COMMNR. OF CENTRAL EXCISE, JAIPUR Vs M/S. SUPER SYNOTEX (INDIA) LTD. .
Bench: ANIL R. DAVE,DIPAK MISRA
Case number: C.A. No.-009154-009156 / 2003
Diary number: 19473 / 2003
Advocates: B. KRISHNA PRASAD Vs
M. P. DEVANATH
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Reportable
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
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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
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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
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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
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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
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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
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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
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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
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makes the order absolutely vulnerable. He has
commended us to the decision in Modipon Fibre
Company, Modinagar, U.P. v. Commissioner of
Central Excise, Meerut1.
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
1 (2007) 10 SCC 3
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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) * * *
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(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
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(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:
-
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“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
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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 India2 and B.K. Paper Mills Pvt. Ltd. v.
Union of India3 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
2 1980 (6) ELT 768 (Bom) 3 1984 (18) ELT 701 (Bom)
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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
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Co. Ltd. v. Union of India4 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
4 1987 (30) ELT 217 (Bom)
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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
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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
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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
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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
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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: -
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“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
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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
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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
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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,
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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
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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
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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 Industries5, 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
5 (2002) 2 SCC 127
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this Court. In CCE v. Ratan Melting & Wire
Industries6, 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
6 (2008) 13 SCC 1 7 (2011) 13 SCC 247
Page 30
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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
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31
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
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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.