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Saturday, March 1, 2014

Rajasthan Sales Tax Incentive Scheme 1989 & Central Excise duty -Central Excise Tariff Act 1985-Section 4(4)(d)(ii) of the Act - Under the scheme for certain period the manufacturer is entitled to retain 75% of collected tax with him and has to pay 25% sale Tax out of it - Excise duty is payable at 2% for certain period on actual price but not included price of sale tax collected shown in invoice - show-cause notice was that the assessee had not paid the duty on the additional consideration collected towards the sales tax -The explanation of the assessee was that it was extended the benefit of the incentive scheme and not granted any exemption and, therefore, the sales tax collected was not includible in the assessable value and deduction was admissible under the Act - Commissioner negatived the plea of Assesses where as the Tribunal allowed the plea of Assesses - Apex court partly allowed the appeal of Revenue and remit the matter to Tribunal to fix the excise duty as per the observations of Apex court and dismissed the appeals of Assesses who claimed total exemption and held that On a perusal of the circulars dated 12.3.1998 and 1.7.2002 we do not find that they remotely relate to any exemption under the Central Sales Tax imposed on the goods. = Commissioner of Central Excise, Jaipur-II … Appellant Versus M/s. Super Synotex (India) Ltd. and others …Respondents =2014(Feb.Part) judis.nic.in/supremecourt/filename=41272

Rajasthan Sales Tax Incentive Scheme 1989 & Central Excise duty -Central Excise Tariff Act 1985-Section 4(4)(d)(ii) of the Act - Under the scheme for certain period the manufacturer is entitled to retain 75% of collected tax with him and has to pay 25% sale Tax out of it - Excise duty is payable at 2%  for certain period on actual price but not included price of sale tax collected shown in invoice - show-cause notice was that the assessee  had  not  paid  the duty on the additional consideration collected  towards  the  sales tax -The  explanation  of  the assessee was that it was extended  the  benefit  of  the  incentive scheme and not granted any exemption and, therefore, the sales  tax collected was not includible in the assessable value and  deduction was admissible under the Act - Commissioner negatived the plea of Assesses where as the Tribunal allowed the plea of Assesses - Apex court partly allowed the appeal of Revenue and remit the matter to Tribunal to fix the excise duty as per the observations of Apex court and dismissed the appeals of Assesses who claimed total exemption and held that  On  a  perusal  of  the circulars dated 12.3.1998 and 1.7.2002 we do  not  find  that  they remotely relate to  any  exemption  under  the  Central  Sales  Tax imposed on the goods.  =

 The  respondent  herein  is  engaged   in   the
        manufacture of yarn of manmade fibers falling under Chapter  55  of
        the Schedule to the Central Excise Tariff Act, 1985, chargeable  to
        duty.   
A show-cause notice was issued to  the  respondent-assessee
        on the ground that  for  certain  period  it  had  contravened  the
        various provisions of the Act, and the Central Excise  Rules,  1944
        which had resulted in evasion of Central Excise Duty.  
The  fulcrum
        of the show-cause notice was that 
the assessee  had  not  paid  the
        duty on the additional consideration collected  towards  the  sales
        tax.
The case of the Revenue was  that  though  the  assessee  was
        availing exemption from payment of sales tax, it was showing  sales
        tax in the invoices but assessable value was shown  separately  for
        payment of Central Excise Duty as a consequence of  which  the  net
        yarn value was invariably higher  than  the  assessable  value  and
        excise duty paid thereon.  
This led to the difference  between  the
        two amounts which was almost equal  to  the  amount  of  sales  tax
        applicable during  the  relevant  time.   
The  explanation  of  the
        assessee was that it was extended  the  benefit  of  the  incentive
        scheme and not granted any exemption and, therefore, the sales  tax
        collected was not includible in the assessable value and  deduction
        was admissible under the Act.=

whether the assessee was entitled to claim deduction under  Section
        4(4)(d)(ii) of the Act in respect  of  full  amount  of  sales  tax
        payable at the rate of 2%.  
The Tribunal took note of the fact that
        the assessee, being entitled for the benefit under  the  Sales  Tax
        New Incentive Scheme for Industries, 1989 (for short “the Scheme”),
        had availed the same with effect from 3.12.1996 and 
under the  said
        Scheme it was entitled to retain with  it  75%  of  the  sales  tax
        collected and pay only  25%  to  the  Government  and,  
accordingly
        claimed the deduction for the entire amount of sales tax payable at
        the rate of 2% and,  
accordingly,  it  did  not  approve  the  view
        adopted by the adjudicating authority that the benefit  granted  to
        the assessee in respect of the sales tax was in the  nature  of  an
        exemption and not an incentive and, therefore, not deductible under
        Section 4(4)(d)(ii) of the  Act.   
The  Tribunal  referred  to  the
        circular dated 12.3.1998 issued by the Central Board of Excise  and
        Customs (CBEC) and came to hold that sales tax was deductible  from
        the wholesale price for determination  of  assessable  value  under
        Section 4 of the Act for levy of Central  Excise  Duty.   
Being  of
        this view, it set aside the order passed  by  the  Commissioner  of
        Excise  and  directed  for  refund  of  the  deposits  made  during
        investigation and the deposit made in pursuance of the order passed
        by the Tribunal.

Sec. 4 (4)(d)(ii)-
the  assessee  has  claimed  that  there  is
        difference between grant of incentive and extension of  benefit  of
        exemption, and the scheme, i.e., the “Rajasthan Sales Tax Incentive
        Scheme 1989” does  not  relate  to  exemption  but  incentive.   
To
        elaborate, the assessee, under the said  Scheme,  is  permitted  to
        retain 75% of the sales tax collected as incentive and is liable to
        pay 25% to the department.  75% of the  amount  retained  has  been
        treated as incentive by the State Government.  
It  is  pointed  out
        that such retention of sales tax is a deemed payment of  sales  tax
        to the State exchequer and for the said purpose reliance is  placed
        on Circular No. 378/11/98-CX dated 12.3.1998 issued by C.B.E.C.

