A Supreme Court ruling on levying excise duty on manufacturing cost even if a company sells its product below the production cost has made the industry jittery. Companies which are forced to sell products at a price lower than their manufacturing cost due to fierce competition may take hit, say industry experts.
Sectors which may get impacted include automobile companies selling select models at loss to compete with rivals, petroleum refineries and fertiliser companies selling product below cost (they later get subsidy from the government), chemical companies and IT hardware.
“It has been held that in case a company sells its products below the cost of production (at loss) for a long period of time, then excise duty is applicable on the manufacturing cost plus profit. It has significant impact on industry and opens door for a widespread litigation. The government should look at amending the law to avoid undue hardship to the industry,” Pratik Jain, Partner, KPMG.
The industry fears that now excise officer could go to any company and ask for five-year costing data, which could be a huge challenge since a company might not have costing data for last so many years.
In a case between the revenue department and Fiat India in August, the Supreme Court had upheld the tax department’s demand and asked the Italian carmaker to pay excise duty.
Fiat was importing CKD kits for its Uno cars and selling them below the cost price. The excise department levied excise duty on cost of manufacturing, but the company contested and said the duty should be on the selling price which was lower than the manufacturing cost.
