2004 (1) TMI 158 - AT - Central Excise

Valuation (Central Excise) - Sales tax - claim for deduction of sales tax collected from its buyers while computing assessable value of the goods manufactured - Applicability of CBEC Circulars and analogy with provisions under the Income-tax Act 1961 - HELD THAT - After examining the provisions contained under Sections 13 13A 13B and Section 25A of Haryana General Sales Tax Act 1975 we are of the view that what is contemplated u/s 25A cannot be treated as a concession in the nature of sales tax concession granted under Sections 13 13A and 13B. The provisions under Rule 28C of Haryana General Sales Tax Rules 1975 would clearly show that the procedure prescribed therein relates to deferment of tax u/s 25A and not in relation to any other concession in payment of sales tax. If that be so the scheme envisaged under Rule 28C the benefit of which was granted to the appellant would not entitle the appellant for any sales tax concession. Its liability to pay sales tax is deferred for a period of 14 years. At the same time it is granted capital subsidy equal to 50% of the sales tax collected from customers in respect of vehicles cleared from Plant No. 2 for 14 years with a maximum limit of Rs. 564.35 crores. The net effect is that 50% of sales tax which is actually payable by the assessee to the State Government is adjusted against capital subsidy due to it from the State Government instead of the assessee remitting the amount in the treasury and State Government paying back the same to the assessee. Thus it cannot be contended that the appellant was claiming abatement in respect of sales tax not actually paid or payable. If 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 under Section 4 and what is deductible is the amount legally permissible under the local sales tax law the same principle should apply in the case of the appellant. It is entitled to claim deduction of the amount legally permissible under the Haryana General Sales Tax Act. The fact that there is an adjustment between the assessee and the State Government on payment of sales tax and release of capital subsidy cannot change the legal position. Analogy drawn from the provisions under the circulars issued by Central Board of Direct Taxes is also permissible in the facts of the case. Thus we hold that the appellant was fully justified in claiming abatement of sales tax element in this case. We therefore set aside the order impugned and allow the appeal.

Summary

Issues Involved:
1. Whether the sales tax collected and retained by the appellant under the incentive scheme is includible in the assessable value of the goods manufactured.
2. Interpretation of the term 'actually paid or actually payable' in the context of sales tax under Section 4(3)(d) of the Central Excise Act, 1944.
3. Applicability of CBEC Circulars and analogy with provisions under the Income-tax Act, 1961.

Summary:

Issue 1: Inclusion of Sales Tax in Assessable Value
The appellant-assessee challenged the order by the Commissioner of Central Excise, Delhi, which denied their claim for deduction of sales tax collected from buyers while computing the assessable value of goods manufactured. The Haryana Government, u/r 28C of Haryana General Sales Tax Rules, 1975, granted a tax concession by way of capital subsidy equal to 50% of sales tax collected from customers for 14 years, with a maximum limit of Rs. 564.35 crores. The appellant did not include the sales tax element in the assessable value while paying excise duty. The Commissioner held that the sales tax amount collected and retained by the appellant is not eligible for abatement u/s 4(3)(d) of the Central Excise Act, 1944, and confirmed the duty demand along with a penalty.

Issue 2: Interpretation of 'Actually Paid or Actually Payable'
The appellant argued that the incentive scheme under Rule 28C is in the nature of deferment of sales tax, not a concession as contemplated u/s 13, 13A, and 13B of the Haryana General Sales Tax Act. The scheme allowed the appellant to collect sales tax and retain it, converting it into capital subsidy. The appellant contended that this arrangement should be considered as sales tax 'actually paid or payable.' The Tribunal examined the provisions and concluded that the scheme under Rule 28C relates to deferment of tax u/s 25A, and the appellant's liability to pay sales tax is deferred, not exempted. The net effect is an adjustment of 50% of sales tax against capital subsidy, which qualifies as 'actually paid or payable.'

Issue 3: Applicability of CBEC Circulars and Income-tax Act Provisions
The Commissioner had dismissed the applicability of CBEC Circular No. 378/11/98-CX., dated 12-3-98, and Circular No. 671/62/2002-CX., dated 9-10-2002, due to the amendment in the definition of 'transaction value' effective from 1-7-2000. The Tribunal, however, found that the principle from the circulars and the analogy with provisions under the Income-tax Act, 1961, support the appellant's claim. The Tribunal referred to the Privy Council's interpretation of 'money actually received' and concluded that the adjustment between the assessee and the State Government on payment of sales tax and release of capital subsidy does not alter the legal position.

Conclusion:
The Tribunal held that the appellant was justified in claiming abatement of the sales tax element and set aside the impugned order, allowing the appeal.