[Order per : Justice K.K. Usha, President]. - The appellant-assessee challenges the order passed by the Commissioner of Central Excise, Delhi, dated 22-5-2003 denying their claim for deduction of sales tax collected from its buyers while computing assessable value of the goods manufactured.

2. Appellants are engaged in the manufacture of various types of motor vehicles falling under Chapter 87 of the Central Excise Tariff Act, 1985. Appellants carried out first expansion of their factory by installing Plant No. 2 in their factory in 1994. The Haryana Government under Rule 28C of Haryana General Sales Tax Rules, 1975 granted tax concession by way of capital subsidy equal to 50% of sales tax collected from customers in respect of vehicles cleared from Plant No. 2 for 14 years with a maximum limit of Rs. 564.35 crores. As part of the scheme the appellant was allowed to collect sales tax from the buyers and retain it with them, while they agreed to forego the sales tax incentives pertaining to subsequent expansions effected by them. Appellant did not include sales tax element in the assessable value of the goods while paying excise duty thereon. While so, show cause notice dated 4-10-2002 was issued to the appellant alleging that the benefit conferred by Haryana Government is includible in the assessable value of the vehicle under Section 4 of the Central Excise Act, 1944 for the reason that this amount does not form part of the sales tax ‘actually paid or payable’ by the appellant and thus is not eligible for exclusion provided under Section 4(3)(d) of the Act. Duty to the extent of Rs. 7,20,90,932/- was demanded on the sales tax benefit which came to Rs. 22.44 crores for the period August, 2001 to July, 2002. The notice also proposed imposition of penalty. The Commissioner took the view that sales tax amount collected by the appellant from the buyers and retained by it under the incentive scheme is not eligible for abatement under Section 4(3)(d) of the Act and excise duty is payable on the sales tax element. Accordingly duty demand was confirmed under the proviso to Section 11A and a penalty of Rupees one crore was imposed. Aggrieved by the above order the assessee has come up in appeal.

3. It is contended on behalf of the assessee that the Commissioner has not properly appreciated the nature of the incentive scheme and that he has given a wrong interpretation to the term ‘actually paid or actually payable’ in the definition of ‘transaction value’ under Section 4(3)(d) of the Act as it stood after July, 2000. Sections 13, 13A and 13B of the Haryana General Sales Tax Act enables the State Government to exempt particular goods or particular persons from payment of sales tax. In such a case the specified person or persons dealing with specified goods are not required to pay any sales tax to the Government. Section 25A deals with deferment of tax and provides that the State Government may defer payment of tax by specified class of industries in the interest of industrial development of the State. Section 25A reads as follows :

“25A. Deferment of tax. - Notwithstanding anything to the contrary contained in this Act, the State Government, if satisfied that it is necessary and expedient so to do in the interest of industrial development of the State, may defer the payment of tax by such class of industries, for such period, either prospectively or retrospectively, and subject to such conditions, as may be prescribed.”

The manner in which concession granted under Section 25A is to be worked out is provided under Rule 28C of the Haryana General Sales Tax Rules, 1975 which reads as follows :-

“Rule 28C. Tax concessions, class of industries, period and other conditions. (Section 25A)

(1)        Concessions of tax payable under the Acts shall be available to an eligible industrial unit in the manner, for the period and at the scale given hereinafter.

(2)        A Unit availing tax concession under this rule shall not be entitled to any other tax concession under Section 13B or Section 25A of the Act.

(3)(c)    “eligible industrial unit” means

(1)        ***

Note : The eligibility of units in pipeline shall be determined by High Powered Committee in case of prestigious units and by Higher Level Screening Committee in other cases. The decision of High Powered Committee/Higher Level Screening Committee shall be final.

(4)        ...

