The Union Finance Ministry has clarified that it will announce a decision on how excise duty will be levied on goods that are sold below their cost of production.

The clarification was necessitated after the Supreme Court directed Fiat India last year to pay excise duty not on the basis of the selling prices of automobiles but their cost of production, plus a notional mark-up. This is because the selling price was lower than the production cost. The ruling has affected those automakers and fast-moving consumer goods producers that sell goods below the cost of production in order to capture market share.

In an official release issued here on Tuesday, the Finance Ministry said that the government plans to issue a circular by next month, specifying how excise duty will be levied on goods that are sold below their cost of production.

This decision was recommended by a forum headed by Parthasarthy Shome, adviser to the Union Finance Minister P. Chidambaram. The forum was set up in set up in July to obtain views from industry representatives on tax issues.

The release further said that in accordance with the recommendations of this forum the Finance Ministry also plans to address the issue of double taxation on reinsurance agents. It was raised at the forum that the levy of service tax on the brokerage paid by foreign reinsurers to Indian reinsurance agents for placement of reinsurance business with them was resulting in double-taxation. This is because “service tax was paid on composite amount including reinsurance premium and brokerage paid to the broker as well as separately charged on the brokerage,” the release said. “Department will seek inputs from the insurance industry to ascertain whether there is double taxation of the brokerage paid to reinsurance agents, and issue circular, if necessary, for mitigation of double taxation, if any,” it said. The release also made some clarifications on CENVAT rules.

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