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New Delhi: The Supreme Court judgement on excise duty in the Fiat India case will apply only in case a company sells its products at below manufacturing cost for a prolonged time to capture market share, the central board of excise and customs (CBEC) said.

The Supreme Court ruled last year that Fiat India would have to pay excise duty on the basis of cost of production plus a notional mark-up rather than on the selling price, which was lower than production cost.

CBEC, in a circular issued late on Tuesday, clarified that the mere sale of goods below the manufacturing cost cannot be taken as the sole basis for rejecting the transaction value.

The Supreme Court’s ruling affected many auto makers, packaged consumer goods makers and other manufacturers, who often sell goods below their cost price to capture market share or prune inventories, especially in a slowing market.

CBEC, capitalizing on the court order, had issued a slew of notices to companies asking them why they were not paying excise duty on cost plus a notional mark-up.

But on Tuesday, CBEC in its circular said, “Due care may be taken at the level of the commissioner to see whether the case at hand is similar to the facts and circumstances of the Fiat case."

It also reiterated the Supreme Court’s ruling that had cited instances where the judgement may not be applicable—when a company wants to switch business or where a manufacturer has goods that could not be sold within a reasonable time.

CBEC said field officers will have to check the facts of a specific case during audits and work out the percentage of loss at which a sale has taken place, the period for which such loss-making price prevailed, the reasons for the sale at such loss-making price and whether such sales were contrary to the standard.

“The circular should have come a long time ago. The tax department has been regularly sending out notices to companies," said Harishankar Subramaniam, partner and national leader, indirect taxes, at audit and consulting firm Ernst and Young.

“Though the circular does bring in some certainty, issues still remain. There is no clarity on what is the acceptable quantum of below cost. Also, what will be considered a long period of time for sale below cost. It would have been ideal if the government amended the law," he said.

Subramaniam added that in cases where notices have already been issued, the future course will depend on the department and the appellate authorities.

“The due process will have to be followed. Companies will have to respond to the notices and follow the due process," he said. “So across the board investigations that we have seen on the ground is incorrect and hopefully will stop."

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