COMMISSIONER OF CENTRAL EXCISE, JAIPUR-IIversusM/S. SUPER SYNOTEX (INDIA) LTD. AND OTHERS

                        (2014] 3 S.C.R. 486


A      COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II
                                 v.
       MIS. SUPER SYNOTEX (INDIA) LTD. AND OTHERS
             (Civil Appeal Nos. 9154-9156 of 2003)
                       FEBRUARY 28, 2014
B
            [ANIL R. DAVE AND DIPAK MISRA, JJ.]

       Central Excise Act. 1944· s.4(4)(d) - Transaction value -
  Inclusion of sales tax in transaction value - Held~ The amount
C paid or payable to the State Government towards sales tax,
  VAT etc. is excludible from the assessable value because it
  is not an amount paid to the assessee-manufacturer towards
  the price but an amount paid or payable to the State
  Government for the sale transaction i.e. transfer of title from
D the manufacturer to a third party - However, if a part of sales
  tax collected is retained by the assessee towards incentive
  then the amount retained becomes profit or effective cost paid
  to assesssee by the purchaser and assessee is bound to pay
  excise duty on the said sum - Therefore, amount of sales tax
E retained is includible in transaction value of goods - Rajasthan
  Sa/es Tax Incentive Scheme, 1989 - CBEC circular no. 3781
  11-98-CX dated 12.03.1998.

        Circular/government order/Notification: Circulars issued
    by CBEC - Binding effect of - Discussed.
F
        Tax/Taxation: Exemption and incentive - Distinction
    between - Discussed.
      The respondent-assessee has been engaged in the
G manufacture of yarn. A show cause notice was issued on
  the assessee alleging that it has not paid the excise duty
  on the additional consideration collected towards the
  sales tax. The assessee placed reliance on CBEC circular
  no. 378/11-98-CX dated 12.03.1998 and claimed that sales
H                               486
 COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II v. 487
         SUPER SYNOTEX (INDIA) LTD.

 tax collected was not includible in the assessable value      A
 and deduction was admissible under the Central Excise
 Act, 1944. The claim of assessee was not accepted and
 the adjudicating authority confirmed demand and penalty.
 The Tribunal accepted the appeal of the assessee and
 held that the assessee being entitled to the benefit of the   B
 Sales Tax New Incentive Scheme for Industries, 1989 had
 availed the same w.e.f. 03.12.1996 and under the scheme
 itr was entitled to retain with it 75% of the sales tax
 cotlected and pay only 25% to the Government and that
 sales tax was deductible from the wholesale price for         C
 determination of assessable value under Section 4 of the
 Central Excise Act. In the instant appeals, the revenue
 and the assessee challenged the order of the Tribunal.

     Disposing of the appeals, the Court                       D
       HELD. 1. Rajasthan Sales Tax Incentive Scheme 1989
  is a pure and simple incentive scheme, in view of the
  language employed therein. In fact, by no stretch of
  imagination, it can be construed as a Scheme pertaining
I to exemption. Thus, analysed, though 25% of sales tax E
·is paid to the State Government, the State Government
  instead of giving certain amount towards industrial
  incentive, grants incentive in the form of retention of 75%
  sales tax amount by the assessee. In a case of exemption,
  sales tax is neither collectable nor payable and if still an F
  assessee collects any amount on the head of sales tax,
•that would become the price of the goods. Therefore, an
·incentive scheme of the present nature has to be treated
·on a different footing because the sales tax is collected
•and a part of it is retained by the assessee towards G
  incentive which is subject to assessment under the local
 sales tax law and, as a matter of fact, assessments have
  been accordingly framed. In this factual backdrop, it is
, held that circular entitles an assessee to claim deduction
  towards sales tax from the assessable value. [Para 19) H
    488    SUPREME COURT REPORTS               [2014] 3 S.C.R..

A [503-B-F]

        Modipon Fibre Company, Modinagar, U. P. v.
    Commissioner of Central Excise, Meerut. (2007) 10 SCC 3:
    2007 (11) SCR 688 - Distinguished.

B      2. After the substitution of the old Section 4 of the Act
  by Act 10 of 2000, the Central Board of Excise and
  Customs, New Delhi, issued certain circulars and by
  circular No. 671/62/2000-CX dated 9.10.2002 clarified the
  circular issued on 1.7 .2000. In the said circular reference
C was made to the earlier circular No. 2/94-CX 1 dated
  11.1.1994. It was observed in the circular that after coming
  into force of new Section 4 with effect from 1.7.2000
  wherein the concept of transaction value has been
                                                                 1
  incorporated and the earlier explanation has been
D deleted, the circular had lost its relevance. It is evincible
  from the language employed in the said circular that set
  off is to be taken into account for calculating the amount
  of sales tax permissible for arriving at the "transaction
  value" under Section 4 of the Act because the set off
E does not change the rate of sales tax payable/
  chargeable, but a lower amount is in fact paid due to set
  off of the sales tax paid on the input. Thus, if sales tax
  was not paid on the input, full amount is payable and has
  to be excluded for arriving at the "transaction value".
F That was not the factual matrix in the instant case. The
  assessee in the instant case has paid only 25% and
   retained 75% of the amount which was collected as sales
  tax. 75% of the amount collected was retained and
   became the profit or the effective cost paid to the
G assessee by the purchaser. The amount payable as sales
  tax was only 25% of the normal sales tax. Purpose and
  objective in defining "transaction value" or value in
   relation to excisable goods is obvious. The price or cost
   paid to the manufacturer constitutes the assessable
   value on which excise duty is payable. It is also obvious
H
                   'i




COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II v. 489
        ~'-'PER SYNOTEX (INDIA) LTD.

