Stymying FIAT decision cleverly eased out - Rule 6 of Valuation Rules, 2000 amended
By TIOL News Service
NEW DELHI, JULY 10, 2014: THE Supreme Court in the case of CCE, Mumbai vs. Fiat India (P) Ltd. 2012-TIOL-58-SC-CX held that where products were sold at considerable losses for an unduly long period of time for the purpose of market penetration, the transaction value cannot be accepted for the purpose of levy of excise duty. The review petitions filed by Fiat were also dismissed 2012-TIOL-110-SC-CX.
The Supreme Court in its order dated 29.08.2012 also emphatically held that merely because the assessee had not sold the cars to the related person and the element of flow back directly from the buyer to the seller was 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.
Pursuant to the said decision the field authorities had a free run asking assessees to furnish cost data of various products for past years and threatening and in some cases issuing demand notices for recovery of differential central excise duties alleging under valuation and that too by invoking suppression.
The matter reached the Board and after consultations a Circular 979/03/2014-CX, Dated: January 15, 2014 came to be issued clarifying a couple of issues on the subject matter. See DDT 2273.
The first clarification pertained to "Transaction Value below manufacturing cost and profit."
And the Board said - Therefore, mere sale of goods below the manufacturing cost and profit cannot be taken as the sole basis for rejecting the transaction value.
The second clarification dealt with "Verification of payment of duty".
The third and the trickiest issue was the period of application of this judgement, whether it can be applied for the period prior to 29.08.2012 by invoking the extended period of limitation and the Board clarified -
++ Under the provisions of valuation law, in a case where price is not the sole consideration for the sale, money value of any additional consideration flowing directly or indirectly from the buyer to the assessee is added to the transaction value in terms of rule 6 of the Central Excise Valuation Rules, 2000. However, in the FIAT judgment, sale of cars at an abnormally lower price to penetrate the market has been considered by the Hon'ble Supreme Court as constituting extra-commercial consideration, even when there was no additional consideration of money value flowing directly or indirectly from the buyer to the seller. For the period prior to the date of the judgment, in cases where a show cause notice has been issued on the grounds of the FIAT judgment alone, there may not be a case for invoking the extended period of limitation. In such cases, only the normal period of limitation will apply.
Lastly, the Board while wrapping up the clarification said this - For the period after the date of the judgment i.e. from 29.08.2012 onwards, if there is a sale in the circumstances similar to the case of M/s FIAT and yet transaction value of goods is declared as the correct assessable value, then such declaration would amount to willful mis-statement of the assessable value.
Be that as it may, the issue was still simmering and, therefore, the Central Government found the Union Budget 2014, the apt moment to bring in an amendment (and convey the achche din philosophy), not to the section 4 of the CEA, but in the Valuation Rules, 2000 and it goes thus –
In the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 in rule 6, before Explanation I, the following proviso has been inserted, namely:-
"Provided that where price is not the sole consideration for sale of such excisable goods and they are sold by the assessee at a price less than manufacturing cost and profit, and 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."
This insertion is being made by notification 20/2014-CE(NT) dated 11.07.2014.
So, in effect, even if the assessee sells the goods at a price less than the manufacturing cost and profit and no additional consideration is flowing directly or indirectly from the buyer to the assessee, then the value of such goods shall be deemed to be the transaction value.
Should we not treat this amendment made to rule 6 as retrospective?