    17. In the aforesaid circular, three situations were  envisaged,  viz.,
        (i) exemption from payment of sales tax for  a  particular  period;
        (ii) deferment of payment of sales tax for a particular period; and
        (iii) grant of incentive equivalent to sales  tax  payable  by  the
        unit.  
The aforestated three situations had been  examined  by  the
        Board in  consultation  with  the  Ministry  of  Law.   
As  far  as
        situation (iii) is concerned, the circular stated thus: -

           “6.   Examination of the  situation,  mentioned  above  in  para
           2(ii) & (iii), in the referring note  give  an  indication  that
           sales tax is payable by the assessee in both the situations.  
It
           is payable after a particular period in the second case.  
On the
           other hand, in the third situation, the sales tax is  considered
           payable by the assessee even though it  is  paid  by  the  State
           Government,  the  assessee  keeping  the  said  amount  as  cash
           incentive.  
In this situation sales tax would be  considered  as
           payable  within  the  meaning  of  the  provisions  of   Section
           4(4)(d)(ii) of the Act.

          
We are therefore, of the opinion that in the  category  of
           cases mentioned in  para  2(i),  sales  tax  is  not  deductible
           whereas in the category of cases mentioned  at  (ii)  and  (iii)
           sales  tax  is  deductible  from   the   wholesale   price   for
           determination of assessable value under Section 4 of the Act for
           levy of Central Excise duty.”

    18. To understand the purpose of the aforesaid  two  paragraphs  it  is
        also necessary to refer to the note  given  by  the  Board  seeking
        opinion of the Ministry of Law in respect of situation (iii)  which
        is a part of the said circular.  It reads as follows: -

           “In situation (iii), the manufacturer  collects  the  sales  tax
           from the buyers and retains the same with him instead of  paying
           it to the State Government.  
The State Government on  the  other
           hand grants a cash incentive equivalent to the amount  of  sales
           tax payable and instead of the case incentive being paid to  the
           manufacturer, is credited to State Government account as payment
           towards sales tax by the  manufacturer.  
 In  such  a  situation
           sales tax is also considered payable by the assessee within  the
           meaning of the provisions of Section 4(4)(d)(ii) of the  Central
           Excise Act, 1944.  
Therefore, sales tax is deductible  from  the
           wholesale price for determination of assessable value  for  levy
           of Central Excise duty in category of cases  mentioned  in  para
           (ii) & (iii) above.”
In view of the aforesaid analysis, we are of the considered opinion
        that the assessees in all the  appeals  are  entitled  to  get  the
        benefit  of  the  circular  dated  12.3.1998  which  protects   the
        industrial units availing incentive scheme as there is a conceptual
        book adjustment of the sales tax paid to the Department.  
But  with
        effect from 1.7.2000 they shall only be entitled to the benefit  of
        the amount “actually paid” to the Department, i.e., 25%.   
Needless
        to emphasise, the set off shall operate  only  in  respect  of  the
        amount that has been paid on the raw material and inputs  on  which
        the sales tax/ purchase tax has been paid.  
That being the position
        the adjudication by the tribunal is not sustainable.  
Similarly the
        determination by the original adjudicating authority requiring  the
        assessees to deposit or pay the whole amount and the  consequential
        imposition of  penalty  also  cannot  be  held  to  be  defensible.
        
Therefore, we allow the appeals  in  part,  set  aside  the  orders
        passed by the tribunal as well  as  by  the  original  adjudicating
        authority and remit the matters  to  the  respective  tribunals  to
        adjudicate as far as excise duty is concerned  in  accordance  with
        the principles set out hereinabove.  
We further clarify that as far
        as imposition of penalty is concerned, it shall be  dealt  with  in
        accordance with law governing the field.  
In any  case,  proceeding
        relating to the period prior to 1.7.2000 would stand closed and  if
        any amount has been paid or deposited as per the direction  of  any
        authority in respect of the said period, shall be refunded.  
As far
        as  the  subsequent  period  is  concerned,  the   tribunal   shall
        adjudicate as per the principles stated hereinbefore.

Coming to the appeals preferred by  the  assessees,  the  challenge
        pertains to denial of benefit of the Central  Sales  Tax  Act,  the
        aforesaid reasoning will equally apply. =
On  a  perusal  of  the
        circulars dated 12.3.1998 and 1.7.2002 we do  not  find  that  they
        remotely relate to  any  exemption  under  the  Central  Sales  Tax
        imposed on the goods.  
What is argued by the  learned  counsel  for
        the assessees is that the benefit should be extended to the Central
        Sales Tax as the tax on sales has a broader concept.  
The aforesaid
        submission is noted to be rejected and we, accordingly,  repel  the
        same.  In view of the  aforesaid,  the  appeals  preferred  by  the
        assessees stand dismissed.

   2014(Feb.Part) judis.nic.in/supremecourt/filename=41272   
ANIL R. DAVE, DIPAK MISRA

           IN THE SUPREME COURT OF INDIA


                        CIVIL APPELLATE JURISDICITON


                     CIVIL APPEAL NOS. 9154-9156 OF 2003


      Commissioner of Central Excise, Jaipur-II          … Appellant


                                   Versus


      M/s. Super Synotex (India) Ltd. and others   …Respondents


                                    WITH


                        CIVIL APPEAL NO. 4621 OF 2008




                      CIVIL APPEAL NO.   2912  OF 2014
                (Arising out of S.L.P. (C) No. 16248 of 2009)


                     CIVIL APPEAL NOS. 2008-2009 OF 2010

                      CIVIL APPEAL NOS. 335-336 OF 2005


                        CIVIL APPEAL NO. 4003 OF 2009


                        CIVIL APPEAL NO. 4076 OF 2007


                        CIVIL APPEAL NO. 5987 OF 2010

                        CIVIL APPEAL NO. 6033 OF 2011

                      CIVIL APPEAL NOS. 778-779 OF 2009


                     CIVIL APPEAL NO. 8095-8103 OF 2013



                        CIVIL APPEAL NO. 8105 OF 2013










                               J U D G M E N T




      Dipak Misra, J.