that the excise duty payable has to be excluded while A
calculating transaction value for levy of excise duty. Sales
tax or VAT or turnover tax is payable or paid to the State
Government on the transaction, which is regarded as
sale, i.e., for transfer of title in the manufactured goods.
The amount paid or payable to the State Government B
towards sales tax, VAT, etc. is excluded because it is not
an amount paid to the manufacturer towards the price,
but an amount paid or payable to the State Government
for the sale transaction, i.e., transfer of title from the
manufacturer to a third party. Accordingly, the amount c
paid to the State Government is only excludible from the
transaction value. What is not payable or to be paid as
sales taxNAT, should not be charged from the third party/
customer, but if it charged and is not payable or paid, it
is a part and should not be excludad from the transaction 0
value. This is the position after the amendment, for as per
the amended provision' the words "transaction value"
mean payment made on actual basis or actually paid by
the assessee. The words that gain signification are
"actually paid". The situation after 1. 7.2000 does not E
cover a situation which was covered under the circular
dated 12.3.1998. The question of "actually payable" did
not arise in this case. [Paras 21, 22) [504-E-G; 506-C-H; ·
507-A-D]

     3. In view of the said legal position, unless the sales     F
tax is actually paid to the Sales Tax Department of the
State Government, no benefit towards excise duty can be
given under the concept of "transaction value" under
Section 4(4)(d), for it is not excludible. As is seen from the
facts, 25% of the sales tax collected has been paid to the       G
State exchequer by way of deposit. The rest of the
amount has been retained by the assessee. That has to
be treated as the price of the goods under the basic
fundamental conception of "transaction value" as
substituted with effect from 1. 7 .2000. Therefore, the          H
   490     SUPREME COURT REPORTS              [2014] 3 S.C.R.

A assessee is bound to pay the excise duty on the said sum
  after the amended provision had brought on the statute
  book. [Para 23] [507-D-F]
        4. If there are circulars issued by CBEC which placed
  different interpretation upon a phrase in the statute, the
B interpretation suggested in the circular would be binding
  on., the Revenue, regardless of the interpretation placed
  by this Court. [Para 24] (508-C]
      CCE v. Dhiren Chemicals Industries (2002) 2 SCC 127:
  2001 (5) Suppl. SCR 607; CCE v. Ratan Melting & Wire
C Industries (2008) 13 SCC 1: 2008 (14) SCR 653 - relied on.
       5. The assessees in all the appeals are entitled to get
  the benefit of the circular dated 12.3.1998 which protects
  the industrial units availing incentive scheme as there is
  a conceptual book adjustment of the sales tax paid to the
0
  Department. But with effect from 1.7.2000 they shall only
  be entitled to the benefit of the amount "actually paid" to
  the Department, i.e., 25%. The set off shall operate only
  in respect of the amount that has been paid on the raw
  material and inputs on which the sales tax/ purchase tax
E has been paid. That being the position the adjudication
  by the tribunal is not F ..iStainable. Similarly the
  determination by the original adjudicating authority
  requiring the assessees to deposit or pay the whole
  amount and the -:onsequential imposition of penalty also
F cannot be held to be defensible. The matters are remitted
  to the respective tribunals to adjudicate as far as excise
  duty is concerned. As far as imposition of penalty is
  concerned, it shall be dealt with in accordance with law
  governing the field. In any case, proceeding relating to
G the period prior to 1.7.2000 would stand closed and if any
  amount has been paid or deposited as per the direction
  of any authority in respect of the said period, shall be
  refunded. [Para 26] (509-B-G]
      State of Tamil Nadu and Anr. v. India Cement Ltd. (2011)
H 13 sec 247: 2011 (7) SCR 395 - relied on.
COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II V. 491
        SUPER SYNOTEX (INDIA) LTD.
    6. Coming to the appeals preferred by the                    A
assessees, the challenge pertains to denial of benefit of
the Central Sales Tax Act, the said reasoning will equally
apply. The submission that the concession of excise duty
is granted by the Excise Department of the Central
Government is not acceptable. Circulars dated 12.3.1998          s
and 1.7.2002 do not relate to any exemption under the
Central Sales Tax imposed on the goods. [Para 27] [509-
H; 510-A-B]

    Tata Oil Mills Co. Ltd. v. Union of India 1980 (6) ELT 768
(Born); B.K. Paper Mills Pvt. Ltd. v. Union of India 1984 (18)   C
ELT 701 (Born); Central India Spinning Weaving and
Manufacturing Co. Ltd. v. Union of lndi1 1987 (30) ELT 217
(Born) • referred to.
                     Case Law Reference:                         D
    2007 (11) SCR 688             Distinguished      Para 8
    1980 (6) ELT 768 (Born)       Referred to        Para t3
    1984 (18) ELT 701 (Born)      Referred to        Para 13
    1987 (30) ELT 217 (Born)      Referred to        Para 14     E

    2001 (5 ) Suppl. SCR 607      Relied on          Para 24
    2008 (14 ) SCR 653            Relied on          Para 24
    2011 (7) SCR 395              Relied on          Para 25
                                                                 F
    CIVIL APPELLATE JURISDICITON : Civil Appeal No.
9154-9156 of 2003.
                                                         -
    From the Judgment & Order dated 05.07.2011 of the High
Court of Jharkhand at Ranchi in LPA No. 466 of 2010.
                                                                 G
                              WITH
C.A. No. 2912 of 2014, 4621 of 2008, 2008-2009 of 2010,
335-336 of 2005, 4003 of 2009, 4076 of 2007, 5987 of 2010,
6033 of 2011, 778-779 of 2009, 8095-8103 of 2013, &105 of
2013.                                                            H
     492      SUPREME COURT REPORTS               [2014] 3 S.C.R


:A     K. Radhakrishnan, Kavin Gulati, Sunita Rani, Shalini
  Kumar, B. Krishna Prasad, Anil Katiyar, S.N. Terdal, Rashmi
  Singh, Anupam Mishra, Rohit, Sunaina Kumar, Praveen Kumar,
  Alok Yadav, Amar Pratap Singh, M.P. Devanath, Kuna!
  Chatterjee, Maitrayee Banerjee, Ghanshyam Joshi, Partha Sil,
B Kartik Kurmy, Anand Jaluka, Praveen Kumar for the appearing
  parties.

