The government has clarified that no relaxation can be given on the practice of levying excise duty on the actual cost of production in cases similar to Fiat India's Uno brand.
In this matter, the Suprme Court had endorsed the tax department's view that discounted sale price cannot be the basis for taxation. Automakers were expecting some assurance from the revenue department that the cost of production may not be basis for excise duty on all cases.
“The Supreme Court decision is the law of the land. There is no need for taking any decisions (on this) by the Board,” Central Board of Excise and Customs (CBEC) chairperson Praveen Mahajan told FE.
Companies have been asking for some kind of guidelines from CBEC so that tax officers do not apply the apex court’s view on all discounted sales. CBEC's decision not to issue any guidelines or instruction to field officers is based on the fact that officials cannot alter the powers the executive has been conferred under the law, made by the Parliament and endorsed by the SC. Some experts said that the Supreme Court's decision favouring the tax department's claim of charging excise duty on the cost of production in a specific case would matter only on similar cases and not on all cases of discounted sales.
The apex court had recently upheld the revenue department’s demand of R400 crore excise duty on the basis of Fiat India’s cost of production rather than on the discounted wholesale price. The court had held that Fiat sold its Uno brand below production cost on extra-commercial considerations of gaining greater market share and building a brand value and therefore, the discounted price was unacceptable for levying excise duty.
The tax department demanded excise duty on the cost of production plus reasonable profits.