Govt to play sentinel, follow up on cut in car excise duty

BUDGET IMPACT

The government, after granting an excise duty cut to small cars in the Union Budget 2006-07, has followed up with measures to monitor if car makers are passing the benefits to end-users.

Starting this month, the government will collect model-wise data on the small cars produced and shipped on a monthly basis. The government has also sought month-wise data on production, shipment and details of duty paid on these models for the period of April 2005 to February 2006.

The Tax Research Unit (TRU), under the finance ministry, today issued a circular to this effect to all commissioners of central excise listing the format in which the data have to be collected from car markers and the deadline for the submission of their reports.

However, the circular does not specifically say that the purpose of collecting this data is to monitor the pricing strategy adopted by car makers.

"Three years ago, when the excise duty on cars were cut from 32 per cent to 24 per cent, the Comptroller and Auditors General's office had reported that the benefits from duty cuts were not passed on to the consumers. This new report that the department seeks is probably to monitor this," said an industry source.

In the two Budgets preceding the current one, despite the high expectations from the industry, the excise duty on cars remained at 24 per cent. The Union Budget 2006-07, announced on Tuesday, had given a concessional duty of 16 per cent for cars upto 4 meters in length and engines with capacity up to 1200 cc (if petrol) and up to 1500 cc (if diesel). Cars that do not satisfy these conditions will continue to suffer a peak excise duty of 24 per cent.

The report submitted by CAG for 2003-04, had stated that car markers retained as much as 50 per cent of the duty saved 'to the detriment of interest of consumers.'

Reacting to the circular issued by TRU today, industry observers said that price of cars must be determined by market forces and the government keeping a tab on it would be detrimental to the industry.

Car manufacturers like Maruti Udyog, Hyundai Motor India and Tata Motors, who have benefited from the excise duty cuts announced yesterday, have already effected a downward revision of price on select models.