(5)(a)   Subject to other provisions of this rule, an eligible industrial unit (except a prestigious unit) holding a valid entitlement certificate shall be entitled to the concession of deferment of payment of sales tax including central sales tax and conversion of the same to capital subsidy, computed on the sale of goods (including bye-products and waste) manufactured by the unit or arising from the process of manufacturer and declared in the sales tax returns filed by the unit, without taking into account the rebate admissible under Section 15A or the rules framed under the Act, at the scale, subject to the time-limit and the extent related to the fixed capital investment (FCI), as tabulated below :-

Table I …

Table II

(1)        Expansion and diversification :

Table III……

and the unit shall be required to pay only the balance of tax after deducting the rebate and the capital subsidy plus any purchase tax payable at its hands but no refunds of any amount of tax paid shall accrue to the unit by operation of these provisions.

Explanation I - For the purpose of calculation of benefits availed of under the rule, tax payable including the component of tax to be converted into subsidy shall be taken into account.

…

Illustration - Owner of a unit purchased goods worth Rs. 1,000 locally from Haryana and used them in manufacture of goods which he sold for Rs. 2,500. He paid Rs. 20 as tax at the time of purchase of goods which were taxable at the first stage and Rs. 30 become payable by him on other goods taxable at the last stage. The tax payable on sale of manufactured goods is Rs. 120.

The scale of concession admissible to him is 50%. He is entitled to defer the payment of Rs. 60 (50% of Rs. 120) and retain the same as capital subsidy from the State. He is required to pay Rs. 30 as purchase tax (same as in a normal case) and Rs. 10 as sale tax (Total sale tax: Rs. 120 minus capital subsidy: Rs. 60 minus rebate admissible: Rs. 50) in the Government treasury.

…

(5)(b)   Decision about the grant of tax concession to prestigious unit shall be taken by the High Powered Committee on the basis of factors like employment generation, likely revenue, growth of ancillaries, impact on overall industrial growth etc. A prestigious unit shall not be, as a matter of right, entitled to benefits available to other units.”

4. It is contended by the appellant that the provisions contained under Rule 28C would clearly show that incentive given under the above rule is in the nature of deferment of sales tax and not a concession as contemplated under Sections 13, 13A and 13B. It is further pointed out that in the application to be filed for the purpose of getting benefit of the incentive scheme serial No. 2(n) of Form ST 70B the amount of tax likely to be converted into capital subsidy is to be shown. Form ST 74B is the register maintained by appropriate officer of the Sales Tax Department of the State Government. Part II of this register relates to details of return filed and tax assessed during the benefit and post-benefit period. The form, inter alia, contains columns relating to assessed tax, paid tax, balance, converted and balance. It also gives conversion in the first year, second year, third year, etc. It also has a column for cumulative amount of conversion up to that date. The appellant submits that this register also would show that the benefit granted under Rule 28C is in the nature of deferment of sales tax which subsequently got converted into capital subsidy.

5. The appellants being a prestigious unit and their case is that of an expansion, the State Government granted concession on the lines of Rule 28C(5)(a) i.e., 50% subject to maximum ceiling of 100% of the additional investment. Appellants were given 14 years to avail of this benefit and in lieu of the extended period they had to agree to forego all the benefits for subsequent expansion. The above would show, according to the appellant, they were granted benefit of deferment of sales tax collected by them and thereafter the same was converted into capital subsidy. Entitlement certificate issued to the appellant also would show that benefit was granted to them under Rule 28C. According to the appellant it is a case of appellant discharging its liability to the State Government by way of making payment of sales tax collected by it and the State Government simultaneously returning the amount to the assessee as capital subsidy. This aspect has been clarified by the Sales Tax authority under clarification dated 18-10-2001. Reliance is also placed by the appellant on Circular No. 378/11/98-CX., dated 12-3-98 and CBEC Circular No. 671/62/2002-CX., dated 9-10-2002. According to the appellant its case is covered by the ratio of the decision of this Tribunal in Super Syncotex (India) Ltd. v. CCE, Jaipur - (T) = 2003 (58) RLT 130.

