Excise duty on tax collected at source

The Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad (‘Appellate Tribunal’) in the recent case of Yashraj Containeurs was faced with the question as to whether tax collected at source (‘TCS’) will form part of the assessable value for determination of excise duty liability. The factual background and observations of Appellate Tribunal are briefly discussed hereunder.

Factual Background

The assessee was engaged in manufacture of MS drums, during the course of which metal scrap was generated. The impugned scrap was cleared on payment of excise duty. The assessee further collected TCS from its buyers in compliance with Section 206C of the Income-tax Act, 1961 (‘Income-tax Act’).

The revenue suggested that TCS qualified as additional consideration flowing directly from the buyers to the assessee. As a corollary, the same was liable to be included in the assessable value in terms of Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (‘Excise Valuation Rules’) for determination of excise duty liability.

Observations of Appellate Tribunal

The Appellate Tribunal held that TCS is in the nature of tax. It is collected and remitted to the Central Government in compliance with the Income-tax Act, and never retained by the assessee. As a corollary, the TCS collected by assessee will not form part of the assessable value for determination of excise duty liability.

Anantham Legal Comments

TCS is in the nature of interim levy, and not tax, under the Income-tax Act. It does not qualify as consideration inasmuch as it is utilised for discharge of income-tax liability of the buyer, and not the manufacturer-supplier.

The TCS amount does not ‘flow to’ the manufacturer-supplier, but flows to the Central Government via the manufacturer-supplier. The manufacturer-supplier only acts as a conduit, and is never allowed to retain the sum collected as TCS.?