Discounts offered by Honda under purview of Indian excise authorities
The move made by Japanese auto maker Honda Cars India to offer discounts on hatchbacks such as Jazz and Brio seems to have backfired. The Central Board of Excise & Customs (CBEC) has issued a notice to the company, asking for a sum of Rs.164 crore to be paid as excise duty. The Board states that the levy was supposed to be paid as per the production cost of these cars and not on the reduced sales price. Reportedly, the reason for offering such discounts on Honda products was to gather a greater share of the Indian passenger vehicle market.
Current considerations for charging of excise duty are based on the Supreme Court judgement in the Fiat case during 2012. In that case it was ruled that if a company is in loss for a long period of time because of commercial considerations, excise duty can be paid as per manufacturing cost and a ‘reasonable’ profit margin, instead of using the selling price as the sole decider. This excise duty is an inland tax that is paid by the manufacture on sale of domestic goods, but is later recovered from the customers.
During the year 2011, Honda offered discounts of Rs. 1.60 to 1.75 lakh on premium hatchback Jazz, with an aim of uplifting its sales. Reportedly, the car was too expensive for the price sensitive Indian market. Apart from this, prices of the Brio had also been cut, but this vehicle was responsible for 43 per cent of the company’s sales in 2012-13. Unfortunately, it was here that these discounts came under the purview of the CBEC.
In the past, Honda Cars India Ltd. has faced few problems with respect to sales. During the 2012 floods in Thailand, import of critical parts was disrupted, which led to a huge decline in numbers. Hardly any versions of the Brio were sold during this time in the country. Additionally, the reluctance of Honda to manufacture diesel engines for Indian vehicles also led to a dramatic reduction in sales in the previous fiscal. However, this problem has finally been solved with the introduction of the new Amaze.
Throughout FY 2012-13, many car makers have resorted to offering heavy discounts on different models, in an attempt to boost sales. It appears that in the current market situation, the CBEC seems to be taking harsh action on the offers made by Honda. These measures could possibly be implemented at a later date when companies are in a good financial situation.