CX - Valuation - S.4 - Assessee retained with it 50% of Sales tax collected from customers & it was neither actually paid nor was it actually payable to exchequer - Transaction Value was required to be calculated by including amount retained by assessee: SC
By TIOL News Service
NEW DELHI, SEPT 06, 2014: THE assessee is Maruti Suzuki India Ltd. The eligibility of the said prestigious unit to a tax concession under the provisions of Rule 28-C of the Haryana General Sales Tax Rules, 1975 (the Rules) was considered by the High Powered Committee (HPC) and the following decision was taken on 14th June, 2001:-
"…After due deliberation the committee approved that MUL be given incentive of first expansion where the company will pay 50% of the tax collected and retain 50%. This would be net of tax on purchases. Maximum benefit permissible on account of first expansion i.e. Rs. 564.35 crores would remain the ceiling. The period of benefit would be extended to 14 years within the existing ceiling of Rs. 564.35 crores and in lieu thereof MUL would waive its claim for tax incentive for all subsequent expansions i.e. for IInd, IIIrd. The incentive would be given only in respect of vehicles rolled out of production capacity of 70,000 vehicles added as a result of first expansion and not to the production augmented by capacity addition of 30,000 vehicles as a result of second expansion.
The MUL will start availing the benefit of sales tax concession from the date of entitlement as per Rule 28C. The Entitlement Certificate will be issued by the DETC concerned and MUL will submit the requisite documents for the issuance of entitlement certificate to the DETC concerned. "
A SCN was issued by the CCE, Delhi-III on the ground that on the sale of its vehicles for the quarters ending September and December 2001 and March and June, 2002 the assessee had retained 50% of the sales tax collected by it from its customers based on the above entitlement certificate. The SCN alleged that the retained sales tax was neither actually paid nor actually payable to the State Government. Under these circumstances, the sales tax retained by the assessee constituted a part of the "transaction value" of the vehicles sold by the assessee to the customers in terms of the definition of that expression in Section 4(3)(d) of the CEA, 1944 and CE duty was payable on the same.
The adjudicating authority determined an amount of about Rs.7.21 crores as central excise duty payable by the assessee on the transaction value and also imposed a penalty of Rs.1 crore on the assessee.
The CESTAT by an order dated 16th January, 2004 allowed the appeal.
The Tribunal accepted the contentions of the assessee and held that Rule 28-C prescribed a procedure relating to deferment of tax under Section 25A of the Act and, therefore, what was granted to the assessee was a deferment of payment of sales tax and not a sales tax concession. The deferment was for a period of 14 years during which period the amount was adjusted against capital subsidy due to the assessee, subject to a maximum limit of Rs.564.35 crores. Instead of the assessee depositing the amount in the Treasury and the State Government giving the amount back to the assessee towards capital subsidy the amount was adjusted and, therefore, it could not be argued that the assessee was claiming abatement in respect of sales tax not actually paid or payable. The Tribunal accordingly set aside the order passed by the adjudicating authority and held that the assessee was justified in claiming abatement of the sales tax element retained by it on the sale of vehicles.
Aggrieved by this decision of the CESTAT, the CCE, Delhi-III filed a Civil Appeal before the Supreme Court.
It is submitted by the Revenue that the case of the assessee was governed by Rule 28-C(5) (b) and not Rule 28-C(5)(a); that the decision of the HPC did not support the case of the assessee; that the entitlement certificate did not defer any payment of sales tax.
The Supreme Court inter alia observed -
++ A bare reading of Rule 28-C(5)(a) shows that it is clearly inapplicable in the case of the assessee. That sub-rule ex facie excludes a prestigious unit from its ken ["(except a prestigious unit)"] There is no dispute that the assessee is a prestigious unit and therefore Rule 28-C(5)(a) is not at all applicable and the Tribunal was completely in error in relying upon this sub-rule. What is applicable to the present case is Rule 28-C(5)(b) which mentions that the grant of a tax concession to a prestigious unit will be decided by the HPC.
++ There is no mention in the decision of the HPC about adjustment of this amount against any scheme or any capital subsidy. On the contrary, the decision of the HPC is relatable to Rule 28-C (5)(b) which refers to "grant of tax concession to prestigious units" and for the implementation of this decision, an entitlement certificate would be issued to the assessee. The Revenue is right in its contention that the decision of the HPC clearly does not support the case of the assessee.
++ A bare reading of the entitlement certificate also does not give any indication of deferment of tax or capital subsidy. On the contrary, it only refers to a "tax concession" for the period from 1st August, 2001 to 31st July, 2015 and the quantum of tax concession is mentioned as Rs.564.35 crores. The entitlement certificate issued to the assessee is clearly in line with the decision of the HPC and also does not support the case of the assessee.
++ The very basis on which the Tribunal has proceeded namely the application of Rule 28-C(5)(a) is not only incorrect but the Tribunal has overlooked the decision of the HPC and the entitlement certificate apart from overlooking Rule 28-C(5)(b).
Adverting to the CBEC Circular dated 30th June, 2000, paragraphs 10 & 11,the Supreme Court observed -
++ Insofar as the present case is concerned, there is no doubt that 50% of the sales tax collected was retained by the assessee and was not actually paid to the exchequer nor was it actually payable since the HPC permitted the assessee to retain that amount.
++ Therefore, whichever way the issue is looked at, the fact remains that the assessee retained with it 50% of the sales tax collected from its customers and it was neither actually paid to the exchequer nor was it actually payable to the exchequer. That being the position, the transaction value was required to be calculated by including the amount of about Rs.22.44 crores retained by the assessee.
Holding that the Tribunal had misdirected itself in law on several counts and erroneously decided the appeal in favour of the assessee, the order of the Tribunal was set aside.
On the question of penalty, the Apex Court observed that since the assessee had succeeded before the Tribunal, it would not be appropriate to saddle it with any penalty.
Conclusion
The order of the adjudicating authority dated 22nd May, 2003 was restored and the order of the Tribunal dated 16th January, 2004 was set aside.The penalty imposed on the assessee was also set aside.
(See 2014-TIOL-74-SC-CX)
