CESTAT Mumbai Rules, Sales Tax Discharged Through NPV Under State Incentive Scheme Cannot Be Added Back To Excise Transaction Value
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai has held that sales tax deferred under a State incentive scheme and subsequently discharged by payment of its Net Present Value (NPV) cannot be treated as “sales tax not paid” so as to be added back to the transaction value for levy of central excise duty. A Division Bench comprising C.J. Mathew (Technical Member) and Ajay Sharma (Judicial Member) allowed the appeal filed by M/s Grindwell Norton Ltd., and set aside the demand of central excise duty, interest and penalty confirmed under Sections 11A, 11AB and 11AC of the Central Excise Act, 1944.
The appeal arose from an order of the Commissioner (Appeals), Nagpur affirming the demand on the premise that the portion of sales tax retained by the assessee under the Maharashtra Government’s deferred payment scheme, and later discharged at NPV, constituted sales tax “not paid / not payable” and was therefore liable to be added to the assessable value under Section 4 of the Central Excise Act. The assessee had opted for the State's incentive scheme which permitted retention of sales tax collected for a specified period with deferred payment in instalments. In 2002, the State amended the scheme providing the option of premature discharge of the deferred liability at its NPV, which the assessee availed.
The Revenue alleged that the total sales tax liability was ₹2.26 crore and that the assessee paid only ₹63.42 lakh towards NPV, contending that the balance amount represented sales tax “not paid”. On this basis, the Department added the said balance to the transaction value and raised duty demand with consequential interest and penalty. The assessee contended that discharge of deferred sales tax by paying its NPV does not amount to a benefit or retention, since the liability stands fully extinguished under the incentive scheme. Reliance was placed on precedents including Uttam Galva Steels Ltd. [2016 (331) ELT 261 (Tri.-Mumbai)] and Kinetic Engineering Ltd. v. CCE, Pune, Nagpur & Nashik [2012 (283) ELT 229 (Tri.-Mumbai)], wherein it was held that deferment schemes—unlike outright exemptions or set-off schemes—do not give rise to any differential amount that can be included in the assessable value.
The Bench noted that the Revenue’s reliance on the Supreme Court decision in Commissioner of Central Excise, Jaipur-II v. Super Synotex (India) Ltd. [2014 (301) ELT 273 (SC)] was misplaced since the said ruling pertained to a set-off scheme involving permanent retention of sales tax, whereas in the present case, the assessee had only deferred payment which was subsequently discharged at NPV as contemplated under State law. The Tribunal observed that the determination of transaction value has to be made at the time and place of removal, and that subsequent changes in the manner of discharging sales tax liability under State legislation cannot trigger re-determination of assessable value under the Central Excise Act.
The Tribunal further held that abatement towards sales tax must be allowed based on the statutory liability existing at the time of clearance of goods and cannot be restricted to the discounted NPV amount actually paid. Once the liability stands extinguished in accordance with the State incentive scheme, the allegation of “sales tax not paid” does not survive. Consequently, the basis for invoking extended limitation, interest and penalty was also held to be unsustainable.
In conclusion, the Tribunal held that the demand of excise duty, interest and penalty against M/s Grindwell Norton Ltd. “does not sustain in law” and allowed the appeal in full, thereby setting aside the order of the Commissioner (Appeals), Nagpur.
Appearance
Appearance for Appellant: Shri Viraj Reshamwala
Appearance for Respondent: Ms. Prakruti Nigam, Additional Commissiner(AR) Shri Ranjan Kumar, Deputy Commissioner(AR)
Cause Title: Grindwell Norton Ltd. v. Commissioner of Central Excise, Nagpur
Case No: Excise Appeal No. 85519 of 2016
Coram: C.J. Mathew (Technical Member), Ajay Sharma (Judicial Member)
