2019 (5) TMI 1615 - AT - Central Excise

Valuation - inclusion of VAT subsidy amounts received by the appellants from Rajasthan Government in assessable value - HELD THAT - The appellant was availing the benefit of Rajasthan Investment Promotion Scheme, 2010 (RIPS) notified by State Government of Rajasthan with a view to promote investments thereby entitling the appellant to a subsidy up to certain percentage of the VAT paid by the appellant - It is an admitted fact that the said subsidy is credited to the sales tax account of the appellant which he receives by way of VAT 37B Challans. It is also an apparently admitted fact that the appellant was paying total VAT charged at applicable rates on sale of goods to the State Exchequer and was filing the VAT returns. The VAT 37B Challans, the appellant was utilising to discharge the output VAT liability for the subsequent period. Department has given much emphasis upon COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II VERSUS M/S. SUPER SYNOTEX (INDIA) LTD. AND OTHERS 2014 (3) TMI 42 - SUPREME COURT but we are of the opinion that the facts of present case are absolutely different from the said case in the terms that the Hon ble Apex Court in the said case was dealing with sales tax incentive scheme. But in the present case, the issue is with respect to the grant of sales tax subsidy. In Super Synotex case, the assessee was retaining 75% of the sales tax collected from the customers whereas in the present case, the appellant had paid the entire amount of sales tax collected from the customers, with the Sales Tax Department without retaining even a meagre portion thereof. Hence, the benefit granted by RIPS to the appellant herein is not in the nature of exemption or incentive from payment of sales tax but is a remission where nothing was initially retained by the appellant. Thus, the facts of present case are absolutely different from the case decided by the Hon ble Apex Court. The discharge of liability by way of VAT 37B challans is a legally sustainable method of discharging tax liability of subsequent period - no question of intent to evade tax at all arises once it stands so discharged - the order confirming demand and imposing penalty is apparently erroneous. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against demand of Central Excise Duty on VAT subsidy amounts received by appellants from Rajasthan Government upheld; Treatment of VAT subsidy in transaction value; Legality of utilizing VAT Challans to discharge VAT liability; Justification for penalties; Distinction between remission and exemption in tax schemes.

Analysis:
1. The appeal was filed against the Order-in-Appeal upholding the demand of Central Excise Duty on VAT subsidy amounts received by the appellants from the Rajasthan Government, including interest and penalty. The Tribunal had previously ruled in favor of the appellants in a similar case, which was duly acknowledged by the Department's representative. Despite an ongoing appeal against the previous order, no stay had been granted. The Department sought dismissal of the appeal based on this premise.

2. The appellant had availed benefits under the Rajasthan Investment Promotion Scheme, 2010, entitling them to a subsidy on a percentage of VAT paid. The subsidy was credited to the appellant's sales tax account via VAT 37B Challans, which were used to discharge subsequent VAT liabilities. The Department contended that utilizing the VAT Challans did not constitute actual payment, leading to inclusion of the subsidy amount in the transaction value for duty calculation. The lower authorities upheld this view, resulting in the demand for duty payment.

3. Referring to a previous Final Order, the Tribunal had set aside a demand for differential duty on VAT subsidy amounts. The Tribunal reiterated that once such demands were set aside, penalties should also be nullified. This precedent played a crucial role in the current judgment, emphasizing the Tribunal's stance on similar cases.

4. In another appeal decision, it was established that the appellant had opted for a tax remission scheme where a portion of VAT paid was remitted back. The judgment highlighted the distinction between remission and exemption in tax laws, emphasizing that the sales tax was payable and discharged in the appellant's case. This distinction was crucial in determining the applicability of tax laws and the legitimacy of the appellant's actions.

5. The Tribunal differentiated the present case from a previous judgment involving a sales tax incentive scheme, emphasizing that the appellant had paid the entire sales tax collected without retention. This distinction was pivotal in establishing that the subsidy received was a remission rather than an exemption, aligning with the legal framework governing tax liabilities. The Tribunal concluded that the appellant's method of discharging tax liability using VAT Challans was legally sound, negating any intent to evade tax and warranting the setting aside of the demand and penalties imposed.

In conclusion, the judgment delved into the intricacies of tax schemes, remissions, and exemptions to determine the legality of including VAT subsidies in transaction values for duty calculation. The Tribunal's analysis and differentiation from previous cases paved the way for allowing the appeal and setting aside the demand and penalties imposed on the appellants.