Customs, Excise and Service Tax Appellate Tribunal

Hindustan Insecticides Ltd. v. CCE, Delhi-I

MANU/CE/0232/2017

30.03.2017

Excise

Extra consideration received for subject goods in form of subsidy or otherwise has to be treated as part of assessable value

Appellant is in appeal against Order-in-Original passed by Commissioner, whereunder various demands along with interest and equivalent penalties have been confirmed. Appellant are manufacturing DDT. Entire quantity of DDT manufactured by Appellant is sold to Ministry of Health and Family Welfare, Government of India. Appellant manufacturer claims that, subsidy is having no connection with manufacture and supply of DDT. Main issue here is whether differential amount, received as subsidy by Appellant-Assessee is part of value of goods under Section 4 of Central Excise Act, 1944 and whether duty of Central Excise accordingly is chargeable on said differential amount (which is subsidy in present case).

Subsidy received by Appellant is in nature of reimbursement for supply of DDT made by Appellant to Ministry of Health & Family Welfare, Government of India. Period involved in instant appeal is from 2005-2006 to 2009-2010. Therefore, after 1st July, 2000, which is date, when new Central Excise Valuation Rules, 2002 came into force, these rules brought concept of 'transaction value'. Under concept of 'transaction value', actual value which is received by Appellant manufacturer for subject goods is to be taken as assessable value for purpose of duty of Central Excise.

Duty of Central Excise is charged on transaction value mentioned in Section 4(1) of Central Excise Act, 1944. Explanation appearing in Section 4(1) of Central Excise Act, 1944 says that price actually paid and money value of additional consideration, if any, for subject goods received directly or indirectly from buyer by Assessee shall be price-cum-duty of excisable goods. In terms of contents of Explanation to Section 4(1) of Central Excise Act, 1944, differential price (subsidy) which has been received by Appellant-Assessee for subject goods namely DDT over and above their sale will be taken/deemed as price-cum-duty. It means that, subsidy received by Assessee, HIL will be deemed to include duty payable for such goods.

Subsidy is an indirect consideration received by Appellant-Assessee for subject goods only and this indirect consideration is deemed as coming from buyer as in present case, buyer is no other than Ministry of Health & Family Welfare, Govt. of India only and it is Govt. of India who are giving this subsidy to Assessee viz. HIL. Though may be this subsidy is sanctioned by different Ministry and goods might be being supplied to some other Ministry yet both are part of same entity, which is Government of India only and when said subsidy is a kind of additional consideration for same goods, which fact is very evident from written decision taken in the Meeting of the Committee of Secretaries for the rehabilitation of the Appellant-Assessee.

According to Rule 6 of the Central Excise Valuation Rules read with provisions of Section 4(1) of Central Excise Act, 1944, reimbursement amount received from Ministry by Appellants, have to be added to 'transaction value' for charging duty of Central Excise on subject goods sold to Ministry by Appellant. In terms of the Explanation to Section 4(1) of Central Excise Act, 1944, this subsidy or reimbursement amount is deemed to include duty payable on such goods and this amount is required to be treated as price-cum-duty accordingly. Further, CBEC circulars/clarifications cannot override or supersede provisions of Central Excise Act and the Rules made thereunder. Any extra consideration received for subject goods in whatever form (subsidy or otherwise) has to be treated as part of assessable value for subject goods viz. DDT under provisions of Section 4(1) (a) of Central Excise Act, 1944 read with Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2006.

Assessee submitted that, if demand is held sustainable, they should be given benefit of cum duty, considering subsidy received as inclusive of excise duty payable. This submission of Appellant is acceptable, when Assessee has got subsidy as extra consideration and when there is no further scope to recover any other amount under head of excise duty from their customer. Further, Assessee is entitled to cum duty price benefit in case of extra consideration (subsidy) received by Appellant from Ministry.

Duty of Central Excise is to be levied on subsidy portion or (extra consideration/reimbursement received) for period of only one year from relevant date, which is date of Show Cause Notices. Consequently, demand of Central Excise duty on subsidy portion beyond period of one year cannot be sustained and is dropped. Thus, demand for period of one year (from relevant date) is sustained along with interest. However, for re-quantification of liability of demand and interest and penalty, matter is remanded to adjudicating authority.

Tags : Demand Confirmation Validity

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