CESTAT: Central Excise Duty not Payable on Capital Subsidy Received from State Government in form of Sales Tax Challan 37B

CESTAT: Central Excise Duty not Payable on Capital Subsidy Received from State Government in form of Sales Tax Challan 37B

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi observed that capital subsidy received from the state government in the form of Sales Tax Challan 37B and subsequently utilized or adjusted by the assessee for the payment of its VAT liability does not affect or reduce the selling price, it is not an additional consideration, and it cannot be included in 'transaction value' under Section 4 of the Central Excise Act, 1944 for the purpose of levying Central Excise Duty.

The appellant/assessee received an investment subsidy under the Rajasthan Investment Promotion Policy-2003 and the same was adjusted by the appellant towards payment of Value Added Tax.

The appellant had been granted subsidy to the extent of Rs. 26,98,304 during the relevant period by the State of Rajasthan in the form of Sales Tax VAT 37B challan and this amount of subsidy was adjusted by the appellant towards payment of VAT.

The Department had included this amount of subsidy in the transaction value for the purpose of levy of central excise duty under section 4 of the Central Excise Act, 1944.

The learned Member (Technical) had examined whether the amount of subsidy can be considered as an additional consideration under rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 and held that since subsidy is computed with reference to the tax paid and is percentage of the tax paid, it is directly or indirectly related to sale of goods and would be an additional consideration received by the appellant. Thus, according to the learned Member (Technical), when the appellant collects the full amount of sales tax from the customers and deposits only a part of the same towards sales tax and retains the remaining amount, this remaining amount would have to be added to the transaction value.

However, the single member Justice Dilip Gupta (President) of CESTAT, observed that in present case subsidy was granted in terms of the promotion policy to promote investment in the State of Rajasthan and to generate employment opportunities. This fact became more explicit because the capital investment subsidy was available to the investors only till such time as the Unit deposited the sales tax and made regular payment of the loan amount and interest to the financial institutions. It cannot, therefore, be said that the subsidy so provided by the State Government would tend to reduce the sale price of the goods and, therefore, would be required to be added in the transaction value.

The CESTAT opined that merely because subsidy was computed with reference to the tax paid and is a percentage of the tax paid, would not mean that it is directly or indirectly related to the sale of goods and would be an additional consideration.

“The amount of subsidy to be provided has necessarily to be a definite amount. It could either be a fixed amount or it could depend on certain factors and one factor can be percentage of the tax paid. This would encourage investors to increase commercial production so that they are able to receive more subsidy, but this can possibly have no bearing on the consideration to be received by the appellant so as to include this value in the transaction value,” CESTAT observed in its order.

Lastly, the CESTAT held that under the promotion policy involved in the present case, the subsidy does not reduce the sales tax that is required to be paid by the assessee as the entire amount of sales tax collected by the assessee from the customer is paid. As a result, the subsidy amount cannot be included in the transaction value for the purpose of imposing central excise duty under Section 4 of the Excise Act.