Last month Supreme Court has given judgement in the case of Fiat India Pvt Ltd (2012-TIOL-58-SC-CX) that can have far-reaching implications, as the view of the Supreme Court in the case is at variance with how the trade and industry understands the excise law relating to valuation.
The essential fact in this case is that Fiat sold its cars at prices that were below the cost of production to enable market penetration in a very competitive market, and cleared the cars on payment of excise duty at its sale price. The department demanded duty at cost of production. After losing the case at the adjudication and first appeal stage, Fiat won at the Tribunal [2004 (167) ELT 82 (Tri-Mumbai)] because there was no extra commercial consideration or flow back of money from buyer to seller or sales to related parties. The department took the matter to the Supreme Court.
The essence of the Supreme Court judgement is that “loss making price” continuously for more than five years while selling more than 29,000 cars is not “normal price” or the price at which the goods are “ordinarily sold” by the assessee to a buyer in the course of wholesale trade; and that if there is an extra-ordinary or unusual price, specially low price, charged because of extra-commercial considerations, the price charged could not be taken to be fair and reasonable, arrived at on purely commercial basis, so as to be counted as the wholesale cash price for levying excise duty.
That may be one way of looking at the valuation law as it existed before July 1, 2000. But, thereafter, valuation provisions had changed significantly. Duty had to be charged on transaction value, which means the price actually paid or payable for the goods (excluding and including certain specified elements). Therefore, each removal is a different transaction and duty is charged on the value of each transaction. The new provision, therefore, accepts different transaction values and the requirements to be met are (a) the goods are sold for delivery at the time and place of delivery; (b) the assessee and buyers are not related; and (c) price is the sole consideration for sale.
The Supreme Court said that consideration means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee or by the transferor to the transferee. Similarly, when the word consideration is qualified by the word sole, it makes consideration stronger so as to make it sufficient and valuable having regard to the facts, circumstances and necessities of the case. In the instant case, the main reason for the assessees 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. So, the Court discarded Fiat’s sale price and upheld determination of value on the basis of cost accountant report regarding cost of production.
This judgement differs from the widespread understanding that sole consideration refers only to what flows from buyer to seller in exchange for the goods. The fear is that all “introductory prices” will be challenged and cost audits will become order of the day. Hopefully, the judgement will be reviewed.