           The Judgment of the Court was delivered by

       DIPAK MISRA, J. 1. Leave granted in Special Leave
C Petition (C) No. 16248 of 2009.

       2. This batch of appeals preferred under Section 35L of
  the Central Excise Act, 1944 (for brevity, the Act) being inter.-
  connected and inter-linked was heard together and is disposed
0 of by a common judgment. It is necessary to clarify that the
  Revenue has preferred the appeals against the decisions
  rendered by the Customs, Excise & Gold (Control) Appellate
  Tribunal (for short "the Tribunal") at various Benches whereby
  the assessee-manufacturers have been extended the benefit
E of deduction of excise duty in respect of sales tax imposed by
  the State Government but not entirely paid to the State
  exchequer while determining the assessable value for the
  purpose of central excise, and some of the assessee-
  manufacturers have preferred appeals being grieved by the
  rejection for grant of similar relief pertaining to the payment
F made under the Central Sales Tax Act. For the sake of
  convenience, the facts from Civil Appeal Nos. 9154-9156 of
  2003 are adumbrated herein as far as appeals by the Revenue
  are concerned. In respect of the challenge made by the
  assessee-manufacturers we shall take the facts from Civil
G Appeal No. 4621 of 2008.

        3. First we shall advert to the issue involving the appeals.
   preferred by the Revenue. The respondent herein is engaged
   in the manufacture of yarn of manmade fibers falling under
 H Chapter 55 of the Schedule to the Central Excise Tariff Act
 COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II v. 493
  SUPER SYNOTEX (INDIA) LTD. [DIPAK MISRA, J.]
  1985, chargeable to duty. A show-cause notice was issued to        A
  the respondent-assessee on the ground that for certain period
  it had contravened the various provisions of the Act, and the
  Central Excise Rules, 1944 which had resulted in evasion of
  Central Excise Duty. The fulcrum of the show-cause notice was
  that the assessee had not paid the duty on the additional          B
  consideration collected towards the sales tax. The case of the
  Revenue was that though the assessee was availing exemption
  from payment of sales tax, it was showing sales tax in the
  invoices but assessable value was shown separately for
  payment ofCentral Excise Duty as a consequence of which the        c
. net yarn value was invariably higher than the assessable value
  and excise duty paid thereon. This led to the difference between
  the two amounts which was almost equal to the amouht of sales
  tax applicable during the relevant time. The explanation of the
  assessee was that it was extended the benefit of the incentive     D
  scheme and not granted any exemption and, therefore, the
  sales tax collected was not includible in the assessable value
  and deduction was admissible under the Act.

        4. The Commissioner of Excise repelled the stand of the
  assessee, interpreted the benefit granted to the assessee as E
  partial exemption and, taking certain other facts into
. consideration, came to hold that the assessee had deliberately
 with an intent-to evade payment of duty had suppressed the fact
  that though it was availing partial sales tax exemption under the
  Sales Tax Incentive Scheme of 1989 for the relevant period upto F
  75% of tax liability, yet it was paying only 25% of the tax leviable
  despite collecting additional consideration to the extent of the
  amount of sales tax and, therefore, the additional amount
  collected under the camouflage of incentive tax had to be taken
  note of and, accordingly, price was to be declared and formed . G
  as a part of the value for the levy of excise.duty.
     5. Be it noted, in its reply the assessee had placed reliance
on C.8.E. & C Circular No. 378/11-98-CX dated 12.3.1998 and
claimed that one of the situations as stipulated therein covered     H
    494      SUPREME COURT REPORTS                  [2014] 3 S.C.R.

A the likes of the assessee and hence, it was not liable to be
  fastenE!d with any further liability. The Commissioner
  distinguished the said circular and came to hold that the
  assessee, with an intention to evade payment of duty, had
  wilfully suppressed the facts that it was availing partial
B exemption of sales tax and collecting additional consideration
  to the extent of the amount of sales tax not payable by it. In this
  backdrop, the Commissioner treated it as short payment by the
  assessee and directed for recpvery of duty and imposed
  penalty under Sections 11A, 11AC and 11AB of the Act and
c further imposed penalty on the persons responsible for the said
  suppression and evasion.

          6. Being grieved by the order passed by the Commissioner
    of Central Excise, Jaipur, the assessee preferred three
    appeals, namely, Appeal NO. E/2279-2281 of 2002. The
D   Tribunal posed the question whether the assessee was entitled
    to claim deduction under Section 4(4)(d)(ii) of the Act in respect
    of full amount of sales tax payable at the rate of 2%. The
    Tribunal took note of the fact that the assessee, being entitled
    for the benefit under the Sales Tax New Incentive Scheme for
E   Industries, 1989 (for short "the Scheme"), had availed the same
    with effect from 3.12.1996 and under the said Scheme it was
    entitled to retain with it 75% of the sales tax collected and pay
    only 25% to the Government and, accordingly claimed the
    deduction for the entire amount of sales tax payable at the rate
F   of 2% and, accordingly, it did not approve the view adopted
    by the adjudicating authority that the benefit granted to the
    assessee in respect of the sales tax was in the nature of arr
    exemption and not an incentive and, therefore, not deductible
    under Section 4(4)(d)(ii) of the Act. The Tribunal referred to the
G   circular dated 12.3.1998 issued by the Central Board of Excise
    and Customs (CBEC) and came to hold that sales tax was
    deductible from the wholesale price for determination of
    assessable value under Section 4 of the Act for levy of Central
    Excise Duty. Being of this view, it set aside the order passed
H   by the Commissioner of Excise and directed for refund of the
COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II v. 495
 SUPER SYNOTEX (INDIA) LTD. [DIPAK MISRA, J.]

deposits made during investigation and the deposit made in           A
pursuance of the order passed by the Tribunal.

