefit of
the amount “actually paid” to the Department, i.e., 25%. Needless
to emphasise, the set off shall operate only in respect of the
amount that has been paid on the raw material and inputs on which
the sales tax/ purchase tax has been paid. That being the position
the adjudication by the tribunal is not sustainable. Similarly the
determination by the original adjudicating authority requiring the
assessees to deposit or pay the whole amount and the consequential
imposition of penalty also cannot be held to be defensible.
Therefore, we allow the appeals in part, set aside the orders
passed by the tribunal as well as by the original adjudicating
authority and remit the matters to the respective tribunals to
adjudicate as far as excise duty is concerned in accordance with
the principles set out hereinabove. We further clarify that as far
as imposition of penalty is concerned, it shall be dealt with in
accordance with law governing the field. In any case, proceeding
relating to the period prior to 1.7.2000 would stand closed and if
any amount has been paid or deposited as per the direction of any
authority in respect of the said period, shall be refunded. As far
as the subsequent period is concerned, the tribunal shall
adjudicate as per the principles stated hereinbefore.

27. Coming to the appeals preferred by the assessees, the challenge
pertains to denial of benefit of the Central Sales Tax Act, the
aforesaid reasoning will equally apply. The submission that the
concession of excise duty is granted by the Excise Department of
the Central Government is not acceptable. On a perusal of the
circulars dated 12.3.1998 and 1.7.2002 we do not find that they
remotely relate to any exemption under the Central Sales Tax
imposed on the goods. What is argued by the learned counsel for
the assessees is that the benefit should be extended to the Central
Sales Tax as the tax on sales has a broader concept. The aforesaid
submission is noted to be rejected and we, accordingly, repel the
same. In view of the aforesaid, the appeals preferred by the
assessees stand dismissed.

28. In the result, both sets of appeals stand disposed of accordingly.
There shall be no order as to costs.

……………………………….J.

[Anil R. Dave]

……………………………….J.
[Dipak Misra]

New Delhi;
February 28, 2014.
———————–
[1] (2007) 10 SCC 3
[2] 1980 (6) ELT 768 (Bom)
[3] 1984 (18) ELT 701 (Bom)
[4] 1987 (30) ELT 217 (Bom)
[5] (2002) 2 SCC 127
[6] (2008) 13 SCC 1
[7] (2011) 13 SCC 247

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