CX - Subsidy received by Fertilizer Company from Government cannot be considered as additional consideration; not includible in assessable value: CESTAT
By TIOL News Service
BANGALORE, AUG 21, 2014: THE issue involved is that the Government of India decontrolled Phosphatic and Potassic (P & K) fertilizers with effect from 25th August 1992 on the recommendations of Joint Parliamentary Committee. Consequent upon the decontrol, the prices of the Phosphatic and Potassic fertilizers registered a sharp increase in the market, which exercised an adverse impact on the demand and consumption of the same. It led to an imbalance in the usage of the nutrients of N, P and K (Nitrogen, Phosphate and Potash) and the productivity of the soil. Keeping in view the adverse impact of the decontrol of the P&K fertilizers, the Department of Agriculture and Cooperation introduced Concession Scheme for decontrolled Phosphatic and Potassic (P & K) fertilizers on adhoc bass w.e.f. 1.10.1992, which has been allowed to continue by the Government of India up to 31.3.2010 with changed parameters from time to time. Subsequently, the Government introduced nutrient based subsidy policy w.e.f 1.4.2010 (w.e.f. 1.5.2010 for Single Super Phosphate) in continuation of the erstwhile concession scheme for decontrolled P & K fertilizers. The purpose of the concession scheme, according to the appellants, is to provide fertilizers to the farmers at subsidized prices. The concession was disbursed to the manufacturers/importers and State Government ensures that MRP is indicated in respect of SSP. The MRP so decided has been constant till 31.3.2010.
Taking a view that the subsidy received by fertilizer companies from the Government is required to be added to the assessable value and charged to duty, proceedings were initiated culminating in confirmation of duty demand for Rs.25,35,88,216/-. In addition, an equal amount has been imposed as penalty and penalty under Section 11AC of Central Excise Act, 1944 and penalty of Rs.2.5 crores has been imposed under Rule 25 of Central Excise Rules, 2002. The period involved is March 2011 to June 2012.
It was submitted that in Circular No.983/7/2014-CX dated 10.7.2014 , the Board has clarified that the subsidy given by the Government is not includable in the assessable value and Central Excise duty is not payable on the subsidy component provided by the Government. The grant of subsidy is given pursuant to an administrative decision taken by Government of India and payment of subsidy to the manufacturer by the Government cannot be regarded as discharge of any liability or obligation by the Government towards the purchasers of the fertilizers. The definition of ‘transaction value' deals with only such elements which otherwise may form part of value which a buyer is liable to pay to the assessee either by reason of sale or in connection with sale himself or on behalf of the assessees. Subsidy paid by the Government cannot be considered as an additional consideration includable for excise duty in accordance with statute.
The Tribunal noted that in para 4.4 in the above mentioned Circular, the Board observed as follows.
"4.4 From the above, it is clear that the facts at hand are clearly distinguishable from the facts and circumstances of the Fiat India case. The manufacturers of fertilizers do not gain any extra commercial advantage vis-a-vis other manufacturers because of the subsidy received from the Government. The subsidy paid by the Government to the manufacturer is in larger public interest and not for benefiting any individual manufacturer-seller and it is also not paid on behalf of any individual buyer or entity. In view of the above, it can be concluded that the subsidy component is not an additional consideration and hence, the MRP at which the fertilizer is sold to buyers by the manufacturers is the sole consideration for its sale. Even though the subsidy component has money value, it cannot be considered as an additional extra-commercial consideration flowing from the buyer to the seller."
In view of the fact that the issue is covered by the Board's Circular and in the opinion of the Tribunal also the subsidy cannot be considered as an additional consideration, Appeal allowed.
(See 2014-TIOL-1553-CESTAT-BANG)