    7. We have heard Mr. K. Radhakrishnan, learned senior
counsel, appearing for the Revenue and learned counsel
appearing for the respondents in the appeals preferred by the
                                                                     8
Revenue.

       8. Mr. Radhakrishnan, learned senior counsel, questioning
 the legal pregnability of the impugned order, has contended that
.the tribunal has clearly erred in applying the circular dated
 12.3.1998 as the stipulations in the said circular do not.cover     C
 the cases of the present nature inasmuch as the assessee was
 extended the benefit of incentive scheme. It is his further stand
 that in the obtaining circumstances sales tax was collected but
 not paid to the State exchequer and, therefore, it would be
 includible in assessable value. Learned senior counsel would        D
 contend that the Tribunal has not dealt with the issue pertaining
 to "payable", for the issue of "payability" depends      oo   the
 language employed in the statute. Mr. Radhakrishnan has urged
 that, in any case, after the amendment has come into force
 effecting "transaction value" under Section-4(3)(d) of-the Act      E
 with effect from 1.7.2000 there is a schematic change but
 unfortunately the same has not been addressed to by the
 tribunal which makes the order absolutely vulnerable. H'e has
 commended us to the decision in Modipon Fibre Company,
.Modinagar, U.P. v. Commissioner of Central Excise, fireerut. 1      F
     9. Learned counsel appearing for the assessee submitted
that the order passed by the tribunal is absolutely
inexceptionable inasmuch as it has correctly applied the
circular issued by the CBEC and the respondent being
exempted under the incentive scheme issued by· the State             G
Government is entitled to avail the benefit. He has commended
us to the Scheme issued by the State Government and brought
on record the assessment orders passed by th~ sales tax

1.   c2001) 10 sec 3.                                                H
    496      SUPREME COURT REPORTS                 [2014] 3 S.C.R


A authorities. Learned counsel would further submit that as per
  the Scheme they are entitled to retain 75% of the sales tax
  collected and pay only balance 25% to the State Government
  and despite the same being the admitted position, the
  adjudicating authority has committed grave illegality by treating
B it as an exemption which has been appositely corrected b~the
  tribunal and hence, the order impugned is impeccable. It is
  propounded that the amended provision that came on the
  statute book with effect from 1.7.2000 does not change the
  situation and, in fact, the earlier circular on principle has been
c reiterated by the subsequent circular dated 9.10.2002.
       10. Having regard to rivalised submissions raised at the
  Bar, we deem it appropriate to first refer to the ratio and
  principle stated in Modipon Fibre Company (supra). In the said
  case, the show cause notice was dated 19th March, 1999 and
D related to the period March, 1994 to March, 1997. Section
  4(4)(d)(ii) as applicable was as under:-

          "4. Valuation of excisable goods for purposes of charging
          of duty of excise.-(1) to (3)                *     *    *
E
          (4) For the purposes of this section,-

          (a) to (c)                 *                 *      *

          (d) 'value', in relation to any excisable goods,-
F
                  (i)   *   *    *

                  (ii) does not include the amount of the duty of
                         excise, sales tax and other taxes, if any,
                         payable on such goods and, subject to such
G                        rules as may be made, the trade discount
                         (such discount not being refundable on any
                         account whatsoever) allowed in accordance
                         with the normal practice of the wholesale
                         trade at the time of removal in respect of
H                        such goods sold or contracted for sale;
COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II v. 497
 SUPER SYNOTEX (INDIA) LTD. [DIPAK MISRA, J.]
     Explanation.-For the purposes of this sub-clause, the           A
     amount of the duty of excise payable on any excisable
     goods shall be the sum total of-

          (a) the effective duty of excise payable on such
     goods under this Act; and                                       B
            (b) the aggregate of the effective duties of excise
     payable under other Central Acts, if any, providing for the
     levy of duties of excise on such goods under each Act
     referred to in Clause (a) or Clause (b) shall be,-
                                                                     c
     (1) in a case where a notification or order providing for any
     exemption [not being an exemption for giving credit with
     respect to, or reduction of duty of excise under such Act
     on .such goods equal to, any duty of excise under such Act,
     or the additional duty under Section 3 of the Customs Tariff    o
     Act, 1975 (51 of 1975), already paid on the raw material
     or component parts used in the production or manufacture
     of such goods] from the duty of excise under such Act is
     for the time being in force, the duty of excise computed
     with reference to the rate specified in such Act, in respect    E
     of such goods as reduced so as to give full and complete
     effect to such exemption; and

     (i1) in any other case, the duty of excise computed with
     reference to the rate specified in such Act in respect of
     such goods."                                                    F

      11. The contention of the assessee was that they were
entitled to deduction in respect of Turnover Tax (TOT) at the rate
of 2% though Government of Gujarat by notification dated 19th
October, 1993 had exempted sale of yarn under certificate in         G
Form 26 to the extent of TOT exceeding .5% of the total turnover
if the processed yarn was sold in the State of Gujarat. Thus,
there was dual rate of 2% and .5% TOT in the State of Gujarat,
with the lower rate being applicable to sales in backward area.
Relying upon the word/expression "payable" used in Section           H
    498       SUPREME COURT REPORTS                  [2014] 3 S.C.R.


