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Incentive by State Government is disincentive to excise assessees

By Nirav Karia

The Supreme Court in Super Synotex [see end note1] case had considered the Sales Tax Incentive Scheme extended by State of Rajasthan.  Under that scheme, it appears that the assessee was entitled to retain with him 75% of the sales tax collected from his buyers and pay only 25% to the State Government.  The State of Rajasthan instead of giving certain amount towards industrial incentive, grants incentive in form of retention of 75% of sales tax payable by the assessee.

The Supreme Court in Super Synotex case held that for the period prior to 1-7-2000, the amount collected as sales tax and retained under the above mentioned scheme will not be included in the assessable value determined under Section 4 of Central Excise Act as it stood during that period.  However, in respect of the period after 1-7-2000 when Section 4 of the Central Excise Act, 1944 was amended, it was held by the Supreme Court that the amount of tax collected and retained under the above mentioned incentive scheme would be part of the price for determining the assessable value for payment of excise duty since sales tax actually paid by the assessee was only 25%. The Apex Court had remanded all the civil appeals involving other assessees to CESTAT with the direction to decide the cases in light of ratio laid down in Super Synotex case in respect of period after 1-7-2000.

Consider a case where the assessee has opted for Sales Tax Incentive Scheme wherein the assessee is allowed to collect sales tax from the buyers at the time of sale of goods and pay the same after specified periods.  Under such Scheme, assessee is entitled to defer the payment of sales tax by way installments payable after stipulated periods. However, it may be noted that many State VAT Acts provide a deeming provision.  As per such deeming provision, if the assessee opts to pre-maturely pay the sales tax collected from the buyers as per Net Present Value, then, such pre-mature payment will be treated as deemed payment of entire amount of sales tax collected by the assessee from the buyers.

Recently, the Supreme Court in the case of Maruti Suzuki Limited [see end note2] has decided against the assessee and held that amount of sales tax collected by the assessee on account of incentive scheme from its buyers and retained with them, should be included in the assessable value for payment of excise duty under Section 4 of the Central Excise Act, 1944.  In this case, the ratio laid down in Super Syncotex was not considered.  It means that, as on date, there are two independent decisions on identical issue holding the field against the assessee who have availed the sales tax incentive and retained some amount with them on account of said incentive scheme.  However, it may be noted that in Maruti Suzuki’s case, penalty has been set aside on the ground of bonafide and availability of favorable decision of the Tribunal in assessee’s own case.

Applying the ratio laid down in Super Synotex, the Department may raise demand on those assessees who have availed Deferral Sales Tax Incentive scheme and opted to make premature payment as per NPV.  The department may contend that differential amount arising on account of discharge of deferred sales tax liability as per NPV is not actually paid by the assessee to the State Government and hence such differential amount should not be allowed to be deducted from the price for the purpose of calculating the transaction value under Section 4 of the Central Excise Act, 1944.  In other words, the department may contend that such differential amount should be included in the assessable value for the purpose of payment of excise duty under Section 4 of the Central Excise Act, 1944.

It is clear that such type of incentive scheme under sales tax was not dealt in Super Synotex case.  Further it can be argued that sales tax incentive scheme involved in Super Synotex and Maruti Suzuki case were materially different compared to deferred sales tax incentive scheme.  Further it can also be argued that  the machinery provision to pay sales tax collected by the assessee under deferral sales tax incentive scheme as per NPV was absent in the statutory provisions contained under the State VAT Act.

The assessee can also argue that in Super Synotex and Maruti Suzuki the ‘deeming provision’ provided under the Incentive scheme availed by the assessee and various other schemes offered by various sales tax enactments was not considered.  In fact, the court in the said two cases had failed to address a situation where there is a deeming provision under the State VAT Act which provides that on pre-mature payment, sales tax payable after specified periods as per deferment scheme will be treated as deemed to have paid the entire amount to sales tax deferred to the State Government.

The above arguments are only illustrative.  Further, submissions may differ from case to case. Similarly, many questions like sustainability of demand raised beyond the normal period of limitation, proof of bona fide, non-receipt of objections from departmental audit on this issue and future course of action may arise in the mind of assessees who have availed sales tax incentive scheme under State VAT Act and some portion of sales tax is retained with them on account of availing such incentive scheme.

End Notes:
  1. 2014–TIOL– 19-SC-CX
  2. 2014-TIOL-74-SC-CX
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