The Central Board of Excise and Customs (CBEC) late on Wednesday issued a circular directing officials on ways to implement a Supreme Court judgment that said sale price cannot be the basis for excise duty if discounts are given to gain market share. The norms give relief to companies that offer discounts for other reasons.
Tax officials have to consider the reasons for sale at a loss, whether such sales are contrary to standard business practices and whether such sale is leading to erosion of capital of the company before rejecting the sale price as the basis for levy of excise duty, say the norms.
The circular is based on the Supreme Court judgment on August 29, 2012, that upheld the revenue department's view in a dispute with Fiat India that discounted sale price cannot be the basis for levy of excise duty in certain circumstances.
However, the norms insist that if those resorting to predatory pricing after the date of the Supreme Court judgment declare their sale price as the value for assessing excise duty than such declaration would amount to wilful mis-statement of the assessable value.
Experts said that companies selling at a loss for market penetration have to make an upfront declaration of that fact to avoid any penalty. In such cases, the authorities may apply the cost plus method as per cost accounting standards 4 to determine the value on which excise duty may be levied. The profit in such cases may be either 10% or the profit margin of the company in the last financial year, whichever is higher, explained Ashok Dhingra, partner, J Sagar Associates.
For the period prior to the date of the judgment, in cases where a showcause notice had been issued on the grounds of the FIAT judgment alone , there may not be a case for invoking the extended period of limitation. In such cases, only the normal period of limitation will apply.
Saloni Roy, senior director, Deloitte India, said an assessee (who may belong to any industry), who sells goods for an extended period to increase his market penetration at a value lower than his cost and declares his transaction value at such lower value, faces the risk of litigation.
The interpretation by the SC as well as the circular are not entirely in tandem with the understanding of the excise provisions by the trade and industry. It would, therefore, be preferable that amendments are made in the legal provisions, in case the Fiat judgment is to be implemented so that ambiguities are removed, said Roy.