           Leave granted in Special Leave Petition (C) No. 16248 of 2009.

     2. This batch of appeals preferred under Section 35L  of  the  Central
        Excise Act, 1944 (for brevity, the Act) being  inter-connected  and
        inter-linked was heard together and is  disposed  of  by  a  common
        judgment.   It  is  necessary  to  clarify  that  the  Revenue  has
        preferred  the  appeals  against  the  decisions  rendered  by  the
        Customs, Excise & Gold (Control) Appellate Tribunal (for short “the
        Tribunal”) at various Benches  whereby  the  assessee-manufacturers
        have been extended the benefit  of  deduction  of  excise  duty  in
        respect of sales tax  imposed  by  the  State  Government  but  not
        entirely  paid  to  the  State  exchequer  while  determining   the
        assessable value for the purpose of central excise, and some of the
        assessee-manufacturers have preferred appeals being grieved by  the
        rejection for grant of similar relief  pertaining  to  the  payment
        made under the Central Sales Tax Act.  For the sake of convenience,
        the facts from Civil Appeal Nos. 9154-9156 of 2003  are  adumbrated
        herein as far as appeals by the Revenue are concerned.  In  respect
        of the challenge made by the assessee-manufacturers we  shall  take
        the facts from Civil Appeal No. 4621 of 2008.

     3. First we shall advert to the issue involving the appeals  preferred
        by  the  Revenue.   The  respondent  herein  is  engaged   in   the
        manufacture of yarn of manmade fibers falling under Chapter  55  of
        the Schedule to the Central Excise Tariff Act, 1985, chargeable  to
        duty.   A show-cause notice was issued to  the  respondent-assessee
        on the ground that  for  certain  period  it  had  contravened  the
        various provisions of the Act, and the Central Excise  Rules,  1944
        which had resulted in evasion of Central Excise Duty.
The  fulcrum
        of the show-cause notice was that 
the assessee  had  not  paid  the
        duty on the additional consideration collected  towards  the  sales
        tax.
The case of the Revenue was  that  though  the  assessee  was
        availing exemption from payment of sales tax, 
it was showing  sales
        tax in the invoices but assessable value was shown  separately  for
        payment of Central Excise Duty as a consequence of  which  the  net
        yarn value was invariably higher  than  the  assessable  value  and
        excise duty paid thereon.  
This led to the difference  between  the
        two amounts which was almost equal  to  the  amount  of  sales  tax
        applicable during  the  relevant  time.   
The  explanation  of  the
        assessee was that it was extended  the  benefit  of  the  incentive
        scheme and not granted any exemption and, therefore, the sales  tax
        collected was not includible in the assessable value and  deduction
        was admissible under the Act.

     4. The Commissioner of Excise repelled  the  stand  of  the  assessee,
        interpreted  the  benefit  granted  to  the  assessee  as   partial
        exemption and, taking certain other facts into consideration,  came
        to hold that the assessee had deliberately with an intent to  evade
        payment of duty had suppressed the fact that though it was availing
        partial sales tax exemption under the Sales Tax Incentive Scheme of
        1989 for the relevant period upto 75% of tax liability, yet it  was
        paying only 25% of the tax leviable despite  collecting  additional
        consideration to the  extent  of  the  amount  of  sales  tax  and,
        therefore, the additional amount collected under the camouflage  of
        incentive tax had to be taken note of and, accordingly,  price  was
        to be declared and formed as a part of the value for  the  levy  of
        excise duty.

     5. Be it noted, in its reply  the  assessee  had  placed  reliance  on
        C.B.E. & C Circular No. 378/11-98-CX dated  12.3.1998  and  claimed
        that one of the situations as stipulated therein covered the  likes
        of the assessee and hence, it was not liable to  be  fastened  with
        any further liability.
The  Commissioner  distinguished  the  said
        circular and came to hold that the assessee, with an  intention  to
        evade payment of duty, had wilfully suppressed the  facts  that  it
        was  availing  partial  exemption  of  sales  tax  and   collecting
        additional consideration to the extent of the amount of  sales  tax
        not payable by it.  In this backdrop, the Commissioner  treated  it
        as short payment by the assessee and directed for recovery of  duty
        and imposed penalty under Sections 11A, 11AC and 11AB  of  the  Act
        and further imposed penalty on the persons responsible for the said
        suppression and evasion.

     6. Being grieved by the order passed by the  Commissioner  of  Central
        Excise, Jaipur,  the  assessee  preferred  three  appeals,  namely,
        Appeal NO. E/2279-2281 of 2002.  The Tribunal  posed  the  question
        whether the assessee was entitled to claim deduction under  Section
        4(4)(d)(ii) of the Act in respect  of  full  amount  of  sales  tax
        payable at the rate of 2%.  The Tribunal took note of the fact that
        the assessee, being entitled for the benefit under  the  Sales  Tax
        New Incentive Scheme for Industries, 1989 (for short “the Scheme”),
        had availed the same with effect from 3.12.1996 and under the  said
        Scheme it was entitled to retain with  it  75%  of  the  sales  tax
        collected and pay only  25%  to  the  Government  and,  accordingly
        claimed the deduction for the entire amount of sales tax payable at
        the rate of 2% and,  accordingly,  it  did  not  approve  the  view
        adopted by the adjudicating authority that the benefit  granted  to
        the assessee in respect of the sales tax was in the  nature  of  an
        exemption and not an incentive and, therefore, not deductible under
        Section 4(4)(d)(ii) of the  Act.   The  Tribunal  referred  to  the
        circular dated 12.3.1998 issued by the Central Board of Excise  and
        Customs (CBEC) and came to hold that sales tax was deductible  from
        the wholesale price for determination  of  assessable  value  under
        Section 4 of the Act for levy of Central  Excise  Duty.   Being  of
        this view, it set aside the order passed  by  the  Commissioner  of
        Excise  and  directed  for  refund  of  the  deposits  made  during
        investigation and the deposit made in pursuance of the order passed
        by the Tribunal.

