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-   -   KA cracks down on luxury cars for under-invoicing (https://www.team-bhp.com/forum/indian-car-scene/209276-ka-cracks-down-luxury-cars-under-invoicing.html)

According to a media report, the Karnataka transport department is asking vehicle dealers to register cars at ex-showroom prices. The move has particularly hit the luxury car segment where large discounts are frequently passed on to the customers.

Car dealers of luxury and high-end automobiles are now reluctant to register such cars. It has been reported that the transport department has decided to take action against dealers who under invoice cars at the time of registration. The authorities have argued that discounted luxury vehicles are causing a loss in revenue. In terms of tax collection, the transport revenue ranks 4th after commercial taxes, stamps & registration and excise departments. It has been reported that registrations of luxury cars have gone down after this move.

Last year, the Telangana High Court ruled that lifetime tax (LTT) on vehicles can only be levied on its invoice price and not its ex-showroom. This is not the first time the Karnataka transport department has been in the news. In Sept 2017, the Supreme Court had asked them to refund the tax collected after passing the 30-day rule that required out of state cars to pay LTT if the cars remained in the state for more than 30 days. The Central Motor Vehicles act allows a 12-month period to register a vehicle in another state.



Source: Economic Times

Link to the Team-BHP News

Unfortunately, the successive Karnataka governments have focused only on squeezing the tax payer without bothering about legality or reasonableness of their decisions. We have the highest Road tax, had the highest VAT rate prior to GST and few arbitrary rules when it comes to property registrations.

I really don't see this as wrong. I agree that the taxes should be on the ex-showroom irrespective of what discount.

For eg. I buy a BMW X1. ex-showroom price is say 40L. I work with dealer and he gives me on paper discount of 10L and I pay tax on 30L and pay the dealer 5L in cash.
This will encourage black money transaction and people will have another way to dispose of their cash.

I, on another note turn out to say, "What is happening with the taxes paid like this?" topping already good roads to make it worse!
Give a dime about other roads which needs mending.

when do we start checking the "Value for money" in taxes we pay?
And for revenue losses? to whom?

It’s a wrong title by ET, to sensationalize and get some clicks/ readership. No one is doing any under invoicing. It’s Discounting. If MRP of any article is Rs 100, no one stops dealers to invoice at 100 minus whatever amount they can afford from their margins. It’s a known fact, most premium manufacturers keep MRP high and later depending on demand/ age of the variant, discounts kick in. It happens in every trade. No authorities can stop dealers or manufacturer passing discounts on the MRP. This appears to be a wrong move by state authorities. They cannot force dealers to raise invoice at full rates and issue credit notes and take less money from customers.

I recently heard about this thing from budget segment as well. HONDA dealers apparently did something similar for HONDA City registrations. Apparently for V MT models they reduced the ex-showroom to under 10L which in turn reduced the tax liability by a considerable margin. Tax structure here in Bangalore has extra taxes(TCS et al) for cars above 10L ex-showroom. This move led to solid discounts in range of 1.3-1.5L bringing it almost at Jazz VX CVT levels :Shockked:

Got to know this while talking to multiple Honda dealers before buying the Jazz. If not for an AT requirement, I might as well would have gone for this.stupid:

I believe on transactions greater than Rs 50,000, the dealer is obliged to note your PAN no for any disclosure to the authorities. Cash in black + under voicing is a sure shot jail term (if caught), thus a huge liability for the dealer, I doubt dealers these days risk it. Used to happen pre demonisation & GST days, now hardly anymore. Dealers have become very careful these days, more so those of the repute of BMW.

I don't get how K'taka govt thinks it's over the law & frame rules as per its whims. Sure, it wants to regulate vehicular population, but there are legal ways & means to get that done (eg more incentives to used cars, de registration of any private veh older than 15 yrs etc).

Only a matter of time before this gets kicked out by the judiciary either through a PIL or suo moto. Net net, buyers will be paying it now through the dealer to the RTO only to get it back after a couple of years when the matter resolves itself.

Hope they sort this out before the April 2020 rush when BS-VI vehicles hit the roads!

Even if you pay the whole amount in cash, the dealer will invoice it at the amount you have paid. This rule is clearly against the law.
This is similar to the excise system where taxing is done before the product leaves the factory. For example if a bottle of beer is Rs. 100/- and Tax is 20%, The Govt will collect it's tax as each beer is bottled. The factory will price the bottle at MRP of Rs. 120/-. However if the factory, distributor or dealer decides to sell at 50% discount, the govt still gets Rs20/-.
But for car or any other product, the tax should be at selling price.

Hope you realise that TCS is *not* an extra tax. You can claim credit for it when filing your tax returns (provided the dealer has honestly remitted the amount charged to the IT Dept, which *you* should ensure by demanding a proof of it before you drive out with your car, in which case it'll reflect in your form 26AS and that enables you to claim tax credit)

And BTW, this is nationwide IIRC, not just in Blore.

When we buy regular cars, we are asked to pay tax at ex-showroom price. Any discounts are on the total price. So why are the luxury cars getting special treatment ?

I think what he meant is in addition to TCS road tax also changes moment ex-showroom price cross 10 Lakhs in Karnataka (17% against 14%). All other price components are also increased accordingly. Between 9.99 and 10.01L ex-showroom, there will be a difference of minimum 50K on OTR price.

+1 :thumbs up

All vehicles are not identical albeit same model same variant. As you rightly pointed depending on demand, age of variant and also the manufacturing date, minor logistic damages, local competition, monthly targets etc., the dealers should have some room for discounts. We need to consider that a dealer spends good chuck of money on unsold inventory. Every passing day is added cost. They need breather to cough up and free some space.

On the other hand, if a customer and a dealer are under-invoicing willfully with intention to avoid taxes (a black transaction for the remaining), it has to be tried legally for forgery / tax evasion.

On a side note, road tax is in fact tax on tax because the Ex-showroom is already loaded with GST.

Yeah am well aware TCS and the IT return part. However compared to rest of country here the taxes are a little higher for cars above 10L . Thought that was a well known fact as well. Never the less the point in the post was about how the dealers worked around that rule(to get ex-showroom under 10L) and managed substantial discount without actually taking a hit themselves. Cheers :)

I recently bought a Honda City and I was given discount on total price. When i looked closely the road tax was paid on discounted invoice price. Thus the showroom pocketed savings from road tax or other way to look is that they gave me fair discount considering road tax and TCS savings.

Legally the tax should be on invoice price. Govt has no right to ask road tax on ex-showroom price.

~m