A 4(4)(d)(ii), it was submitted by the assessee that it refers to the
  duty payable in the tariff and not any concession or exemption.
  The contention was rejected by the Court observing that the
  word "payable" was descriptive and one has to see the context
  in which the said word finds place and accordingly proceeded
B to opine: -

          "As can be seen from the abovequoted section, excise
          duty can be deducted if it had not been included in the
          invoice price. According to the Explanation, what is
          deductible is the effective rate of duty. Where any
c         exemption has been granted, that exemption has to be
          deducted from the ad valorem duty. In other words, it is only
          the net duty liability of the assessee that can be deducted
          in computing the assessable value. The said principle
          stands incorporated in the Explanation. For example, if the
D         assessee recovers duty at the tariff rate but pays duty at
          concessional rate, then excise duty has to be a part of the
          assessable value. Similarly, refund of excise duty cannot
          be treated as net profit and added on to the value of
          clearances. There is no provision in Section 4 of the 1944
E         Act to treat refund as part of assessable value. If excise
          duty paid to the Government is collected at actuals from
          the customers and if, subsequently, exemption becomes
          available, such excise duty which is not passed on to the
          assessee (sic customer), would become part of
F         assessable value under Section 4(4)(d)(ii)."

        12. The aforesaid observations were made in the context
  of TOT which could be deducted, if it had not been included in
  the invoice price. The excise duty, it was observed, was the
G effective rate of duty and where any exemption was granted,
  the exemption was to be deducted from ad va/orem duty. Only
  the net duty liability of the assessee was to be reduced from
  the' invoice price for computing the assessable value. Thus,
  where an assessee had recovered duty at a higher rate but was
  paying duty at a concessional rate, then that part of unpaid
H
 COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II v. 499
  SUPER SYNOTEX (INDIA) LTD. [DIPAK MISRA, J.]
excise duty was to be part of taxable or assessable value. But A
refund of excise duty was not to be added to the value of
clearances and similarly if subsequently an exemption had
become available it could not be reduced to lower to the
assessable value.
                                                                 B
     13. After so stating the bench referred to the decisions of
the Bombay High Court in Tata Oil Mills Co. Ltd. v. Union of
lndia 2 and B.K. Paper Mills Pvt. Ltd. v. Union of lndia 3 and ·
approving the principle laid down therein, observed thus: -

       "In our view, the above two judgments of the Bombay High          C
       Court lay down the correct principle underlying the
       Explanation to Section 4(4)(d)(ii). As held in TOMCO case
       the exemption was not by way of a windfall for the
       man~facturer assessee but on account of cotton seed oil
       used by TOMCO in the manufacture of Pakav. Similarly,             D
       in B.K. Paper Mills the Bombay High Court has correctly
      analysed Section 4(4)(d)(il) With the Explal)ation to say that
       only the reduced rate of duty can be excludedjrom the value
      of the goods and that Explanation explains what was
       implicit in that section. That, the said Section4(4)(d)(Ji) did   E
       not refer to duty leviable under the relevant Jariff entry
      without reference to exemption notification that may be in
      existence at the time of clearance/removal. That, Section
      47 of the Finance Act, 1982 which inserted the Explanation
      expressly sets out what is meant by the expression "the            F
      amount of duty of excise payable on any excisable goods".
      By the amount of duty of excise what is meant is the
      effective duty of excise payable on such goods under the
      Act and, therefore, effective duty of excise is the duty
      calculated on the b<!sis of the prescribed rate as reduced         G
      by the exemption notification. This alone is excluded from
      the normal price under Section 4(4)(d)(ii)."


2.   1980 (6) ELT 786 (Bom).
3.   1984 (18) ELT 701 (Bom).                                            H
    500       SUPREME COURT REPORTS                    [2014] 3 S.C.R.


A         After so stating the Court stated: -

          Therefore, the test to be applied is that of the "actual value
          of the duty payable" and, therefore, there is no merit in the
          argument advanced on behalf of the assessee that the
          Explanation is restricted to the duty of excise. This principle
B
          can therefore apply also to actual value of any other tax
          including TOT payable. Even without the Explanation, the
          scheme of Section 4(4)(d)(il) shows that in computing the
          assessable value, one has to go by the actual value of the
          duty payable and, therefore, only the reduced duty was
c         deductible from the value of the goods.

       14. It is seemly to note that the Court approved the ratio
  laid down in the judgment of Bombay High Court in Central
  India Spinning Weaving and Manufacturing Co. Ltd. v. Union
D of lndia 4 by reproducing the following observations: -

          "9 . ... It is true that according to Section 4(4)(d)(ii) of the
          Central Excise Act, the value does not include the amount
          of duty of excise, if any payable on such goods, but in view
          of Explanation to Section 4(4)(d)(ii), the 'duty of excise'
E
          means the duty payable in terms of the Central Excise Tariff
          read with exemption notification issued under Rule 8 of the
          Central Excise Rules. In this view of the matter, the only
          deduction that is permissible is of the actual duty paid or
          payable while fixing the assessable value. Thus, where the
F         company/manufacturer whose goods were liable to excise
          duty at a reduced rate in consequence of an exemption
          notification, while paying duty at reduced rate collected
          duty at a higher rate i.e. tariff rate from its customers the
          authorities were justified in holding that what was being
G         collected by the company as excise duty was not excise
          duty but the value in substance of the goods and, therefore,
          the excess value collected by the petitioner from the
          customers was recoverable under Section 11-A of the
          Central Excises and Salt Act, 1944."
H 4.   1987 (30) ELT 217 (Born).
COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II v. 501
. SUPER SYNOTEX (INDIA) LTD. [DIPAK MISRA, J.]
     After explaining as aforesaid the Court ruled that though        A
in respect of backward areas sales,· the rate of TOT was .5%,
whereas TOT rate in normal area sales was 2%, yet the
assessee had suppressed the aforesaid data to claim TOT
deduction @ 2% to compute the assessable value on the entire
sales including sales made in backward area. This was wrong           B
and the department was justified in calling upon the assessee
to pay the differential excise duty.

