CX - Subsidy is an indirect consideration received by assessee - includible in Transaction value: CESTAT
By TIOL News Service
NEW DELHI, APRIL 10, 2017: THE assessee is in appeal against the O-in-O passed by the Commissioner, LTU, Delhi where under demands of Rs.26,97,254/-, Rs.2,74,73,600/- and of Rs.11,85,461/- along with interest and equivalent penalties have been confirmed. The period involved is from 2005-2006 to 2009-2010.
The facts are -
(i) The appellants are manufacturing DDT falling under Chapter 38 of the First Schedule to the Central Excise Tariff Act, 1985 (CETA). The entire quantity of DDT manufactured by the appellant is sold to the Ministry of Health and Family Welfare, Government of India.
(ii) The dispute pertains to the question whether amount of subsidy received in this regard 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.
Revenue's case is that subsidy is linked with the quantity of DDT manufactured and supplied by the appellant and is, therefore, required to be added to the ‘value' in terms of the Section 4(1)(b) r/w Rule 6 of the Valuation Rules.
The appellant has denied the allegations and places reliance on the decision in Mazagon Dock Ltd. = 2005-TIOL-111-SC-CX ; Oil and Natural Gas Corporation Ltd. = 2008-TIOL-2849-CESTAT-AHM & Board's Circular No. 983/7/2014-CX dated 10.7.2014.
The Bench observed that the claim of the appellant that the subsidy is having no connection with the manufacture and supply of DDT is incorrect in the sense that the subsidy received by the appellant 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.
Inasmuch as the decision taken by the Committee of Secretaries for the rehabilitation of the appellant unit mentioned -
(i) The existing formula used by the Cost Accounts Branch of Ministry of Finance would continue to be used for calculating the return on DDT.
(ii) Ministry of Finance would make a provision for subsidy of Rs. 5 crore per annum to Ministry of Health & Family Welfare which would be utilized for reimbursing HIL against supplies of DDT. This provision would commence with effect from 2005-06 and would continue up to 2011.
(iii) The subsidy of Rs.5 crore would be pegged to HIL producing of its present of production of about 8200 MT of DDT annually. Shortfall in production of every 20% from this level would entail a reduction of the subsidy amount by Rs.1.00 crore."
After extracting the provisions of section 4(1) of the CEA, 1944, the Bench adverted to the Explanation appearing there under and observed -
+ Whatever is the total consideration received by the assessee for the subject goods (DDT) which has been received directly or indirectly from the buyer (including from the Ministry, Govt. of India as subsidy) will be the price-cum-duty where sale tax and other taxes, if any, actually paid, will be excluded and such price-cum-duty shall be deemed to include the duty payable on such goods.
+ In terms of the contents of the Explanation to Section 4(1) of Central Excise Act, 1944, the differential price (subsidy) which has been received by the appellant assessee for the subject goods namely DDT over and above their sale will be taken/deemed as price-cum-duty. It means that subsidy received by the assessee, HIL will be deemed to include the duty payable for such goods.
+ The argument of the assessee appellant that they have received the additional money as ‘subsidy' from Ministry cannot exempt the goods from payment of duty on the ‘subsidy' portion as the Explanation given under Section 4(1) is clear that the money value of the additional consideration being received directly or indirectly by the assessee shall be deemed to include the duty payable on such goods.
+ Said subsidy is an indirect consideration received by the assessee appellant for the subject goods only and this indirect consideration is deemed as coming from the buyer as in the present case buyer is no other than the Ministry of Health & Family Welfare, Govt. of India only and it is the Govt. of India who are giving this subsidy to the assessee viz. HIL. Though may be this subsidy is sanctioned by the different Ministry and goods might be being supplied to some other Ministry yet both are part of the same entity, which is Government of India only…
+ Rule 6 (of Valuation Rules, 2000) 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.
Taking a view that the CBEC circular cited by the appellant cannot override or supersede the provisions of Central Excise Act and the Rules made thereunder and that the case laws cited are not applicable, it is held that any extra consideration received for the subject goods in whatever form (subsidy or otherwise) has to be treated as part of the assessable value for the subject goods. However, cum-duty benefits were extended for computing the CE duty due on the subsidy received .
Limitation -
The appellant submitted that the fact of receipt of subsidy was reflected in their profit and loss account and balance sheet and they are public sector undertaking, therefore, there is no question of they having any ‘intent to evade payment of duty'; more so, when they have sold entire quantity of DDT manufactured to the Ministry of Health & Family Welfare, Government of India.
Relying on the decision in Nepa Ltd. - 2013-TIOL-2513-CESTAT-DEL wherein it is held that in case of Public Sector Undertaking, it would be absurd to accuse that there was ‘intention to evade tax', the Bench held that duty of Central Excise is to be levied on the subsidy portion or (extra consideration/reimbursement received) for the period of only one year from the relevant date, which is the date of the Show Cause Notices.
For re-quantification of the duty liability and interest and penalty, the matter was remanded to the adjudicating authority.
(See 2017-TIOL-1187-CESTAT-DEL)
