TDS to be cut from advance paid under works contract

Jan 31 2014, 10:55 IST
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The term discount has not specifically been defined under excise laws. The term discount has not specifically been defined under excise laws.
SummaryAs per the contract, the components are purchased by the subsidiary at a discount.

manufacturer) at full price. Kindly let us know whether we would be required to charge excise duty on the total price or the discounted price.

As per the excise law, generally, a manufacturer is required to pay excise duty on ‘transaction value’ of the manufactured goods. The definition of ‘transaction value’ provides that any amount payable as value of goods (whether in form of expenses such as warranty, commission, etc), excluding statutory taxes, constitutes transaction value.

In other words, all amounts payable towards sale consideration (whether directly or indirectly), constitutes the value at which excise duty is required to be paid. In this regard, it is also relevant to discuss the concept of ‘discount’.

The term discount has not specifically been defined under excise laws. Generally, a discount is referred to as a percentage deduction given from the sales price. Hence, any discount leads to a reduction in the price payable.

Since, there is a deduction in the ‘price payable’ and excise duty is liable to be paid on the sale consideration/ price payable for goods, the discount amount should also be excluded from the ‘transaction value’. In this regard, reference may also be made to Circular No.643/34/ 2002-Cx dated 1 July 2002 wherein it has been specifically provided that where a discount is passed on to an unrelated customer, it shall be allowed as deduction from the ‘transaction value’.

In the instant case, even though the discount amount has been termed as a ‘commission fee’ it is essentially a discount which has resulted in a reduction of the price payable. Accordingly, excise duty should be payable on the discounted value.

However, since the discount has been termed as a commission, the authorities may contend that the same is on account of services being carried by the subsidiary for you. In such a scenario, they may dispute this position.

The replies do not constitute professional advice. Neither EY nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to sme@expressindia.com

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