Central Excise Valuation - price must be sole and only consideration - Landmark Judgement from Supreme Court
FIAT'S Uno which really didn't make the mark in the Indian Car market had the biggest accident in the Supreme Court yesterday. The Commissioner of Central Excise won a massive Valuation case against the loss making car - the liability of the car manufacturer may run into about 600 crores of rupees.
The Supreme Court held that under the old Section 4 or the new one, the normal price or transaction value is acceptable only when the price is the sole and only consideration for sale. In this case, the Fiat Uno cars were sold at much below their manufacturing cost to capture the Indian market. If they chose to sell their cars at a loss, it is their problem, but Revenue should get its legitimate share - not on the loss-making price.
The Revenue won hands down on every issue, including valuation in the Transaction Value era after the year 2000.
The Supreme Court emphatically held that merely because theassessee has not sold the cars to the related person and the element of flow back directly from the buyer to the seller is not the allegation in the show cause notices issued, the price at which the assessees had sold its goods to the whole sale trader cannot be accepted as 'normal price' for the sale of cars.
They sold their cars at a huge loss and now they are stuck with a huge excise bill! The Department's contention was that when they can incur a huge loss to penetrate the market, they can as well incur a further loss and pay more duty.
When this issue was reported in 2003, a reader wrote to a newspaper that the Income Tax Department should learn from Central Excise. If a person is earning 10,000 rupees, his earning capacity should be determined at 20,000 rupees and he should be taxed on the additional 10,000 rupees which he would have got had he utilised his full abilities!!
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