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Commissioner Of Central Excise, Jaipur v. Shree Rajasthan Syntex Limited And Others
Factual and Procedural Background
The respondents manufacture yarn and waste of man-made fibre and availed sales tax exemption under the State of Rajasthan’s Sales Tax Incentive Scheme of 1989. Under the scheme, the respondents collected the full incidence of sales tax from buyers, retained 75% of the amount collected, and remitted 25% to the State Government.
For the period November 1996 to July 2001, the appellant Revenue Department issued a show-cause notice dated 26-11-2001 demanding Rs 37,03,161 on the allegation that excise duty should be computed after including the 75% sales tax component retained by the respondents. After adjudication, the Commissioner (order dated 10-3-2003) confirmed the demand, imposed an equal penalty, and also imposed penalties on individual officers of the respondents. The respondents raised, among other points, a limitation objection contending that the extended period could not be invoked; this was rejected by the Commissioner.
The respondents appealed to Cegat, which allowed the appeal on merits and held that the 75% sales tax retained was not includible for excise valuation, setting aside the Commissioner’s order. The present appeal was filed against Cegat’s decision.
Legal Issues Presented
- Whether the 75% portion of sales tax collected but retained by the assessee under the Sales Tax Incentive Scheme is includible in the assessable/transaction value for payment of excise duty under Section 4 of the Central Excise Act, 1944, particularly in light of the amendment effective from 1-7-2000.
- Whether the extended period of limitation under the proviso to Section 11-A(1) of the Central Excise Act, 1944 is applicable to the demand in the facts of the case.
- Whether penalty should be levied in the circumstances, considering the state of the law regarding interpretation of Section 4 before and after its amendment.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CCE v. Super Synotex (India) Ltd. (2014) 15 SCC 276, (2014) 301 ELT 273 (SC) | Interpretation of Section 4 of the Central Excise Act, 1944 in relation to sales tax incentive schemes: under the unamended provision, sales tax (including the retained incentive component) could be deducted; after the 1-7-2000 amendment, the retained component is includible in “transaction value”. | The Court applied this decision to split liability by period: up to 30-6-2000, no excise duty on the retained 75%; from 1-7-2000 onwards, the retained 75% is includible in transaction value and excise duty is payable thereon. |
Court's Reasoning and Analysis
The Court noted that valuation of excisable goods is governed by Section 4 of the Central Excise Act, 1944 and that Section 4 was amended in 2000 with effect from 1-7-2000. Relying on its earlier decision in CCE v. Super Synotex (India) Ltd., the Court stated that under the unamended Section 4, an assessee could claim deduction towards sales tax from the assessable value, including the portion retained by the assessee under a sales tax incentive scheme (such as the 75% retained here). However, the Court also noted that the legal position changed after the amendment effective 1-7-2000, and that for determining “transaction value” thereafter, the retained 75% component would be included.
Applying that legal position to the period in dispute (November 1996 to July 2001), the Court held that the respondents would not be liable for excise duty on the retained sales tax component up to 30-6-2000, but would be liable from 1-7-2000 to July 2001.
On limitation, the Court examined the Commissioner’s order and agreed that the extended period of limitation under the proviso to Section 11-A(1) was applicable in the circumstances.
On penalty, the Court reasoned that given the “fluid” state of the legal position and interpretation concerning unamended Section 4 and its post-amendment position, it would not be appropriate to levy penalty in a case like the present.
Holding and Implications
ALLOWED IN PART: The Court sustained the Commissioner’s order-in-original dated 10-3-2003 insofar as it related to the period from 1-7-2000 to July 2001, but set aside the penalty. No order as to costs was made.
The direct effect is that excise duty demand (and associated findings) survives only for the post-amendment period beginning 1-7-2000, while the respondents are not liable for excise duty on the retained sales tax component for the period up to 30-6-2000. Penalty liabilities imposed by the Commissioner were removed due to the Court’s view that the applicable legal interpretation was in a fluid state. The opinion applies the principle already articulated in the cited precedent and does not indicate that any new precedent was set beyond that application.
Order
1. The respondents herein are engaged in the manufacture of yarn and waste of the man-made fibre. It was availing sales tax exemption under the Sales Tax Incentive Scheme of 1989 on the yarn and waste, as issued by the State of Rajasthan. Under this Incentive Scheme though the respondents were collecting the full incidence of sales tax from its buyers, 75% thereof was retained by the respondents and only 25% of the said sales tax collected was payable and paid to the State Government in terms of the Incentive Scheme.
2. Since the remaining 75% of the amount of sales tax collected was not included for the purpose of payment of excise duty, the appellant Revenue Department issued a show-cause notice dated 26-11-2001 demanding a sum of Rs 37,03,161 alleging that the excise was payable on the amount after including the aforesaid 75% sales tax as well. After giving opportunity to the respondents to reply to the said show-cause notice and after hearing the respondents the Commissioner vide order dated 10-3-2003 confirmed the aforesaid amount of demand and also imposed penalty of equal amount. The penalty was also imposed on the individual officers of the respondents.
3. The respondents, apart from arguing the matter on merit had raised the issue of limitation with the plea that it was not a case where extended period of limitation could be applied. This argument of the respondents was also negatived by the Commissioner in this aforesaid order.
4. Aggrieved by the said order, the respondents preferred an appeal before Cegat. Cegat allowed the appeal on merits and set aside the order of the Commissioner holding that the aforesaid amount of 75% of the sales tax component retained by the respondents was not includible while calculating the excise amount. Against this judgment, the present appeal is preferred.
5. We may state here that the period involved is November 1996 to July 2001. The show-cause notice in this behalf, as noted above, was issued on 26-11-2001. The valuation of the excisable goods has to be in terms of Section 4 of the Central Excise Act, 1944. The said section was amended in the year 2000 which amendment came into effect on 1-7-2000.
6. The legal position relating to identical sales tax incentives scheme which would prevail in view of the unamended provision as well as amended provision, came up for consideration before this Court in CCE v. Super Synotex (India) Ltd. (2014) 15 SCC 276, (2014) 301 ELT 273 (SC) This Court took the view, after analysing the provision of Section 4 which provided, prior to the amendment, that the assessee would be entitled to claim deductions towards sales tax from the assessable value and sales tax incentive which is retained by the assessee, namely, 75% sales tax amount in this case. The Court also held that this position changed after the amendment in Section 4 with effect from 1-7-2000 and in arriving at “the transaction value” the amount of 75% which was retained by the assessee, will be included. As per the aforesaid decision, the respondent assessee herein will not be liable to pay any excise duty on the sales tax amount which was retained under the Incentive Scheme up to 30-6-2000. However, this component of sales tax which was retained by the assessee after 1-7-2000 shall be includible in arriving at the transaction value and sales tax shall be paid thereon.
7. Insofar as the question of extended period of limitation is concerned, we have gone through the order of the Commissioner and are of the opinion that he has rightly held that the extended period of limitation as per the proviso of Section 11-A(1) of the Central Excise Act, 1944 would be applicable in the given circumstances.
8. However, we are of the opinion that in a case like the present one, where the legal position and interpretation of the unamended Section 4 and the position after the amendment in the said provision with effect from 1-7-2000 was in a fluid state, it would not be appropriate to levy the penalty.
9. In the aforesaid circumstances the present appeals are allowed in part by sustaining the Commissioner's order-in-original passed on 10-3-2003 insofar as it relates to the period from 1-7-2000 to July 2001 but the penalty is set aside. However, there shall be no order as to costs.
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