Excise notice to auto giants to affect mfg sector: Experts

The Central Excise Department has sent notices to top automakers seeking cost data of products and asked if they sold vehicles below value. CNBC-TV18's Ronojoy Banerjee reports.

The department has sought production cost data for the last three-five years. The companies that were sent the notice include the like of Tata Motors, Mahindra and Mahindra (M&M) and Ashok Leyland. It has also sent notices to Ford India and Fiat. Meanwhile, the auto industry has written to the revenue department for intervention. Industry sources say the cost data is a highly sensitive information  

The notices were sent following a Supreme Court (SC) order on Fiat last month. However, the impact of the order is likely to be felt mostly by those manufacturers who have a diversified range of product portfolio because as per the existing law there is simply nothing wrong if a manufacturer wants to make a loss on a single product, while they want to make up for it by selling another product at a higher price. But the entire dynamics in this case completely changes.

Sources say the industry has urged the government to put excise queries on hold and also not to reopen settled cases. It is seeking tangible “commercial consideration” for excise duty.

CNBC-TV18 spoke to Maruti Chairman RC Bhargava yesterday—Maruti is one of the companies  which has not got a notice so far. But sources indicate that even Maruti could be issued a notice soon on this matter. Bhargava said that Maruti has never underpriced its products.

Meanwhile CNBC-TV18's Malvika Jain reports on the impact of directive of the apex court on the manufacturing sector.

According to tax experts, the order of the Supreme Court has wider implications for the entire manufacturing sector and not just for the auto industry. This order, according to experts, greatly alters the manner in which excise duty valuations are undertaken.

The companies will have to include margins to the cost of production while arriving at the valuation for excise duty. This, state experts, will lead to two events. One, that it will force companies to relook their pricing and costing models of their products and even reconsider the discounts which is usually offered during the festive season.

Two, it is going to indirectly contribute to inflation the manufacturing sector rolls out products that are further used for value-addition by other industries.

Experts are looking for clarity from the ministry of finance on how excise will be computed for all the manufacturing companies so as to avoid legal tangles in future and also to be able to advise their clients better.