2012 (6) TMI 168 - AT - Central Excise

Transaction value - inclusion of amount towards deferment of sales tax scheme appellant opted an option to prematurely pay in place of the deferred tax amount, an amount equal to the net present value (NPV) of the deferred tax - department was of the view that the difference between the sales tax collected from the customers and the sales tax paid to the state authorities at NPV should be treated as an additional consideration received from the buyers of the goods and, therefore, they should form part of the transaction value Held that - Board vide Circular No.671/62/2002-CX dated 09/10/2002, inter alia, clarified that 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. deduction towards sales tax is permissible based on the amount billed or charged from the customers in accordance with the law irrespective of the fact whether the amount is retained by the assessee or incentives are given by the State Government to the assessee in respect of the sales tax so collected. in the case of Paper Products Ltd., (1999 (8) TMI 70 (SC) ) circulars issued by the CBEC are binding on the department and the department is precluded from challenging the correctness of the circulars even on the basis that the same is inconsistent with the statutory provision

Issues Involved:
1. Eligibility for sales tax incentives under various schemes.
2. Calculation of Net Present Value (NPV) of deferred taxes.
3. Inclusion of abated sales tax in the transaction value for excise duty.
4. Applicability of extended period for demand under Section 11A (1) of the Central Excise Act, 1944.
5. Binding nature of CBEC circulars on departmental authorities.

Detailed Analysis:

1. Eligibility for Sales Tax Incentives:
The appellants applied for eligibility certificates for new units under the Sales Tax Incentive 1988 Scheme, the 1993 Package Scheme, or the 1998 Power Generation Promotion Policy Sales Tax Deferral Scheme. These schemes allowed the appellants to defer sales tax payments, collecting sales tax from customers and retaining it for a specified period before paying it to the state government in installments.

2. Calculation of Net Present Value (NPV) of Deferred Taxes:
An amendment to Section 38 of the Bombay Sales Tax Act, 1959, introduced in November 2002, allowed eligible units to pay the NPV of deferred taxes prematurely. This payment was deemed to discharge the entire deferred tax liability. The appellants opted for this premature payment, which was verified and accepted by the sales tax department.

3. Inclusion of Abated Sales Tax in Transaction Value for Excise Duty:
The department scrutinized the records and found that the appellants paid sales tax at NPV, which was lower than the deferred sales tax collected from customers. The difference was treated as a gain on extinguishment of deferment liability. The department argued that this difference should be included in the transaction value for excise duty as additional consideration received from buyers. Show-cause notices were issued, alleging suppression of facts and demanding differential duty under the extended period of time.

The appellants contended that the sales tax indicated in invoices should not be included in the transaction value, as it was actually payable under the Bombay Sales Tax Act. They argued that the premature payment of NPV legally discharged their sales tax liability, referencing several judicial pronouncements supporting the full effect of statutory fictions.

4. Applicability of Extended Period for Demand:
The appellants argued that the demands were time-barred, issued beyond the extended period of five years. The department countered that the period of limitation should be computed from the date of knowledge of the fraud by the department, making the demands within time.

5. Binding Nature of CBEC Circulars:
The appellants cited CBEC Circular No. 378/11/98-CX and Circular No. 671/62/2002-CX, which clarified that sales tax is deductible from the transaction value even if deferred or incentivized by the state government. The department argued that circulars not in accordance with the law are not binding, referencing Tribunal and Supreme Court judgments.

Tribunal's Findings:
- The Tribunal emphasized that the assessable value for excise duty must be determined at the time and place of removal of goods. Subsequent changes in sales tax liability due to amendments in law should not affect the assessable value.
- The Tribunal referred to multiple CBEC circulars and judicial pronouncements affirming that sales tax billed or charged from customers is deductible from the transaction value, irrespective of whether it is retained or incentivized by the state government.
- The Tribunal noted that the subsequent payment of NPV does not alter the original sales tax liability at the time of removal of goods.
- The Tribunal rejected the department's contention that the differential amount of sales tax should be included in the transaction value, as it would undermine the purpose of the sales tax deferral schemes and subsequent amendments.
- The Tribunal found the demands time-barred as they were issued beyond the permissible period.

Conclusion:
The Tribunal set aside the impugned orders and allowed the appeals, providing consequential reliefs to the appellants. The judgment reinforced that the sales tax billed at the time of removal of goods is deductible from the transaction value for excise duty purposes, and subsequent changes in liability do not affect this deduction.

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