MUMBAI: Indian tax officials have opened up a new front in their battle to increase revenue collected from companies, targeting manufacturing firms that slash prices below cost in order to sell slow-moving inventory.
Car makers in particular, mostly multinationals, are in the spotlight, several tax officials and industry executives said.
Authorities are investigating whether the local units of General Motors Co., Suzuki Motor Corp, Honda Motor Co, Ford Motor Co and Daimler's Mercedes-Benz sold cars at a loss, thereby paying lower excise duty.
Excise duty is due on almost all goods manufactured in India and is levied on the assessed value -- usually the price at which the item is sold.
General Motors and Ford said they were cooperating with the tax authorities. Mercedes-Benz and the Indian subsidiaries of Honda and Suzuki declined to comment.
While no tax demand has been made yet against any of the car companies as part of the latest enforcement push, the probe is likely soon to be widened to sectors including makers of consumer goods and computers, four tax officials said.
The crackdown follows a spate of high-profile tax enforcement actions against global companies in India including Royal Dutch Shell Plc, Vodafone Group Plc and Nokia Oyj that has dented corporate sentiment.
India is scrambling to raise revenue to close a budget gap and avoid becoming the first of the so-called "BRIC" big emerging economies to have its credit rating cut to junk.
India's position is based on a Supreme Court ruling last year in favour of the tax office, which sought higher taxes on cars sold by Italy's Fiat more than a decade earlier.
INTERNATIONAL PRACTICE
Tax consultants say India's stance that tax should be levied at the "normal" value even if a manufacturer sells at a loss goes against international practice, under which excise taxes are levied on the transaction value.
Car industry officials worry that it is a potentially costly distraction for an embattled auto sector and will do further damage to the country's image as a place to do business.
"These are things that create a lot of confusion in the minds of manufacturers and we are looked at in a very negative manner because most of these companies are international," said Sugato Sen, deputy director general of the Society of Indian Automobile Manufacturers (SIAM).
Tax department officials, who declined to be identified because they were not authorised to speak to the media about ongoing investigations, said India was being unfairly deprived of revenue when manufacturers sold their goods at a loss.
"Whatever price you want to sell, please sell, but pay the excise duty on the normal price, whether you are into automobile, textile or something else," said a senior tax official. "Why should the department get penalised for that? It's your own choice."
India's stepped-up tax enforcement over the past year has prompted some multinationals to complain about aggressive and unpredictable tax treatment.
The focus on companies possibly selling below cost opens up a new front in the tax battle. Already, India is in numerous tax disputes with global companies over the value of intra-company transactions, known as transfer pricing.
Anglo-Dutch oil major Shell said in February it would challenge a claim its local unit underpriced shares transferred to the parent by $2.8 billion. Shell has said the claim is based on an "incorrect interpretation" of tax rules and "bad in law".
Vodafone is contesting two transfer pricing cases, but said earlier this month it was hopeful of reaching a solution over a separate $2 billion tax dispute related to its 2007 acquisition of an Indian mobile company.
Nokia said last month it would continue to fight a $380 million claim for unpaid taxes.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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