The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata Bench, has held that 99% VAT remission retained by an assessee under the Assam Industrial Policy constitutes a subsidy and cannot be included in the assessable value for the purpose of levy of Central Excise duty, thereby setting aside the entire demand raised by the department.
The bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) has observed that the 99% VAT retention was a subsidy granted under the State’s industrial policy framework. Such subsidy cannot be treated as additional consideration for the sale of goods. Therefore, it cannot form part of the assessable value under Section 4 of the Central Excise Act.
The appeal was filed by M/s Hello Project & Marketing Pvt. Ltd. against the order of the Commissioner (Appeals), which had upheld a demand of ₹7.71 lakh on the ground that the assessee had allegedly undervalued its goods by not including the VAT amount retained under the Assam Industries (Tax Remission) Scheme, 2005.
The appellant was a new industrial unit established in Assam and was eligible for multiple fiscal incentives under the Assam Industrial Policy, 2003 and the North East Industrial and Investment Promotion Policy, 2007. These incentives included central excise duty exemption by way of refund, income tax benefits, and VAT remission to the extent of 99%.
The dispute arose when the department alleged that the assessee had short-paid excise duty during the period from June 2010 to March 2015 by not including the retained VAT component in the assessable value under Section 4 of the Central Excise Act, 1944. A show cause notice dated 01.07.2015 was issued demanding duty on this basis.
The Tribunal noted that the issue was no longer res integra and had already been settled in a series of earlier decisions. It relied on precedents including United Packagers, Harit Polytech Pvt. Ltd., and Welspun Corporation Ltd., wherein similar VAT remission schemes were examined.
Rejecting the department’s reliance on the Supreme Court judgment in Super Synotex (India) Ltd., the Tribunal observed that the retained VAT was not income or additional consideration flowing from buyers but a form of capital subsidy/incentive granted by the State Government to promote industrialisation.
The Tribunal emphasized that the mechanism of VAT remission was merely a mode of disbursing the incentive, where tax payable was adjusted against the subsidy entitlement. It did not alter the nature of the benefit, which remained a government incentive rather than a trading receipt.
The Tribunal held that the entire excise duty demand raised on the basis of VAT retention is unsustainable. The impugned order was set aside in toto. No penalty is imposable on the appellant.
The appeal was allowed with consequential relief.
Case Details
Case Title: M/s Hello Project & Marketing Pvt. Ltd. Versus Commissioner of C.Ex & Service Tax, Guwahati
Citation: JURISHOUR-1043-CES-2026(KOL)Â
Case No.: Excise Appeal No. 75128 of 2018
Date: 05.02.2026
Counsel For Appellant: Indranil Munshi & Ms. Komal Agarwal, Advocates
Counsel For Respondent: S.K.Jha, Authorized Representative
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