     7. We  have  heard  Mr.  K.  Radhakrishnan,  learned  senior  counsel,
        appearing for the Revenue and learned  counsel  appearing  for  the
        respondents in the appeals preferred by the Revenue.

     8. Mr. Radhakrishnan, learned senior counsel,  questioning  the  legal
        pregnability of the impugned order, has contended that the tribunal
        has clearly erred in applying the circular dated 12.3.1998  as  the
        stipulations in the said circular do not cover  the  cases  of  the
        present nature inasmuch as the assessee was extended the benefit of
        incentive scheme.  It is his further stand that  in  the  obtaining
        circumstances sales tax was collected but not  paid  to  the  State
        exchequer and, therefore, it  would  be  includible  in  assessable
        value.  Learned senior counsel would contend that the Tribunal  has
        not dealt with the issue pertaining to “payable”, for the issue  of
        “payability” depends on the language employed in the statute.   Mr.
        Radhakrishnan has urged that, in any case, after the amendment  has
        come into force effecting “transaction value” under Section 4(3)(d)
        of the Act with effect from 1.7.2000 there is  a  schematic  change
        but unfortunately the  same  has  not  been  addressed  to  by  the
        tribunal which makes  the  order  absolutely  vulnerable.   He  has
        commended us to the decision in Modipon Fibre  Company,  Modinagar,
        U.P. v. Commissioner of Central Excise, Meerut[1].

     9. Learned counsel appearing for the assessee submitted that the order
        passed by the tribunal is absolutely inexceptionable inasmuch as it
        has correctly applied the circular  issued  by  the  CBEC  and  the
        respondent being exempted under the incentive scheme issued by  the
        State  Government  is  entitled  to  avail  the  benefit.   He  has
        commended us to the Scheme  issued  by  the  State  Government  and
        brought on record the assessment orders passed  by  the  sales  tax
        authorities.  Learned counsel would further submit that as per  the
        Scheme they are entitled to retain 75% of the sales  tax  collected
        and pay only balance 25% to the State Government  and  despite  the
        same being the admitted position, the  adjudicating  authority  has
        committed grave illegality by treating it as an exemption which has
        been appositely corrected by the  tribunal  and  hence,  the  order
        impugned  is  impeccable.   It  is  propounded  that  the   amended
        provision that came on the statute book with effect  from  1.7.2000
        does not change the situation and, in fact, the earlier circular on
        principle has been reiterated  by  the  subsequent  circular  dated
        9.10.2002.

    10. Having regard to rivalised submissions raised at the Bar,  we  deem
        it appropriate to first refer to the ratio and principle stated  in
        Modipon Fibre Company (supra).  In the said case,  the  show  cause
        notice was dated 19th March, 1999 and related to the period  March,
        1994 to March, 1997.
Section  4(4)(d)(ii)  as  applicable  was  as
        under:-

           “4. Valuation of excisable goods for  purposes  of  charging  of
           duty of excise.—(1) to (3)   *    *     *

           (4) For the purposes of this section,—

           (a) to (c)  *    *     *

           (d) ‘value’, in relation to any excisable goods,—

                 (i)   *     *    *

                 (ii) does not include the amount of  the  duty  of  excise,
                 sales tax and other taxes, if any, payable  on  such  goods
                 and, subject to such  rules  as  may  be  made,  the  trade
                 discount (such discount not being refundable on any account
                 whatsoever) allowed in accordance with the normal  practice
                 of the wholesale trade at the time of removal in respect of
                 such goods sold or contracted for sale;

                 Explanation.—For  the  purposes  of  this  sub-clause,  the
                 amount of the duty of excise payable on any excisable goods
                 shall be the sum total of—

                       (a) the effective duty  of  excise  payable  on  such
                 goods under this Act; and


                      (b) the aggregate of the effective duties  of  excise
                 payable under other Central Acts, if  any,  providing  for
                 the levy of duties of excise on such goods under each  Act
                 referred to in Clause (a) or Clause (b) shall be,—

                 (i) in a case where a notification or order  providing  for
                 any exemption [not being an  exemption  for  giving  credit
                 with respect to, or reduction of duty of excise under  such
                 Act on such goods equal to, any duty of excise  under  such
                 Act, or the additional duty under Section 3 of the  Customs
                 Tariff Act, 1975 (51 of 1975),  already  paid  on  the  raw
                 material or component  parts  used  in  the  production  or
                 manufacture of such goods] from the duty  of  excise  under
                 such Act is for the time being in force, the duty of excise
                 computed with reference to the rate specified in such  Act,
                 in respect of such goods as reduced so as to give full  and
                 complete effect to such exemption; and


                 (ii) in any other case, the duty of excise  computed  with
                 reference to the rate specified in such Act in respect  of
                 such goods.”

     11. The contention of the assessee  was  that  they  were  entitled  to
         deduction in respect of Turnover Tax (TOT) at the rate of 2% though
         Government of Gujarat by notification dated 19th October, 1993  had
         exempted sale of yarn under certificate in Form 26 to the extent of
         TOT exceeding .5% of the total turnover if the processed  yarn  was
         sold in the State of Gujarat.  Thus, there was dual rate of 2%  and
         .5% TOT in  the  State  of  Gujarat,  with  the  lower  rate  being
         applicable  to  sales  in  backward   area.  
 Relying   upon   the
         word/expression “payable”  used  in  Section  4(4)(d)(ii),  it  was
         submitted by the assessee that it refers to the duty payable in the
         tariff and not any concession or  exemption.
The  contention  was
         rejected by  the  Court  observing  that  the  word  “payable”  was
         descriptive and one has to see the context in which the  said  word
         finds place and accordingly proceeded to opine: -

