Can transaction value be abnormal?

Jun 11 2014, 02:02 IST
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SummaryTransaction value is ascertained by factoring all the costs, at an optimum level of production, based on the demand & supply analysis and competitive pricing.

In the Fiat India Ltd case, the Supreme Court held that the price at which the goods are sold by the manufacturer to the buyer shall not be accepted as the true transaction value for the purpose of payment of excise duty, as it is less than the cost of production of the goods manufactured. If a company has been making losses continuously for five years or more and the price charged is lower than the manufacturing cost, then it is not a normal price and the goods are not ordinarily sold at the factory gate. It can be concluded that the price adopted is an abnormal price.

In Commissioner of Central Excise, Ahmedabad vs Xerographic Ltd (2006), it was observed “that the existence of any extra-commercial consideration while fixing a price would not amount to normal price.”

The Supreme Court has concluded that the sale price of the cars is not the normal price due to the following:

n Have been fixed at a lower price to penetrate the market; though the normal price for their cars is higher;

n That the selling of cars at a lower price was to compete with the other manufacturers of similar cars;

n That the market penetration strategy and expected higher volumes are the extra considerations flowing back to the assessee.

Hence, all the losses suffered are due to the deliberate act and be treated as part of transaction value for payment of excise duty.

However, the Supreme Court, in the case of Guru Nanak Refrigeration Corporation, held that there is no valid reason to doubt the genuineness of the sale price. It can, therefore, be safely concluded that the goods were sold at the normal price within the meaning of Section 4(1)(a) of the Act even though the cost of production of the goods was more than the wholesale price.

Post Fiat judgment, all the loss-making companies, particularly auto and auto component manufacturers, have been issued show-cause notices and ordered for special audit by various excise commissionerates. The field formation set aside the big picture of whether there was “deliberate lower pricing” of the goods in order to compete and get a substantial market share or not, but focused on additional revenues to flow to the exchequer on accrual basis, which may or may not realise. Also, the revenue concluded that the losses have been incurred due to the lower pricing only and demanded differential duties.

The Central Board of

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