By TIOL News Service

NEW DELHI, JUNE 06, 2018: THE assessee is engaged in manufacture of scooters and Motorcycles and entered into a Memorandum of Understanding with State of Rajasthan in terms of which the State Government shall pay the assessee, cash subsidy equivalent to 100% of output tax in respect of sale and registration of vehicles manufactured by assessee in the State. The assessee paid VAT and received subsidy from State Government which was credited in their account.

Department viewed that subsidy received by assessee is includible in transaction value of final product of assessee by virtue of section 4(3)(d) of CEA, 1944.

Duty demand was confirmed along with imposition of penalty on the assessee and employees of the assessee company.

In appeal before the CESTAT, the Assessee submitted that they paid the entire VAT/CST to the State Government, as recovered from their customers. They emphasized that subsidy amounts were paid to them subsequently by the State Government and the same cannot be said to be out of the VAT recovered from their customers.

Reliance is placed on the following decisions where Tribunal has taken a view that the subsidy amount is not includible in transaction value of the final product -

Shree Cement Ltd. - 2018-TIOL-748-CESTAT-DEL

Ultratech Cement Ltd. - 2018-TIOL-727-CESTAT-DEL

Welspun Corporation Ltd. - 2017-TIOL-1287-CESTAT-Mum

After distinguishing the decisions cited by the AR, the CESTAT, therefore, observed that -

++ according to MOU, assessee is required to deposit with State Government the amount of VAT/CST recovered by them from their customers. Out of the said amount, the claim is submitted to the State Government for sanction of subsidy, which after sanction is paid directly to the bank account of assessee. It is evident that the VAT/CST paid by the appellant is credited into the State Exchequer.

++ tribunal consistently is taking the view that subsidy amount cannot be included in the transaction value of the product for the purpose of payment of duty.

++ in particular, in the case of Ultratech Cement Ltd. (supra) Tribunal has considered a similar issue pertaining to the Rajasthan State Government where subsidy was paid to the assessee by way of credit in the form VAT 37 B.

++ in the present case, we find that subsidy is sanctioned and credited to the bank account of the appellant.

Concluding that the impugned order is not sustainable, same was set aside and the appeals were allowed.

(See 2018-TIOL-1728-CESTAT-DEL)

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