Services & Solutions

Circular soon on excise duty levy on sale of goods at loss

News,19 December 2013

The finance ministry will soon issue a circular clarifying on the levy of excise duty on goods sold below production cost.

The circular follows the Supreme Court verdict in the case of Fiat India, that companies selling goods below manufacturing cost to capture market share will have to pay duty at the normal price (production cost plus profit).

“The modality of implementation of the decision of the Supreme Court is under consideration of a committee of chief commissioners. The circular in this regard will be issued by January 15,” the finance ministry said on Tuesday.

In August 2012, the Supreme Court had asked Fiat to pay excise duty of about Rs 400 crore on models of the Fiat Uno sold between 1996 and 2001. Fiat was importing completely knocked down (CKD)  kits for its Uno cars and selling these below the cost price.

The apex court ruled that where products are sold at considerable losses for an unduly long period of time for the purpose of market penetration, the transaction value cannot be accepted for the purpose of levy of excise duty.

The ruling had dealt a double blow to companies in sectors such as automobiles and consumer goods, some of which were selling products at a loss to penetrate a fiercely competitive market. Pursuant to the Supreme Court’s decision, field authorities are asking assessees to furnish costdata of various products for past years. The circular may provide safeguards so that the judgment is not rampantly extended to other situations.

The issue was taken up with Finance Minister P Chidambaram by his advisor, Parthasarathi Shome, who chaired the forum for exchange of views between the industry and the government on tax-related issues. The forum, which was constituted in July, has also taken up other issues such as service tax refunds and cenvat credit. 

The procedure for calculating the refund on the basis of the ratio of export turnover to total turnover that was introduced in 2012, will be applied for pending refund cases. A process is being designed to get the importers to register with the tax department, who may then more easily pass on the CENVAT credit of counter-veiling duty to a manufacturer. The new mechanism will be in place by December 31.  

On service tax to be paid by reinsurance agents, the revenue department will seek inputs from the insurance industry to ascertain whether there is double taxation of the brokerage paid to reinsurance agents. The ministry will issue a circular, if necessary, for mitigation of double taxation, if any.

Courtesy: Business Standard -


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