           “As can be seen from the abovequoted section, excise duty can be
           deducted if it had not  been  included  in  the  invoice  price.
           According  to  the  Explanation,  what  is  deductible  is   the
           effective rate of duty.  Where any exemption has  been  granted,
           that exemption has to be deducted from the ad valorem duty.   In
           other words, it is only the net duty liability of  the  assessee
           that can be deducted in computing  the  assessable  value.   The
           said principle stands  incorporated  in  the  Explanation.   For
           example, if the assessee recovers duty at the  tariff  rate  but
           pays duty at concessional rate, then excise duty  has  to  be  a
           part of the assessable value.  Similarly, refund of excise  duty
           cannot be treated as net profit and added on  to  the  value  of
           clearances.  There is no provision in Section 4 of the 1944  Act
           to treat refund as part of assessable  value.   If  excise  duty
           paid  to  the  Government  is  collected  at  actuals  from  the
           customers and if,  subsequently,  exemption  becomes  available,
           such excise duty which is not passed on  to  the  assessee  (sic
           customer), would become part of assessable value  under  Section
           4(4)(d)(ii).”


    12. The aforesaid observations were made in the context  of  TOT  which
        could be deducted, if it had  not  been  included  in  the  invoice
        price.  The excise duty, it was observed, was the effective rate of
        duty and where any exemption was granted, the exemption was  to  be
        deducted from ad valorem duty.  Only the net duty liability of  the
        assessee was to be reduced from the invoice price for computing the
        assessable value.  Thus, where an assessee had recovered duty at  a
        higher rate but was paying duty at a concessional rate,  then  that
        part of unpaid excise duty was to be part of taxable or  assessable
        value.  But refund of excise duty was not to be added to the  value
        of clearances and similarly if subsequently an exemption had become
        available it could not be reduced to lower to the assessable value.

    13. After so stating the bench referred to the decisions of the  Bombay
        High Court in Tata Oil Mills Co. Ltd. v. Union of India[2] and B.K.
        Paper Mills Pvt. Ltd.  v.  Union  of  India[3]  and  approving  the
        principle laid down therein, observed thus: -
           “In our view, the above two judgments of the Bombay  High  Court
           lay down the correct principle  underlying  the  Explanation  to
           Section 4(4)(d)(ii). As held in TOMCO case the exemption was not
           by way of a  windfall  for  the  manufacturer  assessee  but  on
           account of cotton seed oil used by TOMCO in the  manufacture  of
           Pakav. Similarly, in B.K. Paper Mills the Bombay High Court  has
           correctly analysed Section 4(4)(d)(ii) with the  Explanation  to
           say that only the reduced rate of duty can be excluded from  the
           value of the  goods  and  that  Explanation  explains  what  was
           implicit in that section. That, the said Section 4(4)(d)(ii) did
           not refer to duty  leviable  under  the  relevant  tariff  entry
           without reference to  exemption  notification  that  may  be  in
           existence at the time of clearance/removal. That, Section 47  of
           the Finance Act, 1982 which inserted the  Explanation  expressly
           sets out what is meant by the expression “the amount of duty  of
           excise payable on any excisable goods”. By the amount of duty of
           excise what is meant is the effective duty of excise payable  on
           such goods under the  Act  and,  therefore,  effective  duty  of
           excise is the duty calculated on the  basis  of  the  prescribed
           rate as reduced by the exemption  notification.  This  alone  is
           excluded from the normal price under Section 4(4)(d)(ii).”


      After so stating the Court stated: -
           Therefore, the test to be applied is that of the  “actual  value
           of the duty payable” and, therefore, there is no  merit  in  the
           argument advanced on behalf of the assessee that the Explanation
           is  restricted  to  the  duty  of  excise.  This  principle  can
           therefore apply also to actual value of any other tax  including
           TOT payable. Even without the Explanation, the scheme of Section
           4(4)(d)(ii) shows that in computing the  assessable  value,  one
           has to  go  by  the  actual  value  of  the  duty  payable  and,
           therefore, only the reduced duty was deductible from  the  value
           of the goods.

    14. It is seemly to note that the Court approved the ratio laid down in
        the judgment of Bombay High Court in Central India Spinning Weaving
        and Manufacturing Co. Ltd. v. Union of India[4] by reproducing  the
        following observations: -
           “9. … It is true that according to Section  4(4)(d)(ii)  of  the
           Central Excise Act, the value does not  include  the  amount  of
           duty of excise, if any payable on such goods,  but  in  view  of
           Explanation to Section 4(4)(d)(ii), the ‘duty of  excise’  means
           the duty payable in terms of the Central Excise Tariff read with
           exemption notification issued under Rule 8 of the Central Excise
           Rules. In this view of the matter, the only  deduction  that  is
           permissible is of the actual duty paid or payable  while  fixing
           the assessable value. Thus, where the company/manufacturer whose
           goods  were  liable  to  excise  duty  at  a  reduced  rate   in
           consequence of an exemption notification, while paying  duty  at
           reduced rate collected duty at a higher rate  i.e.  tariff  rate
           from its customers the authorities  were  justified  in  holding
           that what was being collected by the company as excise duty  was
           not excise duty but the value in substance  of  the  goods  and,
           therefore, the excess value collected by the petitioner from the
           customers was recoverable under  Section  11-A  of  the  Central
           Excises and Salt Act, 1944.”

            After explaining as aforesaid the Court  ruled  that  though  in
      respect of backward areas sales, the rate of TOT was .5%, whereas  TOT
      rate in normal area sales was 2%, yet the assessee had suppressed  the
      aforesaid data to claim TOT deduction @ 2% to compute  the  assessable
      value on the entire sales including sales made in backward area.  This
      was wrong and  the  department  was  justified  in  calling  upon  the
      assessee to pay the differential excise duty.