     15. The Court in the said decision has observed that by
claiming higher deduction @ 2% instead of .5%, the assessee
was gaining a windfall and this was not justified. It was further     C
observed that TOMCO's case was decided on 24th July, 1980
and at that time there were conflicting decisions and thereafter
the Legislature had inserted explanation to Section 4(4)(d)(ii)
of the Act by using the words "the effective duty of excise
payable on goods under this Act".                                     D

     16. In .the case at hand, the assessee has claimed that
there is difference between grant of incentive and extension of
benefit of exemption, and the scheme, i.e., the "Rajasthan Sales
Tax Incentive Scheme 1989" does not relate to exemption but           E
incentive. To elaborate, the assessee, under the said Scheme,
is permitted to retain 75% of the sales tax collected as incentive
and is liable to pay 25% to the department. 75% of the amount
retained has been treated as incentive by the State
Government. It is pointed out that such retention of sales tax is     F
a deemed payment of sales tax to the State exchequer and for
the said purpose reliance is placed on Circular No. 378/11/98-
CX dated 12.3.1998 issued by C.B.E.C.

     17. In the aforesaid circular, three situations were
envisaged, viz., (i) exemption from payment of sales tax for a        G
particular period; (ii) deferment of payment of sales tax for a
particular period; and (iii) grant of incentive equivalent to sales
tax payable by the unit. The aforestated three situations had
been examined by the Board in consultation with the Ministry
of Law. As far as situation (iii) is concerned, the circular stated   H
    502       SUPREME COURT REPORTS                      [20141 3 S.C.R.

A thus: -

          "6. Examination of the situation, mentioned above in para
          2(ii) & (iii), in the referring note give an indication that sales
          tax is payable by the assessee in both the situations. It is
          payable after a particular period in the second case. On
B
          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
c         provisions of Section 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 deductible
          whereas in the category of cases mentioned at (ii) and (iii)
D         sales tax is deductible from the wholesale price for
          determination of assessable value under Section 4 of the
          Act for levy of Central Excise duty."

        18. To understand the purpose of the aforesaid two
E paragraphs it is also necessary to refer to the note given by
  the Board seeking opinion of the Ministry of Law in respect of
  situation (iii) which is a part of the said circular. It reads as
  follows: -

          "In situation (iii), the manufacturer collects the sales tax from
F         the buyers and retains the same with him instead of paying
          it to the State Government. The State Government on the
          other hand grants a cash incentive equivalent to the
          amount of sales tax payable and instead of the case
          incentive being paid to the manufacturer, is credited to
G         State Government 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 deductible from the
H         wholesale price for determination of assessable value for
COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II v. 503
 SUPER SYNOTEX (INDIA) LTD. [DIPAK MISRA, J.]
     levy of Central Excise duty in category of cases mentioned    A
     in para (ii) & (iii) above."

      19. On perusal of the assessment orders brought on
 record, it is quite clear that in pursuance of the Scheme 75%
 of the sales tax amount was credited to the account of the State
 Government as payment towards sales tax by the manufacturer. 8
 On a studied scrutiny of the scheme we have no scintilla of
 doubt that it is a pure and simple incentive scheme, regard
 being had to the language employed therein. In fact, by no
 stretch of imagination, it can be construed as a Scheme
 pertaining to exemption. Thus, analysed, though 25% of sales C
 tax is paid to the State Government, the State Government
 instead of giving certain amount towards industrial incentive,
 grants incentive in the form of retention of 75% sales tax amount
 by the assessee. In a case of exemption, sales tax is neither
 collectable nor payable and if still an assessee collects any D
amount on the head of sales tax, that would become the price
 of the goods. Therefore, an incentive scheme of the present
 nature has to be treated on a different footing because the
sales tax is collected and a part of it is retained by the
assessee towards incentive which is subject to assessment E
under the local sales tax law and, as a matter of fact,
assessments have been accordingly framed. In this factual
backdrop, it has to be held that circular entitles an assessee
to claim deduction towards sales tax from the assessable value.
The fact situation in Modipon Fibre Company (supra), as is F
manifest, was different. In our considered opinion what has
been stated in Modipon Fibre Company (supra) cannot not be
extended to include the situation (iii). We are inclined to think
so as the definition of term "value" under Section 4(4)(d) was
slightly differently worded and the CBEC had clarified the same G
in the circular dated 12.3.1998 and benefits were granted.
      20. The question that would still remain alive is that what
would be the effect of amendment of Section 4 which has come
into force with effect from 1.7.2000. The Section 4(3)(d) which
defines "transaction value", reads as follows: -                  _H
    504      SUPREME COURT REPORTS                   [2014] 3 S.C.R.


