Excise duty when goods are sold below manufacturing cost
exception to section 4 of C.EX Act,1944 i.e., price is not the sole consideration for sale (Rule 6) Notification.No.20/2014 C.E.(N.T.) date 11.07.14.
Hon’ble Finance Minister Mr. Arun Jaitley has presented his first budget proposals from NDA government before parliament on 10.07.2014. The main moto of budget document was to take fewer steps towards the development of economy. Having the base of this object, some changes in law has also been made out in this budget. one of amendment made in central excise valuation rule is as follow:-
Rule 6 of Central Excise Valuation (Determination of price of excisable goods Rules,2000) has been amended through notification no.20/2012 C.E.(N.T.) dated 11.07.14. before going to the amended provision what is rule 6 is all about in brief is as follow:-
Rule 6:-
The provisions of rule 6 are invocable when duty payable is not computable as per sec.4 of central excise Act,1944. i.e. Assessable Value is not Transaction Value . In short, when price is not the sole consideration for sale, valuation will be done as per rule 6 & not as per sec.4.
Where the excisable goods are sold in the circumstances specified in clause (a) of sub-sec (1) of sec 4 of the Act except the circumstances where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value & the amount of MONEY VALUE of any additional consideration flowing directly or indirectly from the buyer to the assessee.
GOI through Notification No. 20/2014 C.E.(N.T.) dated 11.07.14 has inserted a proviso to rule 6 in the central Excise Valuation (Determination of price of Excisable Goods) Rules,2000 before Explanation I , namely
“ provided that where price is not the sole consideration for sale of such excisable goods & they are sold by the assessee at a price less than manufacturing cost & profit & no additional consideration is flowing directly or indirectly from the buyer to such assessee, the value of such goods shall be deemed to be the Transaction Value.”
Due to this change in law, all the disputes/issues regarding valuation which are raised because of Supreme Court decision in its FIAT INDIA PVT.LTD in 2012(283 ELT 161 SC) comes to an end, i.e. if NO ADDITIONAL CONSIDERATION is flowing directly or indirectly to the assessee then assessable value is only Transaction Value as per sec.4 even if goods are sold at a price lower than its manufacturing cost and profit. i.e. now onwards if facts of the case are similar to stated Fiat case then, valuation will be done as per section 4 irrespective of the fact that goods are sold at lower prices but no additional consideration directly or indirectly.
In Fiat case, company has charged for its product (motor car) below cost price to penetrate the market for continuous period of 5 years. Assessee has contended that due to lesser demand for its product, it charged the customers at a price lower than cost and hence it has paid the duty on such lowered price, though it is below manufacturing cost. The same has been objected by revenue and filed appeal before SC. SC opined that this is a case of extra commercial consideration in fixing of price and artificially depressing it. Full commercial cost of manufacturing and selling was not reflected in the price as it was deliberately kept below the cost of production. Thus, price could not be considered as the sole consideration for sale. No prudent business person would continuously suffer huge loss only to penetrate market, they are expected to act with discretion to seek reasonable income, preserve capital and, in general, avoid speculative investments.it is immaterial that the cars were not sold to related persons and hence revenue’s appeal was allowed & demanded duty from assessee by adding some reasonable percentage of amount in assessable value.
The main purpose of F.M. behind such a change in law, which contravenes the SC decision, might be to uplift the domestic industries for increment in the production upto the production capacity. The new government has observed that due to this decision of SC, low growing industries are threatening to take a risk in business due to lower production capacity and lesser demand for the product and therefore ultimately it was hampering to domestic industrial growth & hence such provision has been inserted in Rule 6.
But, the amendment in law was made from 11.07.14 onwards & it is not retrospective. Now, what about the cases which are pending before appellate authorities by relying on this SC judgment?? Will appellate authorities rely on Fiat judgment for pending cases or else revenue appeal will be dismissed on the ground of notification no.20/2014 C.E.(N.T.)?? To clear out this issue government has to come up with a clarification through circular or instruction regarding the pending cases on the same issue.