2003 (6) TMI 119 - AT - Central Excise

Summary

Issues Involved:
The issue raised is whether the appellant is entitled to claim deduction u/s 4(4)(d)(ii) in respect of the full amount of sales tax payable @ 2%.

Details of the Judgment:

Issue 1: Entitlement to Claim Deduction under Section 4(4)(d)(ii)
The appellant, engaged in the manufacture of man-made yarn, availed the Sales Tax New Incentive Scheme for Industries, 1989, where it could retain 75% of the sales tax collected and pay only 25% to the Government. The Commissioner contended that deduction is admissible only to the extent of sales tax paid to the Government, leading to a duty demand on the balance amount of sales tax collected. The appellant argued that the buyer is liable to pay the entire sales tax, with the appellant retaining 75% as an incentive. Referring to a Circular by the Central Board of Excise & Customs, the appellant claimed entitlement to deduction of the entire sales tax payable, not limited to the amount paid to the Government.

Issue 2: Nature of Transaction - Exemption or Incentive
The Commissioner viewed the transaction as an exemption from sales tax rather than an incentive, thus disallowing the deduction under Section 4(4)(d)(ii). However, the appellant demonstrated that under the Sales Tax New Incentive Scheme for Industries, 1989, there was no exemption from sales tax granted, and the appellant was required to collect the entire sales tax from the buyer, retaining 75% as an incentive and paying 25% to the Government. This factual situation was also supported by a Board's circular, which clarified that in such scenarios, sales tax is deductible for determining the assessable value under Section 4 of the Central Excise Act.

Conclusion:
The Tribunal found that the Commissioner erred in denying the appellant's claim for deduction. Consequently, the order was set aside, and the appeals were allowed. The Tribunal also ruled that the appellant was entitled to a refund of the amount deposited during the investigation and as a pre-deposit, totaling Rs. 18 lakhs, to be paid within three months from the date of the order.