Commnr. of Central Excise, Jaipur Vs M/s. Super Synotex (india) Ltd. .

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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

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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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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.