Correcting a tax anomaly, the Central Board of Excise and Customs has now clarified that excise duty will be charged on the retail price of fertilisers where government subsidy is provided, and not on the subsidy component.
“The subsidy is not linked to the buyer and it cannot be said that the subsidy given by the government to the manufacturer is a part of the consideration flowing from the buyer to the manufacturer,” the CBEC has said in instructions to field formations.
The clarification is a significant relief to fertiliser firms who are mandated to sell fertilisers at retail prices notified by the government to distributors. In return, the manufacturers are compensated by the government through a subsidy that runs into thousands of crores of rupees every year.
In FY15, the subsidy is estimated at Rs 72,970.30 crore and fertiliser sales could rise further due to the poor monsoon. But for the last few years, fertiliser companies have been receiving notices from tax authorities demanding excise duty payment on the subsidy they receive following imposition of one per cent duty on chemical fertilisers such as urea in Budget 2011-12.
“A lot of companies were facing problems and industry associations had also sent representations on the issue as field officers were sending show cause notices to these manufacturers,” said an official.
The issue was further aggravated after the 2012 Supreme Court judgment in the case of auto manufacturer Fiat, where it held that in case a company was selling products at a loss for a long period of time for commercial reasons, then it would constitute extra commercial consideration.
As a result, the company would have to pay excise duty on the production cost along with a reasonable profit margin.
The CBEC clarification has also dealt with the ruling and said that the subsidy paid by the government is in larger public interest and not for the benefit of any individual manufacturer or seller.
Source: Indian Express as tweeted by @IFFCO_PR