K.Vijay Kumar, M.A.,B.Ed., B.L.,
SUPERINTENDENT OF CENTRAL EXCISE
Under Section 12A of the Central Excise Act, 1994,(the 'Act', for short)
Every person who is liable to pay duty, is required to indicate in the invoice and other documents the amount of duty which will form part of the price. And under Section 12B such duty is deemed to have been passed on to the buyer. What will happen if at the time of removal, a manufacturer is under the impression that no excise duty payable and so he does not indicate the duty element in the rice?/ Later the department demands duty from him. Of course he has violated Section 12A, but it might have been a genuine mistake. The real question is regarding valuation of such goods. Should he pay duty on the prices charged by him or will he be given a deduction in respect of the duty payable by him? To put it more clearly assuming he had sold goods worth Rs. 12 lakhs and he was require to pay duty @ 20% of Rs. 12 lakhs i.e. Rs 2.4 lakhs or should the 12 lakhs be taken as cum duty price and only Rs. 2 lakhs demanded as duty?
The Tribunal recently had occasion to address this issue and in Express Rubber Products v. Collector [1998(101) E.L.T.495 (Tribunal) CEGAT held that duty payable is deductible from the price under Section 4(4)(d)(ii) of the Act. But there is an opinion that when no duty is paid, no deduction on be claimed. It is felt that by allowing such a deduction, the assessable value gets fixed at a lower level, the price gets reduce and in cases of clandestine removals, the advantage gained by evading duty is given further benefit by deducting the duty payable but not paid.
But as the Tribunal has made it very clear, duty payable is deductible irrespective of when the duty is paid. In fact when the duty is demanded later in case of non-payment at the time of clearance, duty is payable and this amount is deductible from the price charged a the time of clearance. Besides, this has been a widely accepted procedures. Take an instance, where there is a question of valuation or rate of duty, which is subsequently decided to be higher than what was paid at the time of clearance. Then while computing the duty amount a backward calculation is done and the duty paid and payable are deducted from the price to arrive at the assessable value.
This issue has an interesting history. Before the enactment of Section 11D of the Act there was no restriction on the amount of duty that could be charged by a manufacturer from his customers. For example, if the rate of duty was 10%, there was no bar on him for collecting 20% and even retaining the excess amount collected as excise duty. And this was not an unheard of practice.
Actually many SSI units who were given concessional rates of duty used to collect the full rates of duty from, their customers. It is in such situations that the question of deduction of the duty payable from the price to arrive at the assessable value becomes significant. Suppose person sells his goods art Rs. 100 on which he was to pay excise duty of Rs. 10. @ 10%, but he collects 20% excise duty and sells the goods at Rs. 120. (He pays only Rs. 10 to the department as excise duty). Here the assessable value would be taken as Rs. 109.10 on which he has to pay duty of Rs.10.91' as he has ready paid Rs. 10, he would be asked to pay the difference of 91 pause. And if the value of clearances are to Rs. 109.10 and not 100 or 120. Of course this confusion is not there now, as any amount collected as excise duty has to be paid to the Government now in terms of Section 11D of the Act.
The duty payable is deductible from the price as the law stands today irrespective of the fact whether it is paid at the time of clearance or later on a demand by the department. There is another interesting aspect to this issue in relation to Sales Tax. Some state governments allow a deferment from payment of sales tax for a particular period. New industries I a state are allowed to collect Sales Tax from their customers but they need not pay it to the State Government immediately. They can pay it after fourteen years. Here the question arises whether this sales tax collected from the customers but not paid to the government for fourteen years can be allowed as a deduction under Section 4 as tax payable. If we take the inflation factor or interest factor into consideration then what the manufacturer will be paying to the government as sales tax after 14 years is a fraction of hat they now collect from their customers. Then what is payable after 14 years? Board recently clarified that this is tax allowable as deduction – 1998999) E.L.T. 5, after obtaining the option of the Law Ministry. The Law Ministry opined that under the Income tax law deduction is allowed of any tax payable and not tax actually paid by the assessee in the previous years; there is not similar provision under the Central Excise Act and here what is deductible is the tax playable after a particular period and so should be considered as payable within the meaning of Section 4(4)(d)(ii).
Thus both CEGAT and BOARD have clarified that tax payable should be allowed as deduction under Section 4(4)(d)(ii) of the Act.
EXCISE LAW TIMES – 15.04. 1999 – A 77