The Hindu Business Line : Money, backwards and forwards

IT happens often that a bonanza gets almost offset by a penalty. A similar situation threatened Maruti Udyog Ltd not long ago when the Excise Department demanded Rs 7.2 crore, and also levied a penalty of Rs 1 crore.

This, when viewed against the sales tax advantage granted by the Haryana Government, created a queer case that came up before the New Delhi CESTAT (that is, Customs, Excise and Service Tax Appellate Tribunal).

The story rewinds to 1994 when Maruti carried out expansion of its factory "by installing Plant 2", and the State Government granted tax benefit "by way of capital subsidy equal to 50 per cent of sales tax collected from customers in respect of vehicles cleared from Plant 2 for 14 years with a maximum limit of Rs 564.35 crore." Thus, Maruti was allowed to collect sales tax from buyers and retain half of that as capital subsidy.

For excise purposes, the company did not include sales tax element in the assessable value. And everything went on smoothly till the concept of `transaction value' crept into excise law in 2000.

Excise Commissioner pointed out that the definition of transaction value stated that it "does not include the amount of duty of excise, sales tax, and other taxes, if any, actually paid or actually payable on such goods," and questioned the correctness of excluding sales tax from assessable value when the company was not paying half the sales tax into the State's kitty. The key phrase, according to him, was `actually paid'; what is not paid cannot be claimed as abatement, he reasoned.

At the tribunal, Maruti's counsel argued that the Commissioner "has not properly appreciated the nature of the incentive scheme and that he has given a wrong interpretation to the term `actually paid or actually payable'."

According to the scheme, "50 per cent of the amount that has to be paid by the appellant as sales tax to the State Government is being adjusted against subsidy granted to the appellant by the State Government."

There was no sales tax concession, as such, reasoned the tribunal. What was given to Maruti was the deferral benefit, running for 14 years. "It cannot be contended that the appellant was claiming abatement in respect of sales tax not actually paid or payable," observed Ms Justice K.K. Usha, President of the tribunal Bench.

Interestingly, the tribunal devoted attention to the meaning of the phrase `actually received', tracing legal history ranging from the decision of the Privy Council in the Trinidad Lake Asphalt case, to what Lord Lindley said in 1902, in the Gresham Life Assurance case.

The Trinidad case, that is more than half a century old, was about two companies having mutual debts, so they agreed that when dividend was to be paid by one, both would make corresponding entries in the books, rather than send the money and receive the same back.

Lordships of Privy Council noted: "These were not merely book-keeping entries. They represented the actual receipt of dividend... and actual payment." The tribunal's ruling includes a snatch from Lord Lindley's oratory that begins with the line: "First, let us consider what is meant by the receipt of a sum of money."

The tribunal cited the view taken in Spargo's case, which is easily understandable: "In every case where a transaction resolves itself into paying money by A to B, and then handing it back again by B to A, if the parties meet together and agree to set one demand against the other, they need not go through the form or ceremony of handing the money backwards and forwards."

Thus, Maruti's stand stood vindicated, though after arguments backwards and forwards.

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