Excise based on mfg cost of cars to apply prospectively

CBEC has made it clear that following SC order all car makers will have to pay excise duty on manufacturing cost

In a relief to auto makers, the revenue department today said the decision to levy excise duty on manufacturing cost instead of discounted sale price will apply prospectively.

However, the Central Board of Excise and Customs (CBEC) has made it clear that following the Supreme Court order all car makers will have to pay excise duty on manufacturing cost and not on discounted sale price.

"There will be no retrospective application of the Supreme Court order. Tax Department will go after car makers in case of genuine suppression of tax dues. Excise levy will have to be paid even in case of sale price being lower than manufacturing cost," a finance ministry official told PTI.

The CBEC, the official added, "is working on extending the decisions for automakers to companies in other sectors as well. The Supreme Court judgement will apply to all sectors". The companies will have to pay excise on the manufacturing cost, he added.

In order to beat the declining sales, automakers are offering huge discounts but they are required to pay excise levy on manufacturing cost. However, the CBEC at their meeting has softened their stance and decided that the levy be only applied prospectively.

The chief commissioners of central excise met the board of indirect tax yesterday and decided that automakers would be given time to present their case.

"Tax Department will not harass automakers," the official said.

The Supreme Court in a judgement last year had held that if a company sells its products at a loss for a long period because of commercial considerations or competitive pressures, then price is not the sole consideration and excise duty should be paid on manufacturing cost, plus a 'reasonable' profit margin.

The department's decision to extend this rule to other manufacturing sectors where companies offer discounts and sell below cost price to boost sales would have impact on the revenues of the company.

Manufacturing sector output has already been slowing and the government is trying to boost output of the sector, which had expanded by just 1% last fiscal.