    15. The Court in the said decision has observed that by claiming higher
        deduction @ 2% instead of .5%, the assessee was gaining a  windfall
        and this was not justified.  It was further observed  that  TOMCO’s
        case was decided on 24th July, 1980 and at  that  time  there  were
        conflicting decisions and thereafter the Legislature  had  inserted
        explanation to Section 4(4)(d)(ii) of the Act by  using  the  words
        “the effective duty of excise payable on goods under this Act”.

    16. In the case at  hand,
the  assessee  has  claimed  that  there  is
        difference between grant of incentive and extension of  benefit  of
        exemption, and the scheme, i.e., the “Rajasthan Sales Tax Incentive
        Scheme 1989” does  not  relate  to  exemption  but  incentive.   
To
        elaborate, the assessee, under the said  Scheme,  is  permitted  to
        retain 75% of the sales tax collected as incentive and is liable to
        pay 25% to the department.  75% of the  amount  retained  has  been
        treated as incentive by the State Government.
It  is  pointed  out
        that such retention of sales tax is a deemed payment of  sales  tax
        to the State exchequer and for the said purpose reliance is  placed
        on Circular No. 378/11/98-CX dated 12.3.1998 issued by C.B.E.C.

    17. In the aforesaid circular, three situations were  envisaged,  viz.,
        (i) exemption from payment of sales tax for  a  particular  period;
        (ii) deferment of payment of sales tax for a particular period; and
        (iii) grant of incentive equivalent to sales  tax  payable  by  the
        unit.  The aforestated three situations had been  examined  by  the
        Board in  consultation  with  the  Ministry  of  Law.   As  far  as
        situation (iii) is concerned, the circular stated thus: -

           “6.   Examination of the  situation,  mentioned  above  in  para
           2(ii) & (iii), in the referring note  give  an  indication  that
           sales tax is payable by the assessee in both the situations.  It
           is payable after a particular period in the second case.  On the
           other hand, in the third situation, the sales tax is  considered
           payable by the assessee even though it  is  paid  by  the  State
           Government,  the  assessee  keeping  the  said  amount  as  cash
           incentive.  In this situation sales tax would be  considered  as
           payable  within  the  meaning  of  the  provisions  of   Section
           4(4)(d)(ii) of the Act.

           7.    We are therefore, of the opinion that in the  category  of
           cases mentioned in  para  2(i),  sales  tax  is  not  deductible
           whereas in the category of cases mentioned  at  (ii)  and  (iii)
           sales  tax  is  deductible  from   the   wholesale   price   for
           determination of assessable value under Section 4 of the Act for
           levy of Central Excise duty.”

    18. To understand the purpose of the aforesaid  two  paragraphs  it  is
        also necessary to refer to the note  given  by  the  Board  seeking
        opinion of the Ministry of Law in respect of situation (iii)  which
        is a part of the said circular.  It reads as follows: -

           “In situation (iii), the manufacturer  collects  the  sales  tax
           from the buyers and retains the same with him instead of  paying
           it to the State Government.  The State Government on  the  other
           hand grants a cash incentive equivalent to the amount  of  sales
           tax payable and instead of the case incentive being paid to  the
           manufacturer, is credited to State Government account as payment
           towards sales tax by the  manufacturer.   In  such  a  situation
           sales tax is also considered payable by the assessee within  the
           meaning of the provisions of Section 4(4)(d)(ii) of the  Central
           Excise Act, 1944.  Therefore, sales tax is deductible  from  the
           wholesale price for determination of assessable value  for  levy
           of Central Excise duty in category of cases  mentioned  in  para
           (ii) & (iii) above.”

    19. On perusal of the assessment orders brought on record, it is  quite
        clear that in pursuance of the Scheme 75% of the sales  tax  amount
        was credited to the account of  the  State  Government  as  payment
        towards sales tax by the manufacturer.  On a  studied  scrutiny  of
        the scheme we have no scintilla of doubt that  it  is  a  pure  and
        simple incentive scheme, regard being had to the language  employed
        therein.  In  fact,  by  no  stretch  of  imagination,  it  can  be
        construed as a Scheme pertaining  to  exemption.   Thus,  analysed,
        though 25% of sales tax is paid to the State Government, the  State
        Government instead of  giving  certain  amount  towards  industrial
        incentive, grants incentive in the form of retention of  75%  sales
        tax amount by the assessee.  In a case of exemption, sales  tax  is
        neither collectable nor payable and if still an  assessee  collects
        any amount on the head of sales tax, that would become the price of
        the goods.  Therefore, an incentive scheme of  the  present  nature
        has to be treated on a different footing because the sales  tax  is
        collected and a part of it is  retained  by  the  assessee  towards
        incentive which is subject to assessment under the local sales  tax
        law and, as a matter of fact,  assessments  have  been  accordingly
        framed.  In this factual backdrop, it has to be held that  circular
        entitles an assessee to claim deduction towards sales tax from  the
        assessable value.  The fact  situation  in  Modipon  Fibre  Company
        (supra), as is manifest, was different.  In our considered  opinion
        what has been stated in Modipon Fibre Company (supra) cannot not be
        extended to include the situation (iii).  We are inclined to  think
        so as the definition of term  “value”  under  Section  4(4)(d)  was
        slightly differently worded and the CBEC had clarified the same  in
        the circular dated 12.3.1998 and benefits were granted.

    20. The question that would still remain alive is that  what  would  be
        the effect of amendment of Section 4 which has come into force with
        effect  from  1.7.2000.   The   Section   4(3)(d)   which   defines
        “transaction value”, reads as follows: -

           “4.   Valuation of excisable goods for purposes of  charging  of
           duty of excise. –

           (1) & (2)   *          *

           (3) For the purposes of this section, -

           (a) to (cc)            *          *          *

           (d) “transaction value” means the price actually paid or payable
           for the goods, when sold, and includes in addition to the amount
           charged as price, any amount that the buyer is liable to pay to,
           or on behalf of, the assessee, by reason of,  or  in  connection
           with the sale, whether payable at the time of the sale or at any
           other time, including, but not limited to,  any  amount  charged
           for,  or  to  make  provision  for,  advertising  or  publicity,
           marketing and selling organization  expenses,  storage,  outward
           handling, servicing, warranty, commission or any  other  matter;
           but does not include the amount of duty of excise, sales tax and
           other taxes, if any, actually paid or actually payable  on  such
           goods.”

