2017 (4) TMI 149 - AT - Central Excise

Valuation - subsidy - manufacture of DDT - whether amount of subsidy received by the appellant from the Government of India is to be treated as additional consideration for the sale of the goods manufactured by the appellant and sold to the Ministry, Govt. of India? - the appellant manufacturer claims that the subsidy is having no connection with the manufacture and supply of DDT - Section 4(1)(b) read with Rule 6 of Valuation Rules - Held that - the subsidy received by the appellant certainly is in the nature of reimbursement for the supply of DDT made by the appellant to the Ministry of Health & Family Welfare, Government of India - Rule 6 makes the position further clear that the value of the goods (DDT) shall be deemed to be the aggregate of the subsidized price and the reimbursement or subsidy money (differential price/subsidy being received from the Ministry by the appellant). This aggregate is the actual value on which Central Excise duty is chargeable as this is the consideration which is flowing directly or indirectly to the appellant. The Explanation to Section 4(1) of Central Excise Act, 1944 given earlier makes it clear that in case of reimbursement/subsidy / money received from the Ministry, Govt. of India the same will be deemed to include the duty of such goods.. Therefore, the reimbursement/subsidy amount received by the appellant, M/s Hindustan Insecticides Ltd., the manufacturer of subject goods includes the Central Excise duty component also, which is payable to the National Exchequer under the appropriate head of Central Excise Duty. Extended period of limitation - Held that - demand beyond the period of one year is time barred as the department had the knowledge of the relevant facts - extended period not invocable. The demand for the period of one year (from the relevant date) is sustained along with interest. However, for re-quantification of the liability of the demand and interest and penalty if any, the matter is remanded to the adjudicating authority - appeal partly allowed by way of remand.

Summary

Issues Involved:
1. Whether the subsidy received by the appellant from the Government of India is to be treated as additional consideration for the sale of goods.
2. Whether the subsidy should be added to the value of goods under Section 4 of the Central Excise Act, 1944, and Rule 6 of the Central Excise Valuation Rules, 2000.
3. Whether the extended period of limitation is invocable for the demand of duty.

Issue-wise Detailed Analysis:

1. Subsidy as Additional Consideration:
The appellant, M/s Hindustan Insecticides Ltd., argued that the subsidy received from the Government of India is not linked to the sale of DDT and should not be considered additional consideration. They cited the Supreme Court decision in CCE Vs. Mazagon Dock Ltd. and various other cases to support their claim. However, the Tribunal found that the subsidy was indeed linked to the supply of DDT, as evidenced by the Committee of Secretaries' decision, which stated that the subsidy was a reimbursement for the supply of DDT.

2. Addition of Subsidy to the Value of Goods:
The Tribunal held that under Section 4(1) of the Central Excise Act, 1944, and Rule 6 of the Central Excise Valuation Rules, 2000, the subsidy received should be considered part of the transaction value. The explanation to Section 4(1) clarifies that the price-cum-duty includes any additional consideration received directly or indirectly from the buyer. Therefore, the subsidy received by the appellant is deemed to include the duty payable on the goods. The Tribunal also referenced a similar decision by CESTAT, Bangalore, in the case of CCE Vs. Indian Oil Corporation, where it was held that Central Excise duty is chargeable on the subsidy component with the benefit of cum duty price.

3. Extended Period of Limitation:
The Tribunal considered whether the extended period of limitation could be invoked. The appellant argued that as a public sector undertaking, there was no intent to evade duty, and the fact of receiving the subsidy was disclosed in their financial statements. The Tribunal agreed, referencing the CESTAT decision in CCE, Indore Vs. Nepa Ltd., which held that it would be absurd to accuse a wholly government-owned company of intent to evade tax. Consequently, the Tribunal ruled that the demand for the period beyond one year from the relevant date is time-barred and cannot be sustained.

Conclusion:
The Tribunal concluded that the subsidy received by the appellant is part of the assessable value for the purpose of Central Excise duty. However, the demand for the period beyond one year is time-barred. The matter was remanded to the adjudicating authority for re-quantification of the demand, interest, and penalty for the period within one year from the relevant date. The appeal was partly allowed by way of remand.