VAT/CST Incentive Not Additional Consideration and Not Part of Assessable Value: CESTAT Holds Reimbursement cannot be Included u/s 4 [Read Order]
CESTAT held that the VAT/CST incentives received were government reimbursements and not consideration from buyers, and therefore could not form part of the assessable value under Section 4.
The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) allowed the appeal, holding that the VAT/CST reimbursements received by the appellant from the Government of Andhra Pradesh under the State Incentive Scheme were not additional consideration and therefore could not form part of the assessable value under Section 4 of the Central Excise Act, 1944.
The dispute arose when the department issued a Show Cause Notice to the appellant, filed by Vasudha Pharma Chem Limited, proposing to add VAT/CST incentives to the transaction value of excisable goods cleared by the appellant, alleging that the reimbursements constituted additional consideration flowing from the buyer to the assessee.
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The adjudicating authority confirmed the demand on the ground that the incentives were linked to the sale of goods and were required to be included in the assessable value. The first appellate authority upheld the order.
Before the Tribunal, the appellant submitted that the VAT/CST reimbursements were granted by the State Government pursuant to the Andhra Pradesh Industrial Incentive Scheme and were sanctioned by the Commissioner of Commercial Taxes without any connection to the buyers of the goods.
The appellant emphasized that the incentives were in the nature of subsidies and were not received from or on behalf of the customers.
The appellant relied on various Tribunal decisions, wherein VAT/CST incentives have consistently been held not includible in the assessable value since they do not represent consideration for the goods sold.
The Bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) examined the nature of the incentive scheme and noted that the reimbursements were sanctioned by the State authorities as part of an industrial promotion measure.
The Tribunal observed that the incentives did not arise out of any contractual or commercial relationship between the appellant and its buyers, nor were they in any manner related to the price at which the goods were sold.
The Tribunal held that for an amount to be included in the transaction value under Section 4, it must be paid or payable “by the buyer” or “on behalf of the buyer,” directly or indirectly, in connection with the sale of goods. Since the VAT/CST reimbursements were not paid by the buyers, had no nexus with any buyer, and were independently granted by the Government, they could not be treated as additional consideration.
The Tribunal concluded that the reimbursements were not includible in the assessable value and that the impugned order was unsustainable.
Accordingly, the CESTAT set aside the orders of the lower authorities and allowed the appeal.
The appellant was represented by Ankur Upadhyay, while B. Sangameshwar Rao appeared for the Revenue.
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