Central Excise Valuation – Landmark Judgment

Fiat India has lost an almost decade-old battle with the excise department which had slapped a Rs 432 crore duty on the company for Uno cars sold below cost price between 1996 and 2001.

The excise department had discovered that the company was importing car kits in completely knocked down (CKD) and semi-knocked down condition and the cost of production of a single car was Rs 3,80,883 (CKD) and Rs 3,98,585 (SKD), respectively, against the assessable value of Rs 1,85,400. The tax department’s contention was that cars were imported at a higher price but were sold at loss for a consideration – to penetrate the market, a fact confirmed by the company. In a landmark judgment on August 29, the Supreme Court, while elucidating Secion 4(1)(a) of Central Excise Act, 1944, held that;

The important requirement of under Section 4(1)(a) is that the price must be sole and only consideration for the sale. If the sale is influenced by considerations other than the price, then, Section 4(1)(a) will not apply. In the instant case, the main reason for the assessed to sell their cars at a lower price than the manufacturing cost and profit is to penetrate the market and this will constitute extra commercial consideration and not the sole consideration.

Arguing the case, Bishwajit Bhattacharyya, Additional Solicitor General of India, said that this judgment will bring about clarity and certainty in valuation under the central excise laws,”. The order will have wide implications as the tax department will now feel vindicated on its stand that the central excise duty is chargeable on manufacture or production of goods and not on the sale of goods.