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THE FACTS

Explore the legal battle of FIAT vs CCE, Mumbai regarding pricing strategies and market penetration. Understand how the judgment impacts pricing decisions post-2000 and its implications on industry practices.

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THE FACTS

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  1. THE FACTS • UNO cars were sold at a wholesale price, which was below the cost of production with a reason to penetrate the market. • Such price was not accepted as ‘Normal Price’ vide earlier Section 4(1)(a) of CEA. • As per the residual “Best judgment” method of Valuation Rules, 1975 (VR 75), the cost of production plus 10% profit was adopted.

  2. THE DEFENCE • No extra-commercial consideration. • Buyers are not related. • Transaction at arms length. • No flow back. • Ration of SC in CCE, New Delhi Vs Guru Nanak Refrigeration Corp – {2003 (153) ELT 249 SC} relied.

  3. ROAD TO SC • Lower Adjudicating Authority confirmed the department’s allegations and the demand. . • On appeal, the First Appellate Authority upheld the O-I-O. • The CESTAT allowed Fiat’s appeal setting aside the allegations and demand. • Department appealed to the Apex Court.

  4. ISSUES BEFORE SC • Whether the declared price, which is below cost of manufacture, can be regarded as ‘Normal Price’ under Section 4(1)(a) of CEA? • Whether the intention to penetrate the market can be considered as an ‘extra commercial consideration’?

  5. CONTENTIONS • The declared price does not reflect the true price as it is lesser than the cost of production plus profit. • The declared price is not a ‘normal price’ as per Section 4(1)(a) of CEA but a “loss making price”. • Recourse to VR 75 as per Section 4(1)(b) of CEA as the conditions under Section 4(1)(a) are not satisfied.

  6. THE DECISION • CCE, Mumbai vs FIAT India (P) Ltd & Anr • {2012 (283) ELT 167 (SC)}

  7. ‘NORMAL PRICE’ REGIME… • Sec 4(1)(a) – prior to 1.7.2000: • “normal price thereof, that is to say, the price at which such goods are ordinarily soldby the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related personand the price is the sole consideration for the sale”

  8. THE VERDICT … • the “loss making price” is NOT the “normal price” under Section 4(1)(a) of CEA. • the goods are NOT ORDINARILY SOLD in the course of the wholesale trade. • the price is NOT the sole consideration for the sale. • the assessing authority was justified in invoking Section 4(1)(b) and Rule 7 of VR75 (Cost plus profit - Best Judgement).

  9. THE FIA(T)SCO … • While parting, the SC also observed that, the Fiat ratio would be applicable, even to the “transaction value” regime, after 1.7.2000, which has left the entire industry, high and dry!!!

  10. … THE FIA(T)SCO … • What is the impact of this ratio in the present “transaction value’ regime, after 1.7.2000? • Whether the ratio would apply only in cases where the intention is to penetrate the market or for any other reasons also? • Whether this judgment would apply only to the said case or across the industry?

  11. … THE FIA(T)SCO • What would be the impact when supplies are made to OEM on a price which would be much lesser than the cost plus profit? • What is the impact on various discounts given? • What is the impact on distress or clearance sales?

  12. “TRANSACTION VALUE” REGIME • Sec 4(1)(a) – after 1.4.2000: • “Normal price” - “Transaction value”. • Sale. • Delivery to be at the time and place of removal. • Unrelated buyer. • Price is the sole consideration of sale.

  13. THE IMPACT ANALYSIS… • No ‘NORMAL PRICE’. • No ‘ORDINARILY SOLD’. • Out of 4 requirements 3 are satisfied except price is the sole consideration. • Section 4(1)(a) of CEA not applicable. • Recourse to Section 4(1)(b) and VR 2000. • Appropriate valuation under Rule 6 of VR 2000.

  14. …THE IMPACT ANALYSIS… • Rule 6 of VR 2000: • Where the excisable goods are sold in the circumstances specified in clause (a) of sub section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee”..

  15. …THE IMPACT ANALYSIS… • All conditions of Section 4(1)(a) of CEA met except ‘price is the sole consideration’. • Market penetration advantage is the additional consideration. • No money value. • Does not flow from the buyer to the assessee. • Deemed value. So…?!?!?!?!?!?!?!?!?!?!?!?!?!

  16. …THE IMPACT ANALYSIS There shall be NO impact of this FIAT decision, on any of the situations supra, on any of the industry, under the present ‘Transaction Value’ regime !!!

  17. THANKS A TON mail@swamyassociates.com

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