    21. After the substitution of the old Section 4 of the Act by Act 10 of
        2000 as reproduced hereinabove, the Central  Board  of  Excise  and
        Customs, New Delhi, issued certain circulars and vide circular  No.
        671/62/2000-CX dated 9.10.2002 clarified  the  circular  issued  on
        1.7.2000.  In the said circular reference was made to  the  earlier
        circular No. 2/94-CX 1 dated 11.1.1994.  It has  been  observed  in
        the circular that after coming into force of  new  Section  4  with
        effect from 1.7.2000 wherein the concept of transaction  value  has
        been incorporated and the earlier explanation has been deleted, the
        circular had lost its relevance.  However,  after  so  stating  the
        said circular addressed to the representations  received  from  the
        Chambers of Commerce, Associations, assessees as well as the  field
        formations and in the context stated thus: -

           “5.   The matter has been examined in the Board.  It is observed
           that assessees charge and collect sales tax from their buyers at
           rates  notified  by   the   State   Government   for   different
           commodities.   For  manufacture  of  excisable  goods  assessees
           procure raw materials, in  some  State,  by  paying  sales  tax/
           purchase tax on them (in  some  States,  like  New  Delhi),  raw
           materials are purchased against forms ST-1/ST-35 without  paying
           any tax).  While depositing sales tax with the Sales Tax  Deptt.
           (on a monthly or quarterly basis), the  assessee  deposits  only
           the net amount of  sales  tax  after  deducting  set  off/rebate
           admissible, either in full or in part, on the sales tax/purchase
           tax paid on the raw materials  during  the  said  month/quarter.
           The sales tax set off in such cases, therefore,  does  not  work
           like the central excise set off notifications where one  to  one
           relationship is to be established between the  finished  product
           and the raw materials and the assessee is allowed to charge only
           the net central excise duty from the buyer in the invoice.
The
           difference between the set off operating in respect  of  central
           excise duty and that for  sales  tax  can  be  best  illustrated
           through an example.  
If the sales tax on a product ‘A’ of  value
           Rs.100/- is, say 5% and the set off available in respect of  the
           purchase  tax/  sales  tax  paid  on  inputs  going   into   the
           manufacture of the product is, say, Re.1/-, then the  sales  tax
           law permits the assessee to recover sales tax  of  Rs.5/-.   But
           while paying to the sales tax deptt. be deposits  an  amount  of
           Rs.5-1 = Rs.4 only.  On the central excise  duty  payable  would
           have been Rs.5-1 = Rs.4, in view of the  set  off  notification,
           and the assessee would recover an amount of Rs.4 only  from  the
           buyer as Central Excise duty.  Thus, it is seen that the set off
           scheme in respect of sales tax operate in these  cases  somewhat
           like the CENVAT  Scheme  which  does  not  have  the  effect  of
           changing the rate of duty payable on the finished product.

           6.    Therefore, since the set off scheme of sales tax does  not
           change the rate of sales tax payable/ chargeable on the finished
           goods, the  set  off  is  not  to  be  taken  into  account  for
           calculating the amount of sales tax permissible as abatement for
           arriving at the assessable value u/s 4.   In  other  words  only
           that amount of sales tax will be permissible as deduction  under
           Section 4 as is equal to the amount  legally  permissible  under
           the local sales tax laws to be charged/billed from the customer/
           buyer.”

                                                            [Emphasis added]

    22. It is  evincible  from  the  language  employed  in  the  aforesaid
        circular that set off is to be taken into account  for  calculating
        the  amount  of  sales  tax  permissible  for   arriving   at   the
        “transaction value” under Section 4 of the Act because the set  off
        does not change the rate of sales tax payable/  chargeable,  but  a
        lower amount is in fact paid due to set off of the sales  tax  paid
        on the input.  Thus, if sales tax was not paid on the  input,  full
        amount is payable and has  to  be  excluded  for  arriving  at  the
        “transaction value”.  That is not the factual matrix in the present
        case.  The assessee in the present  case  has  paid  only  25%  and
        retained 75% of the amount which was collected as sales  tax.   75%
        of the amount collected was retained and became the profit  or  the
        effective cost paid to the assessee by the purchaser.   The  amount
        payable as sales tax was only 25% of the normal sales tax.  Purpose
        and objective in defining “transaction value” or value in  relation
        to excisable goods is obvious.  The  price  or  cost  paid  to  the
        manufacturer constitutes the assessable value on which excise  duty
        is payable.  It is also obvious that the excise duty payable has to
        be excluded while calculating transaction value for levy of  excise
        duty.  Sales tax or VAT or turnover tax is payable or paid  to  the
        State Government on the transaction, which  is  regarded  as  sale,
        i.e., for transfer of title in the manufactured goods.  The  amount
        paid or payable to the State Government  towards  sales  tax,  VAT,
        etc.  is  excluded  because  it  is  not  an  amount  paid  to  the
        manufacturer towards the price, but an amount paid  or  payable  to
        the State Government for the sale transaction,  i.e.,  transfer  of
        title from the manufacturer to a  third  party.   Accordingly,  the
        amount paid to the State Government is  only  excludible  from  the
        transaction value.  What is not payable or  to  be  paid  as  sales
        tax/VAT, should not be charged from the third  party/customer,  but
        if it charged and is not payable or paid, it is a part  and  should
        not be excluded from the transaction value.  This is  the  position
        after the amendment, for as per the  amended  provision  the  words
        “transaction value” mean payment made on actual basis  or  actually
        paid by the  assessee.   The  words  that  gain  signification  are
        “actually paid”.  The situation after 1.7.2000  does  not  cover  a
        situation which was covered under the circular dated 12.3.1998.  Be
        that as it may, the clear legislative intent, as it seems to us, is
        on “actually paid”.  The question of “actually  payable”  does  not
        arise in this case.

