B2-Jaipur Zone – Assessment and valuation-Retention of Sales Tax Collected from Customers and Inclusion thereof in the Transaction Value:
During the course of audit of certain units, it has been noticed that Government of Rajasthan has declared that the concerned manufacturer shall be eligible for Customized Package (a financial package) under Rajasthan Investment Promotion Policy-2010 (RIPS 2010) on fulfillment of conditions laid down therein. According to the scheme manufacturer shall be allowed subsidy (consisting of Investment Subsidy and Employment Generation Subsidy) for a period of 7 years. Under the scheme the maximum amount of subsidy shall be 55% of the total amount of tax i.e. VAT and CST which become due to be deposited into the government exchequer.
A doubt has arisen, whether such subsidy granted by the Industrial Department of Government of Rajasthan to the extent adjusted against sales tax liability is liable to be included in the transaction value under the provisions of Section 4 of the Central Excise Act, 1944. Concerned Zone also informed that the subsidy amount given by RIPS, 2010 is not paid in cash to the unit and is adjusted against the sales tax liability. The subsidy is itself calculated as a percentage of VAT/CST liability and VAT/CST actually paid is adjusted accordingly. In other words, the manufacturer collects and retains a percentage of sales tax amount as subsidy. Zone was of the view that the as a percentage of tax (max.55%) collected from the customer is retained by the manufacturer, it shall be includable in the transaction value as per the provisions of section 4 of the Central Excise Act, 1944.
Discussion & Decision
Board’s circulars/instructions were discussed by the conference. Instruction issued videF.No. 6/8/2014-CX.1 dated 17.09.2014 was discussed. The said instruction was issued consequent upon the judgment of Hon’ble Supreme Court in the case of M/s Super Synotex India Limited, which clarified that Sales tax, collected from the customers but not paid to the Government under Sales tax incentive scheme, has the character of the consideration paid for transfer of title of goods from the manufacturer to the third party. Therefore, the same was required to be included in the assessable value.
Circular no. 983/7/2014-CX dated 10.07.2014 was discussed which clarifies that fertilizer subsidy paid by the Government to a manufacturer as a result of public policy is not includible in the assessable value. It was noted that such subsidy is directly paid by the Government to the manufacturer.
The conference concluded that any VAT, if retained would be added to the assessable value even if it is retained through the mechanism of adjustment against a subsidy payable under the scheme. Section 4 provides for abatement of taxes actually paid. Taxes can be considered to be paid for the purposes of granting abatement under Section 4 only if they are deposited with the exchequer. It was also noted that the issue in circular dated 10.7.2014 was relating to addition of additional consideration whereas the present issue relates to allowing abatement of taxes actually paid. Therefore, the circular dated 10.7.2014 has no application to the present case. Further, fertilizer subsidy is directly paid by the Government to the manufacturer which is not the case presently at hand as the present scheme works by mechanism of adjustment of subsidy against taxes.
There is no abatement for taxes not paid, even when such taxes are considered notionally paid by adjustment against a subsidy payable by the State Govt. State VAT laws may considers VAT as fully paid in such situations but it is only a deeming fiction of full payment and not actual payment to the exchequer. Such deeming fiction would apply only for purposes of considering VAT fully paid under the State law and not for allowing abatement under Section 4 of the Central Excise Act, 1944.Definition of transaction value quite clearly states that transaction value does not include taxes actually paid.