No excise duty cut on goods sold at below production cost

Companies will not be allowed to lower excise duty on products sold below production costs, once the government comes out with the necessary clarifications on the levy of excise duty on goods sold below production cost.

The clarification follows a Supreme Court verdict in a case involving Fiat India selling cars below manufacturing cost to raise its market share.

The SC said the company will have to pay duty at normal price, ie, production cost plus profit, since the aim is to undercut competitors to capture market.

''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.

Fiat had been importing completely knocked down (CKD) kits for its Uno cars and selling them below the cost price.

In August 2012, the Supreme Court had asked Fiat to pay excise duty of about Rs400 crore on the Fiat Uno models sold between 1996 and 2001.

The apex court ruled that where products are sold considerably below cost of production for longer periods for market penetration, the transaction value cannot be accepted for the purpose of levy of excise duty.

Tax authorities are now asking assessees to furnish cost data of various products for past years.

The government circular is expected to clarify the situations where the SC order comes into play and the may provide safeguards against rampant use of the judgment.

The clarifications follow exchange of views between industry and a finance ministry forum chaired by Parthasarathi Shome, advisor to finance minister P Chidambaram.

The forum, constituted in July, also looked into other issues such as service tax refunds and cenvat credit.