6. Learned Counsel for the appellant further submitted that according to the scheme 50% of the amount that has to be paid by the appellant as sales tax to the State Government is being adjusted against subsidy granted to the appellant by the State Government. Therefore, the appellant is entitled to claim abatement of the sales tax element as it is actually paid or payable. Reliance is placed by learned Counsel for the assessee on the following statement :

“Adjustment of cross-claims, a settlement in account, an exchange effected by a book entry, or a set-off, would be equivalent to actual receipt of a sum of money although no money may pass”.

[The Law and Practice of Income Tax by Kanga and Palkhivala, Eighth Edition - Volume-I Page 210]

7. Learned Counsel brought to our notice Circular Nos. 496, dated 25th September, 1987 and 674 dated 29th December, 1993 issued by Central Board of Direct Taxes. In the first circular it was provided that if the State Governments make an amendment in the Sales Tax Act to the effect that the sales tax deferred under the scheme shall be treated as actually paid, such a deeming provision will meet the requirements of Section 43B of the Income-tax Act, 1961. Circular dated 29-12-1993 takes into consideration a situation where sales tax liability is converted into loans. The Board took the view that such deferred schemes notified by the State Governments would meet the requirements of the Board’s Circular dated 25-9-1987, though in a different form. Accordingly Board decided that the amount of sales tax liability converted into loans may be allowed as a deduction in the assessment for the previous year in which such conversion has been permitted by or under the Government orders. The contention of the appellant is that same is the effect of the scheme under which payment of sales tax is deferred and it is being converted into capital subsidy payable to the assessee.

8. Under the impugned order the learned Commissioner had taken the view that CBEC Circular No. 378/11/98-CX., dated 12-3-98 cannot have any application to the appellants case in view of the subsequent amendment which came into force with effect from 1-7-2000 to the definition of ‘transaction value’. Transaction value is defined under Section 4(3)(d) as follows :

“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 organisation 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.”

9. According to the Commissioner in order to claim abatement sales tax should have been actually paid or actually payable on such goods. Since the word ‘actually’ was not there in Section 4(4)(d)(ii) at the time when Circular dated 12-3-98 was issued, the assessee cannot place any reliance on the Circular dated 12-3-98. Learned Commissioner also took the view that circular dated 9-10-2002 is also of no help to the assessee. According to the Commissioner the two circulars issued by the Central Board of Direct Taxes relied on by the appellant are also of no assistance to it.

10. Learned Departmental Representative while supporting the order impugned mainly relied on the definition of the term ‘transaction value’. He submits that since the definition excludes only the duty and tax actually paid or actually payable on such goods, the appellant cannot claim abatement unless sales tax was actually paid or payable.

11. After examining the provisions contained under Sections 13, 13A, 13B and Section 25A of Haryana General Sales Tax Act, 1975, we are of the view that what is contemplated under Section 25A cannot be treated as a concession in the nature of sales tax concession granted under Sections 13, 13A and 13B. The provisions under Rule 28C of Haryana General Sales Tax Rules, 1975 would clearly show that the procedure prescribed therein relates to deferment of tax under Section 25A and not in relation to any other concession in payment of sales tax. If that be so, the scheme envisaged under Rule 28C, the benefit of which was granted to the appellant would not entitle the appellant for any sales tax concession. Its liability to pay sales tax is deferred for a period of 14 years. At the same time, it is granted capital subsidy equal to 50% of the sales tax collected from customers in respect of vehicles cleared from Plant No. 2 for 14 years with a maximum limit of Rs. 564.35 crores. The net effect is that 50% of sales tax which is actually payable by the assessee to the State Government is adjusted against capital subsidy due to it from the State Government instead of the assessee remitting the amount in the treasury and State Government paying back the same to the assessee. Under such circumstances, it cannot be contended that the appellant was claiming abatement in respect of sales tax not actually paid or payable.

