Transaction value clarified for excise duty purposes

Facing a slowdown, India’s automobile industry has more than one reason to heave a sigh of relief. While the interim budget announced in mid-February reduced central excise duty rates across certain vehicle segments, a circular dated 15 January issued by the Central Board of Excise and Customs (CBEC) set out guidelines for administering and implementing the judgment of the Supreme Court in Commissioner of Central Excise, Mumbai v Fiat India Pvt Ltd.

The cause for concern

The Supreme Court in August 2012 held that the price declared by Fiat as the “normal price” for levy of central excise duty in respect of cars manufactured by it was not acceptable, and rejected the same on the basis that it was way below the manufacturing cost and profits. The court observed that loss making/reduced prices were adopted for a continuous period of five years and driven by the extra-commercial/additional consideration of market penetration, hence the price was not the sole consideration. Since excise duty is leviable on the value of goods as manufactured, in this case, an acceptable price was to be determined for the levy on the basis of cost of production plus the notional profit, as computed by a cost accountant.

A possible consequence is the attempt state tax authorities may make to enhance the value of the goods for sales tax purposes, by including in the sale price the enhanced excise duty.

Economic Laws Practice is a full-service law firm with offices in Mumbai, New Delhi, Pune, Ahmedabad, Chennai and Bengaluru. Ranjeet Mahtani is a senior associate and Anuradha Mohanty is an associate manager at the firm.