Subject:    Determination of assessable value for levy of excise duty where an incentive is provided by the State Govts. in the form of retention of Sales-tax by the manufacturers - regarding.

        The undersigned in directed to refer to Board's Circular No. 4/85(F.No. 6/15/85-CX.1) dt. 14.2.85 regarding addition and exclusion of sales-tax in the assessable value. The trade has raised a doubt about the deductions given in respect of sales tax leviable by State Government, while determining the Assessable value. The following three situations arise as a result of incentive schemes formulated by some of the State Governments for ensuring rapid industrialisation in the backward areas of the states:-

i)    Exemption from payment of sales tax for a particular period;

ii)    Deferment of payment of sales tax for a particular period;

iii)   Grant of incentive equivalent to sales tax payable by the units.

3.    In category of cases mentioned in Para 1(i) sales tax is not deductable as no sales tax is payable by the assessee in accordance with the Law.

4.    In situation (ii), Sales tax is payable by the assessee after a particular period. In situation (iii), the manufacturer collects the sales tax from the buyers and retains the same with him instead of paying it to the State Govt. The State Govt. on the other hand grants a cash incentive equivalent to the amount of sales tax payable and instead of the cash incentive equivalent to the amount of sales tax payable and instead of the cash incentive being paid to the manufacturer, is credited to State Govt. account as payment towards sales tax by the manufacturer. In such a situation sales tax is also considered payable by the assessee within the meaning of the provisions of Section 4(4) (d)(ii) of the Central Excise Act, 1944. Therefore, sales tax is deductable from the wholesale price for determination of assessable value for levy of Central Excise Duty in category. of cases mentioned in Para 1(ii) & (iii) above.

5.    The advice of Ministry of Law in the matter has been accepted by the Board and is enclosed for information.
 

2.    The following  three situations arising as a result of incentive scheme formulated by some of the State Government for ensuring rapid industrialisation in the backward areas of the states have been mentioned:-

(i)    Exemption from payment of sales tax for a particular period;

(ii)    Payment of sales tax deferred for a particular period; and

(iii)   Grant of incentive equivalent to sales the payable by the units.

4.    If no sales tax is payable by the assessee in accordance with the law, he cannot ask for it to be deducted from the wholesale price for calculating the assessable value of the goods. The above view has found acceptance by the courts and recently by the Tribunal in the case of CCE, Bombay vs. Bajaj Auto Ltd. [1997(71) ECR 543 (Tribunal)]. In view of the aforesaid, there is no doubt about the first situation mentioned in Para 2 as no sales tax is payable by the assessee.

5.    Perusal of the CBDT Circular letter No. 201/34/86-ITA-II dated 25.9.87 shows that it has been issued in the context of Section 43B of the Income Tax Act, 1961, which provides for deduction in respect of any actually paid by the assessee by way of tax or duty under any law in the previous year irrespective of the previous year in which liability to pay such sum was incurred. Since there appears to be no provision in the Act similar to the provision contained in Section 43B of the I.T. Act, we feel that it is not advisable to apply that instructions contained in the aforesaid CBDT circular to the cases of determination of assessable value for levy of Central Excise duty under the Act.

6.    Examination of the situations, mentioned above in Para 2(ii) & (iii), in the referring note give an indication that sales tax in payable by the assessee in both the situations. It is after a particular period in the second case. On the other hand, in the third situation, the sales tax is considered payable by the assessee even though it is paid by the State Government, the assessee keeping the said amount as cash incentive. In this situation sales tax would be considered as payable within the meaning of the provisions of Sec. 4(4)(d)(ii) of the Act.

7.    We are therefore, of the opinion that in the category of cases mentioned in Para 2(i), sales tax is not deductable whereas in the category of cases mentioned at (ii) and (iii) sales tax is deductable from the wholesale price for determination of assessable value under Sec. 4 of the Act for levy of Central Excise duty.