The Customs, Excise and Service Tax Appellate Tribunal rejected the contention of the Excise department, which alleged the company of evading duty by not declaring 'true and correct' value of the motor cycles and also of charging Rs 500 as the booking price not included in its declared price.
Criticising the Excise department for harassing the auto manufacturer by undue tax demands the CESTAT said, "This brings out how revenue's case can be based on a mere presumption."
Hero Honda a joint venture between the Japan-based Honda Motors and Munjal's Hero Motors has commenced its production in 1985 by setting up a plant in Haryana. HHML was paying Excise taxes based on the 'advolerem' basis.
It had filed the price list of its different models to the Central Excise authorities and was paying taxes on that declared price. After paying the tax, HHML moved the motorcycle from its premise. It was also updating the department on the declared price from time to time.
In July 1991 the excise authorities issued notices to the HHML and alleged that it had not declared the 'true and correct' value of the motor cycles and has evaded the duty for the period of 1985 to 1991. The authorities alleged that HHML was charging Rs 500 as the booking price for its motorcycle, which was not included in its declared price.
The department further alleged that HHML was using this amount as 'working capital of the company, which is going to increase its asset. It also invested that amount in deposits and securities. The tax authorities also imposed penalty of Rs 50 lakh on the company along with duty demand.
Aggrieved HHML knocked the tribunal along with the Supreme Court. The apex court remanded the issue to the CESTAT and directed the tribunal to look into the accounts of the company with the help of a cost accountant.
HHML contended that Rs 500 for the booking was not a factor in pricing of the motor cycles. Its prices were completely market-determined. It also sold motor cycles to the person who has not deposited the booking amount at the same price.
The tribunal also observed the report submitted by the Cost Accountant which said, "Surplus money from advances appears to have been used in the working of the company but not necessarily entirely in the working capital of the company".
The tribunal also assessed the profit margin (on per unit of motor cycle) between 1985 to 1991 and found that out of the six years it made loss in three years. It suffered a loss of Rs 458 per unit in 1986-87, Rs 771 in 1988-89 and Rs 183 in 1989-90.
Opposing it the Excise department contended it was an nexus between the selling price and the booking amount and there was evidence on record supporting that the losses suffered by HHML were met out of income on investments and savings.
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