The government has 'informally announced' new excise norms that mandate that companies must pay duty on 'whatever is higher' between manufacturing cost or selling price, say top sources in the automobile industry. The new directive could have a significant impact on passenger vehicle manufacturers that have been discounting heavily to push sales in the ongoing slowdown.

"This directive is based on the recent order of the Supreme Court in the Fiat case and as such, it is already the law of the land," said a top official in the Central Board of Excise and Customs ( CBEC). "Once the Supreme Court comes out with an application, it applies immediately to everyone except in cases where there are elements of suppression, in which instance it will apply from the past. There is no need for a notification because the Supreme Court directive makes it the law," the official said.

The new norms are likely to be introduced with prospective effect and will impact automobile companies that have been offering huge discounts in an effort to move inventory during this downturn. "We have been informally informed by the finance ministry on this issue," said the president of a mass market passenger vehicle manufacturer. The new norms mandate that if the manufacturer is selling below cost, then it needs to pay excise duty on the cost of production plus a notional profit. Excise duty earlier was payable on the transaction value of a product.

Automobile industry apex body SIAM has offered the government information regarding circumstances where a company is forced to sell below cost due to a number of factors including competition from under-priced imports.