Sales Tax Discharged Through NPV Under State Incentive Scheme Cannot Be Added Back To Excise Transaction Value: CESTAT Mumbai

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 the assessee, M/s Grindwell Norton Ltd. and set aside the demand of central excise duty along with interest and penalty confirmed under Sections 11A, 11AB and 11AC of the Central Excise Act, 1944. The appeal arose from an order passed by the Commissioner (Appeals), Nagpur, affirming the demand on the ground 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 included in the transaction value under Section 4 of the Central Excise Act. The assessee had availed the State's sales tax deferment incentive scheme, under which sales tax collected was permitted to be retained for a specified period and paid later in instalments. In 2002, the scheme was amended to allow premature discharge of the deferred liability by paying its NPV, availed by the assessee. The Revenue alleged that while the total sales tax liability was ₹2.26 crore, the assessee paid only ₹63.42 lakh towards NPV and retained the balance. The Revenue argued that this retained amount represented sales tax not paid and therefore had to be included in the assessable value for levy of excise duty. The assessee argued that the issue was squarely covered by earlier Tribunal decisions holding that NPV-based discharge of deferred sales tax does not amount to retention or exemption, and relied on rulings such as Uttam Galva Steels Ltd.[2016 (331) ELT 261 (Tri.-Mumbai)] and Kinetic Engineering Ltd. Vs. Commissioner of Central Excise, Pune, Nagpur Nashik [2012 (283) ELT 229 (Tri.-Mumbaii)], which distinguished deferment schemes from outright sales tax exemptions or set-off schemes. The CESTAT noted that the reliance placed by the lower authorities on the Supreme Court judgment in Commissioner of Commissioner of Central Excise, Jaipur-II Vs. Super Synotex (India) Ltd. [2014 (301) ELT 273 (SC)] was misplaced, as that case dealt with a set-off scheme permitting permanent retention of a portion of sales tax, whereas the case in hand involved only deferment with eventual discharge. The Bench observed that transaction value has to be determined at the time and place of removal, and therefore, held that subsequent changes in the manner of discharging sales tax liability under State law cannot trigger re-determination of assessable value under central excise law. The Bench held that abatement towards sales tax must be allowed based on the sales tax liability existing at the time of clearance of goods, and cannot later be restricted to the discounted NPV amount actually paid. In view of the above findings, the Tribunal allowed the appeal filed by the assessee, holding that the demand of excise duty, interest and penalty “does not sustain in law.” Case Title: Grindwell Norton Ltd. v. Commissioner of Central Excise, Nagpur Case No: Excise Appeal No. 85519 of 2016 Appearance for Appellant: Shri Viraj Reshamwala Appearance for Respondent: Ms. Prakruti Nigam, Additional Commissiner(AR) Shri Ranjan Kumar, Deputy Commissioner(AR) Click Here To Read/Download Order

Sales Tax Discharged Through NPV Under State Incentive Scheme Cannot Be Added Back To Excise Transaction Value: CESTAT Mumbai

Rajnandini Dutta

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