While inflation has hit a record low and demand for a few manufactured goods seems to be slowly picking up again, prices of at least a few items may see a marginal hike. This is because the Central Board of Excise and Customs (CBEC) is reviewing the amount of abatement on goods for the purpose of payment excise duty. For starters, prices of colour televisions, lubricants, cosmetics, paints, ceramic tiles and aerated water could see an increase.
The CBEC recently carried out a study based on data from field formations to assess whether the transaction cost or the cost of manufacture and the assessable value (or the price on which excise duty is paid) is equal. Abatement is the amount which is deducted from the retail sale price of goods to arrive at the assessable value on which excise duty is levied. The quantum of abatement is notified by taking into account the amount of excise duty, sales tax and other taxes and trade margins.
A reduction in the abatement level, leads to a higher excise duty incidence on the product. For example, if a colour TV is priced at Rsv 10,000 and has an abatement of 30% and central excise duty at 8%, the duty incidence amounts to Rsv 560. But if the abatement is reduced to say – 25%, the duty payable will be Rsv 600. ?The decision to increase the price of the product to offset the excise duty incidence or to absorb it lies with the manufacturer,? said a tax expert.
The study revealed that in respect of these six commodities the assessable value (for excise duty) is lower than the transaction value by over 50%. The Board is of the view that the abatement on these goods should be reduced.
A decision on the issue is expected to be taken by the end of the month when the new abatement rates will be notified.
But to keep industry in the loop as well, the CBEC has issued a draft circular seeking their comments on the planned move. ?In case the industry associations feel that the study made by the department does not reflect the true position, in that case they may submit data along with documents to present their case,? the draft circular said.
The Board?s plan to cut abatement rates however is unlikely to pass muster with the industry. Earlier in January this year, it had also reduced the abatement percentage on over a 100 products by 2% to 3%.
Meanwhile, faced with a slump in demand certain sections of industry, such as auto components has been seeking a higher abatement rate so as to lower the excise duty burden and accordingly cut retail prices as well.
?The CBEC should review the abatement rates periodically and for all products, instead of revising them on a piecemeal basis throughout the year. Further, in keeping with industry demands, the review exercise should consist of both a hike as well as a cut in abatement rates,? said R Muralidharan, executive director, PricewaterhouseCoopers.