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WHEN the concept of `transaction value' was introduced in Section 4 of the Central Excise Act, effective mid-2000, one of the circulars that had to fall by the wayside was an explanation given in 1994. It had stated that while calculating the effective duty of excise payable on any goods, set-off notifications were to be ignored for deduction from the normal sale price to arrive at the assessable value (AV). Though this explanation was in relation to determination of effective duty of excise only, the logic was applied to sales tax (ST) also. It became redundant since no Central excise set-off notifications existed any longer in the tariff.

However, in July 2002, the CBEC clarified that the amount of ST that could be deducted from the sale price of a commodity to arrive at the AV would be the net ST, that is, after deducting the set-off admissible.

Now, the CBEC has issued another circular on the matter. It has observed that while depositing ST with the sales-tax department (on a monthly or quarterly basis), the assessee deposits only the net amount of ST after deducting set-off/rebate admissible, either in full or in part, on the ST/purchase tax paid on the raw materials during the said month/quarter. The ST set-off in such cases, therefore, does not work like the CE set-off notifications where one-to-one relationship is to be established between the finished product and the raw materials and the assessee is allowed to charge only the net CE duty from the buyer in the invoice.

For instance, if the ST on a product A of value of Rs 100 is 5 per cent and the set-off available in respect of the purchase tax/ST paid on inputs going into the manufacture of the products is, Re 1, then the ST law permits the assessee to recover ST of Rs 5. However, he would deposit Rs 4 only to the sales-tax department. On the CE side, under similar circumstances, the duty payable would have been Rs 5 minus 1, that is, Rs 4, in view of the set-off notification, and the assessee would recover an amount of Rs 4 only from the buyer as CE duty. Thus, the circular explains, the set-off scheme in respect of ST operates somewhat like the Cenvat scheme, which does not have the effect of changing the rate of duty payable on the finished product.

Since the set-off scheme of ST does not change the rate of ST payable/ chargeable on the finished goods, the set-off is not to be taken into account for calculating the amount of ST permissible as abatement for arriving at AV. Only that amount of ST will be permissible as deduction under Section 4 as is equal to the amount legally permissible under the local ST laws to be charged/billed from the customer/buyer. (Circular No 62/671/2002 dated October 9, 2002)

D. Murali

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