Transcation value below manufacturing cost and profit

[RAM SHARMA]

Dear Experts,

As per Circular No. 979/03/2014-CX. Implementation  of decision of Hon’ble Supreme Court in case of M/s Fiat India ltd. If a company manufactured different type of product then it is necessary that every product selling price should be more then cost price as per above circular.

Please advice.

Thanks

[YAGAY andSUN]

Dear Ram,

Para 2.1 of the Circular has answer to your query.  Please read it again.

Further , in paragraph 50 , the Hon’ble Supreme Court has cited two instances where a manufacturer may sell goods at a price lower than the cost of manufacture and profit and yet the declared value can be considered as normal price . These instances are when the company wants to switch over its business or where a manufacturer has goods which could not be sold within a reasonable time . The Hon’ble Court has further held that these examples are not exhaustive . Therefore , mere sale of goods below the manufacturing cost and profit cannot be taken as the sole basis for rejecting the transaction value.

Regards

Team YAGAY & SUN

[RAM SHARMA]

Dear Sir,

We have different selling price of our product for domestic and export market. We are selling our product below manufacturing cost in domestic market and make profit from export market.Overall we are making profit in our balance sheet. Are we violating valuation of transaction rule under above circular. Please advice.

Thanks

[YAGAY andSUN]

Dear Ram,

Any specific reason for selling the goods within India below the cost price? If the same goods are selling on loss within Indan market and on profit out of Indian Market without any concrete reason, then, Department may have objections in this regard.

Please also confirm whether you are selling goods to any of the related parties either for home consumption or for export.

Regards

Team YAGAY & SUN

[RAM SHARMA]

We are not selling our goods any related party. Secondly our maximum market share (90 percent ) in export market. We want increase our market in domestic market.

[YAGAY andSUN]

Dear Ram,

It means that you want to penetrate in Indian Market, therefore you are selling goods less than its cost price.  We are of the view that your company is prone to outcome of Fiat's judgment.

Regards

Team YAGAY & SUN

AI Summary

Selling Below Cost Domestically for Market Share Expansion Permissible, But Beware of Tax Scrutiny: Fiat Judgment Insight A company inquires about the implications of selling products below manufacturing cost in the domestic market while making profits through exports, referencing a Supreme Court decision and a specific circular. An expert clarifies that selling below cost is permissible under certain circumstances, such as market penetration or unsold inventory, but warns that the tax department may scrutinize such practices, especially if the goods are sold at a loss domestically without a justified reason. The company confirms its strategy to expand its domestic market share, not involving related parties, and is advised that this approach aligns with the Fiat judgment.