Central Excise Duty Not Payable On Capital Subsidy Received From State Government In Form Of Sales Tax Challan 37B: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has observed that central excise duty is not payable on capital subsidies received from the state government in the form of sales tax challan 37b.

The bench of Justice Dilip Gupta (President) has 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 was granted a subsidy to the extent of Rs. 26,98,304 by the State of Rajasthan in the form of a Sales Tax VAT 37B challan. The amount of subsidy was adjusted by the appellant toward the payment of VAT. The Department has included the amount of subsidy in the transaction value for the purpose of levying central excise duty under Section 4 of the Central Excise Act, 1944.

The Department believed that this amount of Rs. 1000 retained by the appellant from the amount of sales tax collected by the appellant from the customers should be included in the transaction value since the definition of transaction value in Section 4(3)(d) of the Excise Act excludes only the amount of sales tax actually paid or payable on such goods. According to the Department, the appellant has deposited only an amount of Rs. 1500 collected from the customers towards sales tax, since the balance amount was adjusted through the subsidy amount of Rs. 1000.

According to the Technical Member, 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, the remaining amount would have to be added to the transaction value.

The technical member examined the provisions of the promotion policy as well as the meaning of subsidy in Wikipedia, Investopedia, Cambridge Dictionary, and Oxford Dictionary. The technical member concluded that subsidies provided by the government as part of its investment policy tend to reduce the sale price of the goods, and as such, the transaction value is depressed by the number of subsidies so received.

The tribunal 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.

Case Title: M/s Harit Polytech Pvt. Ltd. Versus Commissioner, Central Excise & CGST- Jaipur I

Citation: Excise Appeal No. 51011 of 2019

Date: 21.03.2023

Counsel For Appellant: Naresh Gupta, Jaipur

Counsel For Respondent: Rakesh Agarwal

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