Vehicles likely to cost more

The finance ministry has decided to levy excise on automobile components sold in the retail market on the maximum retail price against the present system of charging it on the factory price - a move that may push up the cost of owning vehicles.

While the government intended to make the new MRP-based system effective from today, industry body Automotive Component Manufacturers' Association has sought time for working out the abatement that will be allowed before calculating excise duty.

The move has not taken the component industry by surprise since Budget 2006-07 had indicated a shift towards maximum retail price-based excise levy on several products.

However, members of the Federation of Automobile Dealers Association are concerned over this development since price-labelling done at the dealers' network level will be construed as manufacturing and hence attract duty.

FADA members in Mumbai are meeting on Tuesday to discuss the issue. The quantum of increase in the "cost of ownership" of vehicles is still unclear and will, to a large extent, depend on the rate of abatement the government is willing to give on MRP.

Under Section 4A of the Central Excise Act, 1944, the government is required to prescribe abatement from the retail sale price to arrive at the assessable value for levy of excise.

For example, although an automobile part sold in the retail market may carry an MRP tag of Rs 100, the actual realisation may be around Rs 60, due to the discount structure and credit policy prevailing. Hence, the duty will be levied on the "actual MRP" of Rs 60 and not on the price tag of Rs 100.

"We are not against the levy of excise duty on MRP. We have, however, sought time from the government to collect data on the pricing structure prevalent in the market, so that we arrive at a reasonable abatement rate," said Vishnu Mathur, executive director, ACMA.

Component manufacturers said the price of components sold in the retail market will increase following the move, making the cost of maintaining vehicles higher.

The present size of the Indian automobile component industry is estimated at $8.7 billion, of which the domestic retail market constitutes around 25 per cent.

Components supplied directly to vehicle manufacturers will continue to be under the existing regime of factory-cost based levy, and will allow vehicle manufacturers to claim Modvat on parts for which excise duty has already been paid.