The Central Board of Excise and Customs (CBEC) has taken the view that subjecting to tax the subsidy paid by the government for public welfare was not within the scope of the apex court ruling, which implied that excise duty should be levied on the cost of production plus reasonable profits rather than on the discounted retail price.
Field officials may have issued tax demands. But, as a principle, subsidy amounts paid by the government should not be subject to tax. A decision has been taken in this regard and a circular clarifying this will be issued soon, said a government official privy to the development.
The court had ruled in a dispute between central excise commissioner, Mumbai, and Fiat India that the wholesale price declared by the company, which was much lower than the cost of production, cannot be treated as a normal price for levy of excise duty as it would result in short payment of tax.
Urea is the only fertiliser produced in India on which excise duty is levied, while phosphorous and potash are fully imported.
The Supreme Court judgment has been read wrongly by the excise authorities. What the SC has said is that if one is artificially reducing the price to get market access, then one is liable to pay excise duty on the whole amount. In the case of fertilisers, the government is providing subsidy which is meant for agriculture to make fertilisers available at affordable price to the farmer. There is no question of market access here, said US Awasthi, MD and CEO, Iffco.
While fertiliser companies were issued demand notices for higher excise duty on the subsidy, a similar move is not possible in the case of oil refineries on petroleum products, which also receive huge amounts of subsidy every year. That is because the retail price of sensitive petroleum products are based on a formula called trade parity price, which is equal to what would be the price of imported and exported price of the fuel at an 80:20 ratio. While import price consists of only customs duty, export price does not include excise as it is the policy of the government to refund companies all taxes that go into exported products.