Industrial Promotion Subsidy Cannot Be Added To Excise Assessable Value: CESTAT Mumbai

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal has recently ruled that the Industrial Promotion Subsidy received by a taxpayer under the Maharashtra government's industrial incentive scheme cannot be added to the assessable value of goods for the purpose of levying Central Excise duty.

A coram of Judicial Member Ajay Sharma and Technical Member M.M. Parthiban observed that the subsidy was a state incentive linked to eligible capital investment and regional industrial development. It was not consideration flowing directly or indirectly from buyers.

"The incentives received under PSI is a State subsidy for industrial promotion and cannot be treated as an additional consideration flowing from the buyer," the tribunal held.

Responsive Industries manufactures vinyl floorings, PVC leather cloth and other excisable goods. The company was availing benefits under Maharashtra's Package Scheme of Incentives 2001/2007.

The scheme provided incentives including electricity duty exemption, stamp duty exemption and Industrial Promotion Subsidy.

The dispute arose after tax authorities alleged that the company had received incentives under the scheme without including those amounts while determining transaction value for Central Excise purposes.

A show-cause notice covering the period from June 2012 to March 2017 demanded excise duty of about ₹7.67 crore. Interest and penalty were also proposed.

Responsive Industries argued that VAT and CST were collected from customers and deposited with the state government. Since those taxes had been actually paid, they stood excluded from transaction value. The company further contended that a subsidy granted later by the state government could not alter the value already determined when the goods were removed from the factory.

After examining the scheme, the tribunal noted that the subsidy became available only after eligible fixed capital investments were made. The claims were also scrutinised by the Maharashtra government before the incentive was granted.

"It is clear that the incentive is linked to eligible fixed capital investment and regional industrial development and is disbursed after scrutiny of claims and the issuance of the Eligibility Certificate by the Government of Maharashtra. Such incentive is not part of the price paid by the buyer and is independent of the sale transaction," the tribunal observed.

The tribunal also rejected the Revenue's contention that the subsidy acquired the character of sale consideration merely because VAT and CST payments formed one component of the mechanism used to compute the incentive amount.

"The mere circumstance that the computation mechanism under the MOU takes into account VAT/CST paid by the Appellant as one component does not transform IPS into an amount payable by the buyer or received in connection with a sale transaction," the tribunal held.

Relying on its earlier decision in Bosch Limited, the tribunal concluded that Industrial Promotion Subsidy falls outside the scope of transaction value. It therefore cannot be included in the assessable value for the levy of Central Excise duty.

The tribunal set aside the demand of about ₹7.67 crore. It also set aside the associated interest and penalty. The appeal was allowed with consequential relief.

For Appellant: Shri Prakash Shah, Sr. Advocate a/w Shri Mihir Mehta, Advocate

For Respondent: Shri AK Shrivastava, AR