2013 (2) TMI 281 - AT - Central Excise

Free after-sale services not part of transaction value

The appeal was dismissed, affirming that free after-sale services provided by the dealer to the customer are not includable in the transaction value as ... Valuation - Free after sale service provided by the dealer to the customer - whether includable in the transaction value as additional consideration to the manufacturer from the dealer? - Held that:- As decided in M/s Tata Motors Ltd. vs. Union of India [2012 (9) TMI 244 - BOMBAY HIGH COURT] Section 4(3)(d) of the Central Excise Act, 1944 the PDI and free after sales services charges can be included in the transaction value only when they are charged by the assessee to the buyer - as and when the car is removed out of the factory of the petitioners, Excise duty was payable. The assessable value was to be determined as per the provisions of Section 4(1)(a) as amended as the petitioners and the dealers were not related to each other and the price was the sole consideration. In such a case, the value to be taken up for the purposes of Excise duty was the transaction value. As after a car is sold to a dealer on the terms and conditions entered into mentioned in the dealer’s agreement, a dealer is required to carry out Pre Delivery Inspection as well as said services in regard to a car which is sold to a customer. A dealer is required to pay an amount to the petitioners towards the cost of the car and a dealer cannot charge more than the amount specified by the petitioners. The difference between the price so fixed by the petitioners and the price paid by the dealer constitutes what is called as dealer’s margin. A dealer has to spend money to conduct PDI as well as render said services. Thus inclined to accept the stand of the petitioners that the dealer is required to perform PDI as well as said services as a part of the dealer’s responsibility cast on him as per the dealership agreement. Thus in all cases where the expenses incurred towards PDI and said services are solely borne by the dealer and the manufacturer like petitioners have nothing to do with the said expenses then adding those expenses in the assessable value would be contrary to the provisions of Section 4(1)(a) r/w Section 4(3)(d) of the said Act. Looking to the facts and circumstances of this case, the respondents have not been able to place on record any material to show that the amount incurred towards PDI and said services can fall within the definition of the transaction value - thus as per Section 4(3)(d) of the Central Excise Act, 1944 the PDI and free after sales services charges can be included in the transaction value only when they are charged by the assessee to the buyer - in favour of assessee. Issues Involved:1. Whether free after-sale services provided by the dealer to the customer are includable in the transaction value as additional consideration to the manufacturer from the dealer.Detailed Analysis:Issue 1: Inclusion of Free After-Sale Services in Transaction ValueThe primary issue in this appeal is whether the free after-sale services provided by the dealer to the customer should be included in the transaction value as additional consideration to the manufacturer from the dealer.1. Reference to Previous Judgment:- The respondent's counsel referred to the judgment of the Hon'ble High Court of Bombay in writ-petition No. 2744/2012 titled M/s Tata Motors Ltd. vs. Union of India and others, dated 7th September 2012. This judgment was cited to argue that the issue is no longer res-integra, as it has been settled by the Bombay High Court.2. Observations and Conclusions from the Bombay High Court Judgment:- The Bombay High Court, after considering various provisions of the Central Excise Act and Board Circulars, concluded that PDI (Pre-Delivery Inspection) and free after-sale services charges are not includable in the transaction value unless charged by the assessee to the buyer.- The court noted that the definition of 'transaction value' under Section 4(3)(d) of the Central Excise Act includes the price actually paid or payable by the buyer, and additional amounts that the buyer is liable to pay in connection with the sale. However, it clarified that expenses incurred by the dealer for PDI and after-sale services do not fall under this definition if they are not charged by the manufacturer to the dealer.- The court emphasized that the dealer performs PDI and after-sale services as part of their responsibility under the dealership agreement and not on behalf of the manufacturer. Therefore, these expenses cannot be considered as part of the assessable value.- The court invalidated the Circular dated 1st July 2002, which deemed that expenses incurred towards PDI and after-sale services should be included in the assessable value, as it was contrary to the provisions of Section 4(1)(a) read with Section 4(3)(d) of the Central Excise Act.3. Application to the Present Case:- The department's representative conceded that the Bombay High Court's judgment is applicable to the present case and there is no distinguishing factor in the factual issue involved.- Following the Bombay High Court's judgment, the Tribunal found no merit in the appeal and dismissed it, affirming that free after-sale services provided by the dealer are not includable in the transaction value unless charged by the manufacturer to the dealer.Conclusion:The appeal was dismissed, reaffirming that free after-sale services provided by the dealer to the customer are not includable in the transaction value as additional consideration to the manufacturer from the dealer, in line with the Bombay High Court's judgment in the case of M/s Tata Motors Ltd. vs. Union of India and others.