Recently, the central excise department has started issuing SCNs for recover of central excise duty on the Industrial Promotion Subsidy received by assessees in Maharshtra state. Under Package Scheme of Incentive 2001/2007 of Govt. of Maharashtra, manufacturers were given incentives in the form of exemption from electricity duty and Industrial Promotion Subsidy (IPS) for setting up or expanding units in backward or relatively backward zones in Maharashtra. The subsidy is linked to the capital investment made by the units. The manner of release of subsidy is by way of refund of MVAT and CST paid every year. The applicant has to initially obtain an Eligibility certificate from Govt. Of Maharashtra. This certificate contains the capital investment made by the unit and based on that, the maximum IPS that will be granted to the applicant. After the unit starts the commercial production, it can claim the IPS every year by making an application. The IPS released every year is based upon the quantum of VAT & CST paid for that particular year.
Investment made in year 2008 : Rs. 40 Crores.
IPS amount sanctioned as per Eligibility Certificate : Rs. 10 Crores
Period of IPS : 8 years starting from FY 2009-10.
IPS claims made every FY :
|F. Y.||VAT & CST Paid Rs. Cr||IPS claim made Rs. cr 25% of VAT CST paid|
Note : In year 2014-15, the IPS paid is calculated so as to reach the maximum limit of Rs 10 Crores.
Now the central excise department, based on the intelligence received from the DGCEI, is seeking to levy central excise duty on this IPS received by the manufacturer from year to year. The contention of the department is that this is a part of “transaction value” because this is a refund of sales tax and in order to qualify as deduction from transaction value, the sales tax should be actually paid or payable. The department contents that this refund is retention of sales tax and hence liable to excise duty. The reliance is placed on the case of MIs. Super Synotex (India) Ltd (SC) and Maruti Suzuki India Ltd. CA No. 5183/2004 (SC) wherein the Hon. SC held that the sales tax refund or exemption received by the assessee will form part of transaction value. A large number of SCNs are being issued in this regard.
Let us analyse the position:
Transaction Value :
Section 4 of the Central Excise Act defines :
“transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.
If we see the definition above, it appears that the sales tax paid on goods is deductible from the transaction value if and to the extent, it is actually paid or payable. The Hon. SC observed in Super Synotex case : “unless the sales tax is actually paid to the Sales Tax Department of the State Government, no benefit towards excise duty can be given under the concept of “transaction value” under Section 4(4)(d), for it is not excludible.”
Now considering the position prevailing under Maharashtra PSI scheme, it can be observed that the assessee pays the VAT and CST as usual. After the end of the year, the assessee makes claim of IPS. The measure used for release of IPS is a percentage of MVAT and CST paid. Say, 25%. There is a defined procedure to make the claim, scrutinize it and then the claim amount may be accepted as it is or with modification. Thus, it cannot be said that this release of IPS is a “refund of sales tax”. Further, all that the definition requires is that the sales tax should be actually paid. This condition is very well satisfied in case of the PSI assessees.
The distinction between Super Synotex or Maruti case and PSI assessees in Maharashtra is that in Super Synotex or Maruti case, the very incentive was exemption or refund of sales tax. Whereas in case of PSI 2007, it is basically IPS released based on the quantum of VAT or CST paid. Further, in case of a VAT refund, the VAT law usually disallows input credit to the buyer. In case of PSI, there is no such provision of disallowance. The IPS coming to the assessee in the form of VAT CST refund is coming from the Govt. of Maharashtra and not from the buyer. It is not “by reason of” or “in connection with” sale. Thus, it cannot be said to be a part of transaction value.
Now the times to come will decide who finally wins the battle of incentives.