Honda India has been served a show-cause notice by Central Board of Excise and Customs asking them to pay an additional excise duty totaling to Rs 164 crore. This is a result of company not paying the duty on the cost of production of cars but on their final discounted sales price.
The Japanese auto giant has been offering discounts on Brio and Jazz to increase sales numbers and gain additional market share. The manufactures at times are forced to sell their cars below the tag price and at times even at loss due to low demand. The car makers need moving capital and hence at times it becomes imperative that the inventory is cleared even at prices below cost.
Some of the Indian manufacturers currently pay excise duty on the transaction cost of a car, whereas the tax authorities want the duty to be paid on the manufacturing cost plus their profit margin. The government is looking to generate revenues to limit the fiscal deficit but taxing the already burdened automobile industry does not seem to be a good option.