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CESTAT Order having effect of Overruling SC Ruling


RS Sharma AdvocateRS Sharma Advocate 

Excise is not payable on the amount retained by a manufacturer under sales tax incentive scheme known as Package Scheme of Incentives 1993 declared by Government of Maharashtra as ruled by CESTAT vide a recent Ruling AIT-2015-154-CESTAT in Bunch of Appeals. But the Honeymoon of Manufacturers can be short as the law is constantly changing. 

 The facts as an illustration were as under: 

The manufacturers charged sales tax of Rs. 100 on the bills from the customers at the time and place of removal from the factory. The manufacturers actually paid Rs. 25 as sales tax as they availed option of deemed payment of deferred sales tax pre-maturely under Section 94(2) of Maharashtra VAT, Act, 2002 and sales tax amount actually paid was equal to  NPV (Net Present Value) of the deferred sales tax. The balance of Rs. 75 was retained by the manufacturers and used in their business. 

The manufacturers worked under Section 94 of  Maharashtra VAT Act,2002 which provided as under: 

94. Deemed payment 

(1) Notwithstanding anything contained in this Act, rules or notifications, but subject to such conditions as the Commissioner may, by general or special order in the official Gazette, specify, where a dealer to whom incentive by way of deferment of sales tax liability under any of the Package Schemes of Incentives designed by the State Government, have been granted by virtue of the Eligibility Certificate, and where a loan liability equal to the amount of any such tax payable by such dealer has been raised by the SICOM or the Directorate of Industries or the relevant Regional Development Corporation or the District Industries Centre concerned or then such tax shall be deemed, in the public interest, to have been paid. 

(2) Notwithstanding anything to the contrary contained in the Act or in the rules or in any part of the Package Scheme of Incentives or the Eligible Unit to whom an Entitlement Certificate has been granted for availing of the incentives by way of deferment of sales tax or purchase tax, as the case may be, may, in respect of any of the periods during which the said certificate is valid, at its option, prematurely pay in place of the amount of tax deferred by it, an amount, equal to the net present value of the deferred tax, as may be prescribed and on making such payment, the deferred tax shall be deemed in the public interest to have been paid. 

Supreme Court in the case of Super Synotex reported vide AIT-2014-121-SC laid down the following principle vide Para 23. 

unless the sales tax is actually paid to the Sales Tax Department of the State Government, no benefit towards excise duty can be given under the concept of “transaction value” under Section 4(4)(d), for it is not excludible. As is seen from the facts, 25% of the sales tax collected has been paid to the State exchequer by way of deposit. The rest of the amount has been retained by the assessee. That has to be treated as the price of the goods under the basic fundamental conception of “transaction value” as substituted with effect from 1-7-2000. Therefore, the assessee is bound to pay the excise duty on the said sum after the amended provision had brought on the statute book.  

Explanation to sub-section(1) of  Section 4  of Central Excise Act, 1944 , which was inserted w.e.f. 14.5.2003 by Section 136 of the Finance Act,2003 provides as under:   

Explanation. - For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods  

The aforesaid Explanation to Section 4 emphasises on the sales tax actually paid for excluding the said component from the value of goods for payment of excise duty. 

There is a clear distinction between actual payment of sales tax and the deferred tax deemed in the public interest to have been paid. Thus the deduction of sales tax actually paid alone is admissible. When the goods are being removed from the factory; at that point of time also a manufacturer is aware about option to make pre-mature payment of deferred sales tax. Thus sales tax actually payable under the scheme on the date and time of removal of goods is only a small percentage of the sales tax charged from the customers.     

In case of KINETIC ENGINEERING LTD. Versus  CCE , PUNE, NAGPUR, NASHIK 2012 (283) E.L.T. 229 (Tri. - Mumbai) wherein the facts were similar; the CESTAT held that the abatement towards sales tax has to be allowed in terms of the sales tax liability (as per law) at the time of clearance of the goods. Such abatement cannot be subsequently altered or restricted to the net present value of sales tax subsequently paid in complete discharge of such sales tax liability.   

But aforesaid CESTAT Ruling of 2012 has already been reversed by Supreme Court on Appeal filed by the Department. Recent CESTAT Ruling of 2015 has the effect of overruling SC Ruling.  

(Writer is a Lawyer based in Delhi/Gurgaon and is advising several MNCs, Indian Corporates & PSUs on Central Excise, Service Tax, Customs & Foreign Trade matters. He can be mailed at )  


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