New Delhi, Dec. 17: The finance ministry today said it would notify by mid-January the amount of excise duty to be paid by automobile companies in case they sold cars below cost price.
The development follows a Supreme Court judgment stating that the price at which cars are sold can not be the basis for calculating excise in case the selling price is below the cost price. The landmark judgment came in a case between the excise department and Fiat India, which was pushing sales through huge discounts.
The case has implications for all consumer durables as “forced selling” by offering huge cash discounts, freebies or even underwriting borrowing costs is part of the marketing strategy to perk up sales.
Last year, the court had ruled that Fiat India should pay excise duty calculated on the cost of production plus a notional mark-up, rather than on the market price as the sale price was lower than the production cost.
Car makers were unsure about whether the judgment would impact past sales as excise officials sought audited cost data of the vehicles they had manufactured in the last few years.
After a number of representations and meetings, the government promised that it would clear the air on the issue. In July, finance minister P. Chidambaram set up a forum, headed by economist Parthasarathi Shome, which listened to industry views before offering its advice.
“The modality of implementation of the decision of the Honourable Supreme Court is under consideration of a committee of Chief Commissioners. The circular in this regard will be issued by January 15, 2014,” the ministry said in the statement.
The automobile industry is not too happy with the decision. “I think it is not the right thing to do as transaction cost is paramount. There are different scenarios where the industry may be forced to sell products below cost price. We have said the transaction value should continue to be the sole criteria for the department to charge tax. We have asked the ministry to intervene and issue guidelines in this matter,” director-general of the Society of Indian Automobile Manufacturers Vishnu Mathur said.
On service tax to be paid by reinsurance agents, the finance ministry statement said the revenue department would seek inputs from the insurance industry to ascertain whether there was double taxation on the brokerage paid to the agents.
The ministry will issue a circular, if needed, so that brokerages are not subject to taxes in two jurisdictions, today’s statement said.
The Shome panel also suggested that a process is being designed to get importers to register with the tax department, which may then more easily pass on the tax credits on countervailing duty paid on imports they use up while manufacturing for the export market, termed as CENVAT. This new mechanism will be in place by December-end.