Honda's discount offers on Cars under CBEC Consideration

In a tussle to improve market share, Honda Cars India offered discounts on models such as the Brio and Jazz has run afoul of tax authorities. The Central Board of Excise & Customs (CBEC) has given a show-cause notice on the Japanese carmaker, asking to pay 164 crore more as excise duty. According to the CBEC, the levy on the cars should have been paid on their cost of production, and not on their discounted sales price.

This is the similar incident to the last year happened with Fiat, which is also selling its vehicles on heavy discounts. The Supreme Court dislodgement in the Fiat case last year, where the apex court said that if any company is selling its products at a loss for a long period because of commercial attention or under competitive pressures, then price after discount is not the sole consideration and excise duty should be paid on manufacturing cost plus a 'reasonable' profit margin. Excise duty is basically an inland tax on the sale of cars produced locally. It is paid by the manufacturer, but often passed on to the customer.

Automajors in India have provided heavy discounts and price cuts to increase their sales and market share amid tough conditions. In FY-2011-12, car sales grew by just 2.2 per cent and in last fiscal it declined for the first time in a decade as customers put off purchases in a slowing economy.

Past few years has been a challenging time for Honda in India because of the high shift in demand from petrol to diesel cars as well as the interruption in supply of car ingredients due to the 2011 tsunami in Japan, which delayed the launch of Brio and further cut-down the availability of Jazz. Now, Honda has launched its first ever diesel car 'Amaze', which is stated to be the country's most fuel efficient car. 

The company's market share in India has dropped to 2.07% in 2011-12 from 4.05% in 2007-08. However, Honda has achieved some improvement in last fiscal and ended with a 2.73 per cent market share, thanks to good sales of Brio hatch. In 2011, Honda had offered a huge discounts of Rs. 1.60-1.75 lakh on the Jazz in order to lure buyers. After sometime, the company reduced the prices of other model such as the Brio, which accounted for 43 per cent of its total sales in 2012-13. These heavy discounts have now noticed by the excise authorities of India.

A Honda spokeswoman said that the company was working closely with industry bodies that negotiate with the tax issue authorities. "As you know, this is an industry issue," she said. Auto makers have lobbied hard with the finance ministry, demanding not to increase excise duty on companies that have cut prices. During the post-budget interaction, the CII had asked the Finance Minister P Chidambaram to take into contemplation the reasons for manufacturers selling goods on discounts or less than the production cost. The excise department already set up a panel to look into the implications of the Fiat judgment.

Source : ET

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