2014 (9) TMI 229 - SC - Central Excise

Valuation - inclusion of portion of 50% of sales tax retained by the assessee in the value of excisable goods - nature of 50% sales tax - whether deferred tax or concession in tax - Whether the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal) was right in holding that the High Powered Committee (HPC) constituted under the provisions of Rule 28-C of the Haryana General Sales Tax Rules 1975 (the Rules) had merely deferred payment of sales tax by the respondent/assessee and had not granted it any tax concession - Held that - A bare reading of the entitlement certificate also does not give any indication of deferment of tax or capital subsidy. On the contrary, it only refers to a tax concession for the period from 1 st August, 2001 to 31st July, 2015 and the quantum of tax concession is mentioned as ₹ 564.35 crores. The entitlement certificate issued to the assessee is clearly in line with the decision of the HPC and also does not support the case of the assessee. There is nothing in the decision of the HPC or the entitlement certificate to indicate that 50% of the sales tax retained by the assessee on the sale of its vehicles was liable to be adjusted against any capital subsidy entitlement of the assessee. The circular brought to the notice of all concerned that in view of the amended Section 4 of the Excise Act, any amount actually paid or actually payable by way of excise, sales tax and other taxes shall be excluded from the transaction value. It was made clear that if tax is paid at a concessional rate, that amount may be deducted from the transaction value. But, where the tax is not paid at the time of the transaction, but is paid subsequently, as for example, sales tax payable under a deferment scheme, then too the benefit of exclusion would be allowed since the amount would be actually payable. There is no doubt that 50% of the sales tax collected was retained by the assessee and was not actually paid to the exchequer nor was it actually payable since the HPC permitted the assessee to retain that amount. Therefore, whichever way the issue is looked at, the fact remains that the assessee retained with it 50% of the sales tax collected from its customers and it was neither actually paid to the exchequer nor was it actually payable to the exchequer. That being the position, the transaction value was required to be calculated by including the amount of about ₹ 22.44 crores retained by the assessee. - Tribunal misdirected itself in law on several counts and erroneously decided the appeal in favour of the assessee and, therefore, the order of the Tribunal is set aside. - However, penalty is set aside - Decided partly in favour of Revenue.

Summary

Issues Involved:
1. Whether the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal) was correct in holding that the High Powered Committee (HPC) had merely deferred payment of sales tax and not granted any tax concession.
2. Whether the amount of sales tax retained by the assessee constituted part of the "transaction value" of the vehicles sold.
3. Whether the penalty imposed on the assessee was justified.

Issue-Wise Detailed Analysis:

1. Tribunal's Interpretation of HPC's Decision:
- The Tribunal held that the HPC had only deferred the payment of sales tax by the assessee and did not grant a tax concession.
- The assessee argued that Rule 28-C of the Haryana General Sales Tax Rules, 1975, read with Section 25A of the Haryana General Sales Tax Act, 1973, allowed for deferment and conversion of sales tax into a capital subsidy.
- The Tribunal accepted this argument, stating that the deferment was for 14 years, and the amount was adjusted against the capital subsidy, not a tax concession.

Supreme Court's Analysis:
- The Supreme Court found that Rule 28-C(5)(a) was inapplicable to the assessee since it explicitly excluded prestigious units.
- The applicable rule was Rule 28-C(5)(b), which grants tax concessions to prestigious units as decided by the HPC.
- The HPC's decision on 14th June 2001 allowed the assessee to retain 50% of the sales tax collected, subject to a ceiling of Rs. 564.35 crores, without any mention of capital subsidy adjustment.
- The entitlement certificate issued to the assessee also referred to a "tax concession" and did not support the Tribunal's interpretation of deferment.

2. Transaction Value of Vehicles:
- The Revenue argued that the retained sales tax was part of the "transaction value" under Section 4(3)(d) of the Central Excise Act, 1944.
- The Tribunal had ruled that since the sales tax was deferred and adjusted against the capital subsidy, it could not be included in the transaction value.

Supreme Court's Analysis:
- The definition of "transaction value" includes any amount the buyer is liable to pay in connection with the sale, excluding taxes actually paid or payable.
- Since the sales tax retained by the assessee was neither actually paid nor payable to the exchequer, it formed part of the transaction value.
- The Supreme Court concluded that the Tribunal misdirected itself in law by excluding the retained sales tax from the transaction value.

3. Penalty Imposed on the Assessee:
- The adjudicating authority imposed a penalty of Rs. 1 crore on the assessee for violating certain provisions of the Central Excise Rules.
- The Tribunal set aside this penalty, and the assessee argued that the penalty should not be imposed due to bona fide belief and the Tribunal's decision in its favor.

Supreme Court's Analysis:
- The Supreme Court agreed that since the assessee had succeeded before the Tribunal, it would not be appropriate to impose a penalty.
- The penalty imposed by the adjudicating authority was set aside.

Conclusion:
- The Supreme Court set aside the Tribunal's order and restored the adjudicating authority's order dated 22nd May 2003, except for the penalty.
- The appeal was allowed to the extent of setting aside the Tribunal's order and the penalty was not imposed on the assessee.
- No order as to costs was made.