A         "4. Valuation of excisable goods for purposes of
          charging of duty of excise. -

          (1) &(2)                     *                 *

          (3) For the purposes of this section, -
B
          (a) to (cc)                  *                 *           *
          (d) "transaction value" means the price actually paid or
          payable for the goods, when sold, and includes in addition
          to the amount charged as price, any amount that the buyer
c         is liable to pay to, or on behalf of, the assessee, by reason
          of, or in connection with the sale, whether payable at the
          time of the sale or at any other time, including, but not
          limited to, any amount charged for, or to make provision
          for, advertising or publicity, marketing and selling
D         organization expenses, storage, outward handling,
          servicing, warranty, commission or any other matter; but
          does not include the amount of duty of excise, sales tax
          and other taxes, if any, actually paid or actually payable on
          such goods."
E
        21. After the substitution of the old Section 4 of the Act by
   Act 10 of 2000 as reproduced hereinabove, the Central Board
   of Excise and Customs, New Delhi, issued certain circulars and
   vide circular No. 671162/2000-CX dated 9.10.2002 clarified the
 F circular issued on 1. 7.2000. In the said circular reference was
   made to the earlier circular No. 2/94-CX 1 dated 11.1.1994. It
   has been observed in the circular that after coming into force
   of new Section 4 with effect from 1. 7.2000 wherein the concept
   of transaction value has been incorporated and the earlier
·G explanation has been deleted, the circular had lost its relevance.
   However, after so stating the said circular addressed to the
   representations received from the Chambers of Commerce,
   Associations, assessees as well as the field formations and
   in the context stated thus: -

H
COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II v. 505
 SUPER SYNOTEX (INDIA) LTD. [DIPAK MISRA, J.]

    "5. The matter has been examined in the Board. It is           A
    obser:ved that assessees charge and collect sales tax from
    their buyers at rates notified by the State Government for
    different commodities. For manufacture of excisable
    goods assessees procure raw materials, in some State,
    by paying sales tax/ purchase tax on them (in some States,     B
    like New Delhi), raw materials are purchased against
    forms ST-1/ST-35 without paying any tax). While
    depositing sales tax with the "Sales Tax Deptt. (on a
    monthly or quarterly basis), the assessee deposits only the
    net amount of sales tax after deducting set off/rebate         c
    admissible, either in full or in part, on the sales tax/
    purchase tax paid on the raw materials during the said
    month/quarter. The sales tax set off in such cases,
   therefore, does not work like the central excise set off
    notifications where one to one relationship is to be
                                                                   0
   established between the finished product and the raw
   materials and the assessee is allowed to charge only the
   net central excise duty frollJ the buyer in the invoice. The
   difference between the set off operating in respect of
   central excise duty and that for sales tax can be best
   illustrated through an example. If the sales tax on a product   E
   'A' of value Rs.100/- is. say 5% and the set off available
   in respect of the purchase tax/ sales tax paid on inputs
   going into the manufacture of the product is .•sax., Re.1/-,
   then the sales tax law permits the assessee to recover
   sales tax of Rs.5/-. But while paying to the sales tax deptt.   F
   be deposits an amount of Rs.5-1       =   Rs.4 only. On the
   central excise duty payable would have been Rs.5-1"        =
   Rs.4. in view of the set off notification, and the assessee
   would recover an amount of Rs.4 only from the buyer as
   Central Excise dutv. Thus, it is seen that the set off scheme   G
   in respect of sales tax operate in these cases somewhat
   like the CENVAT Scheme which does not have the effect
   of changing the rate of duty payable on the finished product.

   6. Therefore, since the set off scheme of sales tax does        H
    506       SUPREME COURT REPORTS                  (2014] 3 S.C.R.

A         not change. the rate of sales tax payable/ chargeable on
          the finished goods, the set off is not to be taken into
          account for calculating the amount of sales tax permissible
          as abatement for arriving at the assessable value u/s 4. In
          other words only that amount of sales tax will be
B         permissible as deduction under Section 4 as is equal to
          the amount legally permissible under the local sales tax
          laws to be charged/billed from the customer/ buyer."

                                                  [Emphasis added]
c         22. It is evincible from the language employed in the
   aforesaid circular that set off is to be taken into account for
   calculating the amount of sales tax permissible for arriving at
   the "transaction value" under Section 4 of the Act because the
   set off does not change the rate of sales tax payable/
D chargeable, but a lower amount is in fact paid due to set off of
   the sales tax paid on the input. Thus, if sales tax was not paid
   on the input, full amount is payable and has to be excluded for
   arriving at the "transaction value''. That is not the factual matrix
   in the present case. The assessee in the present case has paid
E only 25% and retained 75% of the amount which was collected
   as sales tax. 75% of the amount collected was retained and
   became the profit or the effective cost paid to the assessee
   by the purchaser. The amount payable as sales tax was only
   25% of the normal sales tax. Purpose and objective in defining
F "transaction value" or value in relation to excisable goods is
   obvious. The price or cost paid to the manufacturer constitutes
   the assessable value on which excise duty is payable. It is also
   obvious that the excise duty payable has to be excluded while
   calculating transaction value for levy of excise duty. Sales tax
G or VAT or turnover tax is payable or paid to the State
   Government on the transaction, which is regarded as sale, i.e.,
   for transfer of title in the manufactured goods. The amount paid
   or payable to the State Government towards sales tax, VAT,
  ·etc. is excluded because it is not an amount paid to the
H manufacturer towards the price, but an amount paid or payable
COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II v. 507
 SUPER SYNOTEX (INDIA) LTD. [DIPAK MISRA, J.]
to the State Government for the sale transaction, i.e., transfer     A
of title from the manufacturer to a third party. Accordingly, the
amount paid to the State Government is only excludible from
the transaction value. What is not payable or to be paid as
sales taxNAT, should not be charged from the third party/
customer, but if it charged and is not payable or paid, it is a      B
part and should not be excluded from the transaction value. This
is the position after the amendment, for as per the amended
provision the words "transaction value" mean payment made
on actual basis or actually paid by the assessee. The words
that gain signification are "actually paid". The situation after     c
1.7.2000 does not cover a situation which was covered under
the circular dated 12.3.1998. Be that as it may, the clear
legislative intent, as it seems to us, is on "actually paid". The
question of "actually payable" does not arise in this case.

