Siam to meet Chidambaram to discuss dispute over excise duty

The Society of Indian Automobile Manufacturers (Siam) has sought a meeting with Finance Minister P Chidambaram to discuss automobile companies' concerns over the excise recovery notices issued by the Central Board of Excise and Customs (CBEC), as calculated on a 'profit plus basis' on the manufacturing cost of a vehicle.

Earlier, CBEC had sent notices to auto companies in Maharashtra and Tamil Nadu including Tata Motors, Mahindra & Mahindra, Mercedes, Volkswagen, Ford and Ashok Leyland. The tax department has now widened its ambit to car makers in the northern belt. Japanese auto major Honda Cars India is said to be the latest to have received an enquiry notice to furnish the model-wise cost data for the company.

According to officials in the Department of Heavy Industry, the auto industry contributes as much as 21 per cent of excise duties.

Sugato Sen, deputy director-general of Siam, said, "Earlier, excise duty was levied on the transaction cost of a vehicle. Now, the government is saying that for models which are not profitable and which are sold at a discounted price, the excise has to be paid on the manufacturing cost added to a reasonable profit margin as decided by the excise department."

Already, the industry is reeling under the slowdown. Now the government is talking of appointing cost auditors. Such a move will lead to a lot of hardship and may increase litigation." Transaction cost of a vehicle is the amount billed by the manufacturer upon sale to a distributor.

While excise department officials hold that the move would prevent auto companies from under-invoicing sales and, consequently, from evading taxes, auto industry executives say the new regulation seeks to find out the profit margins on a model. A senior industry executive said, "The excise department is looking at appointing cost auditors to examine the finances and internal workings of companies. This is anti-competitive as internal cost data holds sensitive details."

The issuance of excise recovery notices by the CBEC follows an order by the Supreme Court a few months ago in a dispute involving central excise and Fiat India. In that case, the tax department had argued that the car company should pay duty on the price at which the car is usually manufactured instead of the discounted price. Fiat was reportedly selling cars to dealers at a price lower than the production cost, in order to gain volumes.

The Supreme Court ruled in favour of the tax department and said the commercial cost of manufacturing the cars was not being reflected in the assessable value and, therefore, it cannot be accepted as the "normal price".