    23. In view of the aforesaid legal position, 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.

    24. What is urged by the learned  counsel  for  the  assessee  is  that
        paragraphs 5 and 6 of the circular dated 9.10.2002 do protect them,
        as has been more clearly stated  in  paragraph  5.   To  elaborate,
        sales tax having been paid on the  inputs/raw  materials,  that  is
        excluded from the excise duty when price is computed.   Eventually,
        the amount of tax paid is less than the amount of tax  payable  and
        hence, the concept of “actually paid” gets  satisfied.   Judged  on
        this anvil the submission of the learned counsel for  the  assessee
        that it would get benefit  of  paragraph  6  of  the  circular,  is
        unacceptable.  The assessee can only get the benefit on the  amount
        that has actually been paid.  The circular does not  take  note  of
        any  kind  of  book  adjustment  and  correctly  so,  because   the
        dictionary clause has been amended.  We may, at  this  stage,  also
        clarify the position relating to circulars.  Binding  nature  of  a
        circular was examined by the Constitution Bench in  CCE  v.  Dhiren
        Chemicals  Industries[5],  and  it  was  held  that  if  there  are
        circulars issued by CBEC which placed different interpretation upon
        a phrase in  the  statute,  the  interpretation  suggested  in  the
        circular would  be  binding  on  the  Revenue,  regardless  of  the
        interpretation placed by this Court.  
In CCE  v.  Ratan  Melting  &
        Wire Industries[6], the Constitution Bench clarifying paragraph  11
        in Dhiren Chemicals Industries (supra) has stated thus: -
           “7.   Circulars and instructions issued  by  the  Board  are  no
           doubt binding in law on the  authorities  under  the  respective
           statutes, but when the Supreme Court or the High Court  declares
           the law on the question arising for consideration, it would  not
           be appropriate for the court to direct that the circular  should
           be given effect to and not the view expressed in a  decision  of
           this   Court   or   the   High   Court.   So    far    as    the
           clarifications/circulars issued by the Central Government and of
           the State Government are concerned they represent  merely  their
           understanding of the statutory provisions. They are not  binding
           upon the court.  It  is  for  the  court  to  declare  what  the
           particular provision of statute says  and  it  is  not  for  the
           executive. Looked at from another angle,  a  circular  which  is
           contrary to the statutory provisions has really no existence  in
           law.”

    25. The legal position has been reiterated in the State of  Tamil  Nadu
        and Anr. v. India Cement Ltd.[7]  Therefore, reliance placed on the
        circular dated 9.10.2002 by the tribunal is  legally  impermissible
        for two reasons, namely, the circular does not so lay down, and had
        it so stated that would  have  been  contrary  to  the  legislative
        intention.

    26. In view of the aforesaid analysis, we are of the considered opinion
        that the assessees in all the  appeals  are  entitled  to  get  the
        benefit  of  the  circular  dated  12.3.1998  which  protects   the
        industrial units availing incentive scheme as there is a conceptual
        book adjustment of the sales tax paid to the Department.  But  with
        effect from 1.7.2000 they shall only be entitled to the benefit  of
        the amount “actually paid” to the Department, i.e., 25%.   Needless
        to emphasise, the set off shall operate  only  in  respect  of  the
        amount that has been paid on the raw material and inputs  on  which
        the sales tax/ purchase tax has been paid.  That being the position
        the adjudication by the tribunal is not sustainable.  Similarly the
        determination by the original adjudicating authority requiring  the
        assessees to deposit or pay the whole amount and the  consequential
        imposition of  penalty  also  cannot  be  held  to  be  defensible.
        Therefore, we allow the appeals  in  part,  set  aside  the  orders
        passed by the tribunal as well  as  by  the  original  adjudicating
        authority and remit the matters  to  the  respective  tribunals  to
        adjudicate as far as excise duty is concerned  in  accordance  with
        the principles set out hereinabove.  We further clarify that as far
        as imposition of penalty is concerned, it shall be  dealt  with  in
        accordance with law governing the field.  In any  case,  proceeding
        relating to the period prior to 1.7.2000 would stand closed and  if
        any amount has been paid or deposited as per the direction  of  any
        authority in respect of the said period, shall be refunded.  As far
        as  the  subsequent  period  is  concerned,  the   tribunal   shall
        adjudicate as per the principles stated hereinbefore.

    27. Coming to the appeals preferred by  the  assessees,  the  challenge
        pertains to denial of benefit of the Central  Sales  Tax  Act,  the
        aforesaid reasoning will equally apply.  The  submission  that  the
        concession of excise duty is granted by the  Excise  Department  of
        the Central Government is not acceptable.   On  a  perusal  of  the
        circulars dated 12.3.1998 and 1.7.2002 we do  not  find  that  they
        remotely relate to  any  exemption  under  the  Central  Sales  Tax
        imposed on the goods.  
What is argued by the  learned  counsel  for
        the assessees is that the benefit should be extended to the Central
        Sales Tax as the tax on sales has a broader concept.  The aforesaid
        submission is noted to be rejected and we, accordingly,  repel  the
        same.  In view of the  aforesaid,  the  appeals  preferred  by  the
        assessees stand dismissed.

    28. In the result, both sets of appeals stand disposed of  accordingly.
        There shall be no order as to costs.



                                                             ……………………………….J.

                [Anil R. Dave]



                                                             ……………………………….J.
                                                               [Dipak Misra]

      New Delhi;
      February 28, 2014.
-----------------------
[1]    (2007) 10 SCC 3
[2]    1980 (6) ELT 768 (Bom)
[3]    1984 (18) ELT 701 (Bom)
[4]    1987 (30) ELT 217 (Bom)
[5]    (2002) 2 SCC 127
[6]    (2008) 13 SCC 1
[7]    (2011) 13 SCC 247


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