     23. In view of the aforesaid legal position, unless the sales   D
tax is actually paid to the Sales Tax Department of the State
Government, no benefit towards excise duty can be given under
the concept of "transaction value" under Section 4(4)(d), for it
is not excludible. As is seen from the facts, 25% of the sales
tax collected has been paid to the State exchequer by way of         E
deposit. The rest of the amount has been retained by the
assessee. That has to be treated as the price of the goods
under the basic fundamental conception of "transaction value"
as substituted with effect from 1. 7 .2000. Therefore, the
assessee is bound to pay the excise duty on the said sum after       F
the amended provision had brought on the statute book.

     24. What is urged by the learned counsel for the assessee
is that paragraphs 5 and 6 of the circular dated 9.10.2002 do
protect them, as has been more clearly stated in paragraph 5.        G
To elaborate, sales tax having been paid on the inputs/raw
materials, that is excluded from the excise duty when price is
computed. Eventually, the amount of tax paid is less than the
amount of tax payable and hence, the concept of "actually paid"
gets satisfied. Judged on this anvil the submission•of the
                                                                     H
    508       SUPREME COURT REPORTS                   [2014) 3 S.C.R.

A learned counsel for the assessee that it would get benefit of
  paragraph 6 of the circular, is unacceptable. The assessee can
  only get the benefit on the amount that has actually been paid.
  The circular does not take note of any kind of book adjustment
  and correctly so, because the dictionary clause has been
s amended. We may, at this stage, also clarify the position
  relating to circulars. Binding nature of a circular was examined
  by the Constitution Bench in CCE v. Dhiren Chemicals
  lndustries5, and it was held that if there are circulars issued by
  CBEC which placed different interpretation upon a phrase in
C the statute, the interpretation suggested in the circular would
  be binding on the Revenue, regardless of the interpretatior
  placed by this Court. In CCE v. Ratan Melting & Wire
  lndustries6, the Constitution Bench clarifying paragraph 11 in
  Dhiren Chemicals Industries (supra) has stated thus: -
D         "7. Circulars and instructions issued by the Board are no
          doubt binding in law on the authorities under the respective
          statutes, but when the Supreme Court or the High Court
          declares the law on the question arising for consideration,
          it would not be appropriate for the court to direct that the
E         circular should be given effect to and not the view
          expressed in a decision of this Court or the High Court.
          So far as the clarifications/circulars issued by the Central
          Government and of the State Government are concerned
          they represent merely their understanding of the statutory
F         provisions. They are not binding upon the court. It is for the
          court to declare what the particular provision of statute says
          and it is not for the executive. Looked at from another
          angle, a circular which is contrary to the statutory provisions
          has really no existence in law."
G
          25. The legal position has been reiterated in the State of
    Tamil Na du and Anr. v. India Cement Ltd. 7 Therefore, reliance

    s.   (2002) 2 sec 121.
    6.   (2ooa) 13 sec 1.
H   7.   (2011) 13 sec 247
 COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II v. 509
  SUPER SYNOTEX (INDIA) LTD. [DIPAK MISRA, J.]

placed on the circular dated 9.10.2002 by the tribunal is legally   A
impermissible for two reasons, namely, the circular does not
so lay down, and had it so stated that would have been contrary
to the legislative intention.

       26. In view of the aforesaid analysis, we are of the 8
 considered opinion that the assessees in all the appeals are
 entitled to get the benefit of the circular dated 12.3.1998 which .
 protects the industrial units availing incentive scheme as there
 is a conceptual book adjustment of the sales tax paid to the
 Department. But with effect from 1.7.2000 they shall only be C
 entitled to the benefit of the amount "actually paid" to the
 Department, i.e., 25%. Needless to emphasise, the set off shall
 operate only in respect of the amount that has been paid on
 the raw material and inputs on which the sales taxi purchase
 tax has been paid. That being the position the adjudication by
 the tribunal is not sustainable. Similarly the determination by the D
 original adjudicating authority requiring the assessees to
 deposit or pay the whole amount and the consequential
 imposition of penalty also cannot be held to be defensible.
 Therefore, we allow the appeals in part, set aside the orders
 passed by the tribunal as well as by the original adjudicating E
 authority and remit the matters to the respective tribunals to
 adjudicate as far as excise duty is concerned in accordance
 with the principles set out hereinabove. We further clarify that
,as far as imposition of penalty is concerned, it shall be dealt
 with in accordance with law governing the field. In any case, F
 proceeding relating to the period prior to 1.7.2000 would stand
 closed and if any amount has been paid or deposited as per
 the direction of any authority in respect of the said period, shall
 be refunded. As far as the subsequent period is concerned, the
 tribunal shall adjudicate as per the principles stated G
 hereinbefore.

     27. Coming to the appeals preferred by the assessees,
the challenge pertains to denial of benefit of the Central Sales
Tax Act, the aforesaid reasoning will equally apply. The            H
    510     SUPREME COURT REPORTS                [2014] 3 S.C.R.

A submission that the concession of excise duty is granted by the
  Excise Department of the Central Government is not
  acceptable. On a perusal of the circulars dated 12.3.1998 and
  1. 7.2002 we do not find that they remotely relate to any
  exemption under the Central Sales Tax imposec("on the goods.
s What is argued by the learned counsel for the asS'essees is that
  the benefit should be extended to the Central Sales Tax as the
  tax on sales has a broader concept. The aforesaid submission
  is noted to be rejected and we, accordingly, repel the same. In
  view of the aforesaid, the appeals preferred by the assessees
c stand dismissed.
        28. In the result, both sets of appeals stand disposed of
   accordingly~ There shall be no order as to costs.

   D.G.                                    Appeals disposed of.