Fiat car, Uno brand, made in India has come to news for valuation reasons. The Supreme Court has decided in a latest judgment (Civil appeal Nos. 1648-1649 of 2004) that the consistently low price charged by Fiat Uno to penetrate the market cannot be considered as normal value or transaction value. Therefore, the normal value (based on manufacturing cost and normal profit) has to be taken as assessable value. This entailed a huge demand of excise duty of Rs 432 crore. It is hard. But hardship is no ground for not giving a proper judgment, says Supreme Court.
Valuation is a highly litigated subject. The concepts of normal value, transaction value and the valuation rules in excise (also customs) have come for judicial scrutiny which never seems to stop. In the present case Fiat Uno car were being assembled in India and the cost of production came variously to Rs 3,98,585 and Rs 3,80,883 but their assessable value was declared as Rs 1,85,400. This loss-making price was charged by assessee for the purpose of penetration of the market. According to Revenue loss making price cannot be the normal value or transaction value in terms of section 4(1)(a) of the Act. In the present case some of the sales took place before July 1, 2000, when the concept of normal value was there. From this date the concept of normal value was dropped and the concept of transaction value was introduced under section 4(1)(a) of the Act. According to this amended section, value declared by the assessee will be treated as transaction value, if the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale. Here the issue is whether the deliberately depressed value can be taken as a price which is the sole consideration for sale. Revenue says, the price at which the cars are sold by the assessee is not the sole consideration as envisaged in section 4(1)(a) of the Act because the consideration is ultimately to penetrate the market and thereby to get more turn-over in the long run. Revenue, therefore, wanted to take the manufacturing cost plus manufacturing profit as assessable value which was much higher than the declared transaction value.
The argument of the assessee was that the depressed price was genuine and there was no flow back of money. Therefore it should be acceptable as a genuine transaction value. The assessee depended on the judgment of the Supreme Court in the case of CCE vs Guru Nanak Refrigeration Corpn. - 2003 (153) E L T.249 (S.C.), which was delivered on the basis of similar facts.
There was no flow back of money from the buyer to the assessee though the goods were sold at a price lower than the cost. So the Supreme Court held in that case that in the absence of flow back, it cannot be contended that normal price was not ascertainable within the meaning of section 4(1)(a).
The Supreme Court in the Fiat Uno case distinguished the Guru Nanak case on facts on the ground that in the latter case it was a onetime transaction but here in Fiat Uno case it went on for a long time involving the sale of 29,000 cars. So the Supreme Court finally decided that a continuously depressed price for penetration of the market cannot be a normal value before July 1, .2000 and cannot be the transaction value after this date. The court, therefore, ruled that a very high value or a very low value constitutes “any consideration other than price” (even if that consideration is to penetrate the market) and it cannot be taken as normal value or transaction value.
The conclusion is that transaction value declared on the basis of invoice price cannot be lightly rejected by Revenue just because it is different from the normal value at which the goods are ordinarily sold or offered for sale. But it can be rejected if the declared transaction value is far too high or far too low compared to the normal price and there are some extra ordinary considerations. Some analysts have suggested that the present judgment is against the grain of accepted understanding of valuation law. I do not agree to that view.
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