Determination of assessable value for levy of excise duty where an incentive is provided by the State Govts. in the form of retention of Sales-tax by the manufacturers - Central Excise - 378/11/98

Circular No. 378/11/98-CX dated 12/3/98 F.No. 6/17/94-CX.1 Government of India Ministry of Finance Department of Revenue Central Board of Excise and Customs, New Delhi Subject: Determination of assessable value for levy of excise duty where an incentive is provided by the State Govts. in the form of retention of Sales-tax by the manufacturers - regarding. The undersigned in directed to refer to Board's Circular No. 4/85(F.No. 6/15/85-CX.1) dt. 14.2.85 regarding addition and exclusion of sales-tax in the assessable value. The trade has raised a doubt about the deductions given in respect of sales tax leviable by State Government, while determining the Assessable value. The following three situations arise as a result of incentive schemes formulated by some of the State Governments for ensuring rapid industrialisation in the backward areas of the states:- i) Exemption from payment of sales tax for a particular period; ii) Deferment of payment of sales tax for a particular period; iii) Grant of incentive equivalent to sales tax payable by the units. 2. The matter regarding the above three situations has been examined by the Board in consultation with Ministry of Law. 3. In category of cases mentioned in Para 1(i) sales tax is not deductable as no sales tax is payable by the assessee in accordance with the Law. 4. In situation (ii), Sales tax is payable by the assessee after a particular period. In situation (iii), the manufacturer collects the sales tax from the buyers and retains the same with him instead of paying it to the State Govt. The State Govt. on the other hand grants a cash incentive equivalent to the amount of sales tax payable and instead of the cash incentive equivalent to the amount of sales tax payable and instead of the cash incentive being paid to the manufacturer, is credited to State Govt. account as payment towards sales tax by the manufacturer. In such a situation sales tax is also considered payable by the assessee within the meaning of the provisions of Section 4(4) (d)(ii) of the Central Excise Act, 1944. Therefore, sales tax is deductable from the wholesale price for determination of assessable value for levy of Central Excise Duty in category. of cases mentioned in Para 1(ii) (iii) above. 5. The advice of Ministry of Law in the matter has been accepted by the Board and is enclosed for information. Sd/- (S.C. Bhatia) Under Secretary to the Govt. of India Ministry of Law Justice Department of Legal Affairs Our advice has been sought by the Department of Revenue Revenue regarding the inclusion/ exclusion of sales tax from the sale price for determination of the assessable value for levy of Central Excise duty in terms of Sec. 4 of the Central Excise Act, 1944 (Act for short). 2. The following three situations arising as a result of incentive scheme formulated by some of the State Government for ensuring rapid industrialisation in the backward areas of the states have been mentioned:- (i) Exemption from payment of sales tax for a particular period; (ii) Payment of sales tax deferred for a particular period; and (iii) Grant of incentive equivalent to sales the payable by the units. 3. Section 4 of the Act is regarding valuation of excisable goods for the purposes of charging of duty of excise. Clause 4(d)(ii) of Section 4 provides, inter alis, that the amount of sales fax and other taxes, if any, payable on excisable goods is to be excluded from the sale price. The use of term payable' in the statue is significant. It means not the actual burden of sales tax or other taxes but the sales tax or the other taxes payable in accordance with the law. 4. If no sales tax is payable by the assessee in accordance with the law, he cannot ask for it to be deducted from the wholesale price for calculating the assessable value of the goods. The above view has found acceptance by the courts and recently by the Tribunal in the case of CCE, Bombay vs. Bajaj Auto Ltd. [1997(71) ECR 543 (Tribunal)]. In view of the aforesaid, there is no doubt about the first situation mentioned in Para 2 as no sales tax is payable by the assessee. 5. Perusal of the CBDT Circular letter No. 201/34/86-ITA-II dated 25.9.87 shows that it has been issued in the context of Section 43B of the Income Tax Act, 1961, which provides for deduction in respect of any actually paid by the assessee by way of tax or duty under any law in the previous year irrespective of the previous year in which liability to pay such sum was incurred. Since there appears to be no provision in the Act similar to the provision contained in Section 43B of the I.T. Act, we feel that it is not advisable to apply that instructions contained in the aforesaid CBDT circular to the cases of determination of assessable value for levy of Central Excise duty under the Act. 6.Examination of the situations, mentioned above in Para 2(ii) (iii), in the referring note give an indication that sales tax in payable by the assessee in both the situations. It is after a particular period in the second case. On the other hand, in the third situation, the sales tax is considered payable by the assessee even though it is paid by the State Government, the assessee keeping the said amount as cash incentive. In this situation sales tax would be considered as payable within the meaning of the provisions of Sec. 4(4)(d)(ii) of the Act. 7. We are therefore, of the opinion that in the category of cases mentioned in Para 2(i), sales tax is not deductable whereas in the category of cases mentioned at (ii) and (iii) sales tax is deductable from the wholesale price for determination of assessable value under Sec. 4 of the Act for levy of Central Excise duty. Sd/- (D. Bhardwaj) Asstt. Legal Adviser (Pl. refer Cir. No. 679/70/2002-CX, Dt. 04/12/2002 for Inclusion of interest on sales tax in the assessable value)