Supreme Court on Excise Valuation-Fiat India Case

SUPREME COURT ON EXCISE VALUATION

(Fiat India)

Excise valuation basis manufacturing cost plus profit upheld by Supreme Court where sales are made at below manufacturing cost to penetrate market

The Supreme Court ("Court") has dismissed the review petition filed by Fiat India Private Limited on the issue of valuation under the Central Excise Act, 1944.

 The Court, vide order dated November 27, 2012, observed that there was no reason to interfere with its original order dated August 29, 2012.

 Key observations of the Court in the Original order.

1.       The Court had upheld the best judgement valuation by the revenue authorities ("RA") on manufacturing cost plus profit basis, where the goods were sold at below manufacturing cost for market penetration, though no additional money consideration was received from the buyer.  The Court had observed as follows:  ·        

·         Sale at a lower price to penetrate market will constitute extra-commercial consideration and not sole consideration  ·    

·              Price is not sole consideration where:

·          o   Sale is influenced by considerations other than price

·          o Lower price fixed to penetrate market and to compete with other manufacturers. If an unusually low price is charged because of extra-commercial considerations, the price charged cannot be taken to be fair and reasonable, arrived at on purely commercial basis  

BMR comments

This is a very important decision in the context of central excise valuation.  Upholding the valuation on cost plus basis in a transaction value regime, without flow of additional consideration from the buyer, creates a major impact on industry.   Basis the original order of the Supreme Court, RA have already issued notices to many manufacturing companies seeking details of production cost data. The dismissal of the review petition is likely to accelerate the proceedings initiated by the RA against such companies.   Manufacturers need to analyze the applicability of this decision to their specific facts, assess the risks involved and plan the mitigation steps in a proactive manner.

Source: BMR Advisors