We are a manufacturing firm engaged in the manufacture of fertilisers. The prices of the fertilisers are decided by the government of India. The prices are typically lower than the cost of production. However, the government provides subsidy to us to ensure there are no losses. We have been paying excise duty on the cost fixed by the government of India i.e. the price at which the goods are sold to the customers. However, the excise authorities are contending that that excise duty would also be payable on the value of subsidy received from the government. Please advise.
Section 4(1)(a) of the Excise Act, 1944 provides that assessable value of goods (on which excise duty is payable) shall be the ?transaction value? of the goods subject to fulfilment of specified conditions. The explanation to Section 4(1) provides that the price on which duty would be levied would include additional consideration received by the assessee directly or indirectly from the buyer in connection with such sale.
Rule 6 of the Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000 (Valuation Rules) provides that in case price is not the sole consideration for sale, the value of the goods shall be deemed to be the aggregate of the transaction value (i.e. the price at which the goods have been sold) and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee.
Valuation Rules clearly provides that only additional consideration received from the buyer of the goods would be included in the assessable value of goods. The intention of the law is to cover various payments made by the buyer to the seller. Hence, it appears that only additional consideration received from the buyer (directly or indirectly) is to be included in the value of the goods.
In the present case, since the subsidy is received from the government, the same should not qualify as additional consideration and should not be included in the transaction value of goods. Hence, no excise duty should be levied on the same. Similar views have been held by the Supreme Court in the cases of Mazagaon Dock Limited and Bisleri International Private Limited.
Service tax and place of provision
A, an engineer from India is providing engineering consultancy to B, a US firm which has no business interests in India. For the services, A receives payment in dollar. A has been advised that the said services would qualify as export and hence, would not attract service tax. For providing the aforesaid services, A has also engaged C (an engineer in the USA/UK), to do a part of the assignment for the US firm.
Further, on completion of the part assignment, C sends his report directly to B. For the services, A pays C in dollar. A, wants to know whether he is liable to pay service tax under the reverse charge mechanism on the services provided by C.
Under the present service tax law, Service Tax is levied on provision of all ?services? (unless excluded) by one person to another, for a consideration. Further, the services should have been provided in the taxable territory (India). ?Service? has been defined widely to include any activity for a consideration and thus, the services being provided by C should qualify as ?service? under the Service Tax law.
Rule 3 of the PPS Rules provides that the place of provision of service shall be the location of the service recipient. We understand that services in relation to engineering consultancy would fall within the ambit of Rule 3 and accordingly, the place of provision of services shall be in India.
Accordingly, since the activity qualifies as a service and the place of provision lies in India, the services should be liable to Service Tax. Furthermore, in such a scenario, since A is in India and C is outside India, A should be liable to pay Service Tax under the reverse charge mechanism.
Further, please note that the implications may change if the services are in relation to a specific project/ immovable property being executed/ located outside India.
The replies do not constitute professional advice. Neither EY nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to sme@expressindia.com