12. The meaning of the term ‘money actually received’ has come up for consideration of Privy Council in the Trinidad Lake Asphalt Operating Co. Ltd. v. The Commissioner of Income Tax for the Conoly of Trinidad and Tobago (1945) A.C. 1. The appellant-company was resident in and carried on business in the colony of Trinidad and Tobago. The Barber Asphalt Corporation was a company in U.S.A. and was the holder of a large majority of the issued share capital of the appellant-company. It was also a debtor of the appellant-company as purchaser of Asphalt mined and refined by the appellant-company in colony of Trinidad and Tobago. The company passed a resolution that certain amount of dividend due to Barber Asphalt Corporation be declared payable by cancellation of the company’s claim in a like amount against Barber Asphalt Corporation. The question arose whether money was actually paid to Barber Asphalt Corporation of New Jersey. Their Lordships took the following view :

“The transaction involved the sending to Barber by the appellant, and receipt by Barber from the appellant, of the dividend. This was effected by the agreement that payment should be made by cancellation of the debt for goods supplied. This method had been mutually agreed before the dividend was declared. The agreement was carried out by each party making corresponding entries in its books. These were not merely book-keeping entries. They represented the actual receipt of the dividend by Barber, and the actual payment of it by the appellant to Barber, and concurrently the actual receipt by the appellant from Barber of payment of his debt for goods supplied”.

Their Lordship followed the view taken by Mellish L.J. In Re : Harmony and Montague Tin and Copper Mining Co., Spargo’s case 28 L.T. 153 as follows :

“Nothing is clearer than that if the parties account with each other, and sums are stated to be due on one side and sums of an equal amount due on the other side on that account, and those accounts are settled by both parties, it is exactly the same thing as if the sums due on both sides had been paid. Indeed, it is a general rule of law, that in every case where a transaction resolves itself into paying money by A. to B., and then handing it back again by B. to A., if the parties meet together and agree to set one demand against the other, they need not go through the form or ceremony of handing the money backwards and forwards”.

It is advantageous to refer to the observation of Lord Lindley on this issue in Gresham Life Assurance Society v. Sishop [1902] AC 287 as follows :

“First, let us consider what is meant by the receipt of a sum of money. My Lords, I agree with the Court of Appeal that a sum of money may be received in more ways than one, e.g. by the transfer of a coin or a negotiable instrument or other document which represents and produces coin, and is treated as such by businessmen. Even a settlement in account may be equivalent to a receipt of a sum of money, although no money may pass; and I am not myself prepared to say that what amongst businessmen is equivalent to a receipt of a sum of money is not a receipt within the meaning of the statute which your Lordships have to interpret. But to constitute a receipt of anything there must be a person to receive and a person from whom he receives, and something received by the former from the latter, and in this case that something must be a sum of money”.

12. We are also of the view that paragraph 6 of CBEC Circular No. 671/62/2002-CX., dated 9-10-2002 cannot be totally ignored in appreciating the stand taken by the assessee. Paragraph 6 of the Circular reads as follows :

“Therefore, since the set-off scheme of sales tax does not change the rate of sale tax payable/chargeable on the finished goods, the set-off is not to be taken into account for calculating the amount of sales tax permissible as abatement for arriving at the assessable value under Section 4. In other words, only that amount of sales tax will be permissible as deduction under Section 4 as is equal to the amount legally permissible under the local tax laws to be charged/billed from the customer/buyer.”

If set-off is not to be taken into account for calculating the amount of sales tax permissible as abatement for arriving at the assessable value under Section 4 and what is deductible is the amount legally permissible under the local sales tax law the same principle should apply in the case of the appellant. It is entitled to claim deduction of the amount legally permissible under the Haryana General Sales Tax Act. The fact that there is an adjustment between the assessee and the State Government on payment of sales tax and release of capital subsidy, cannot change the legal position. Analogy drawn from the provisions under the circulars issued by Central Board of Direct Taxes is also permissible in the facts of the case.

13. In the light of the above discussion we hold that the appellant was fully justified in claiming abatement of sales tax element in this case. We therefore set aside the order impugned and allow the appeal.