2015 (12) TMI 874 - SC - Central Excise

Pre-delivery inspection and after-sales service charges excluded from excise duty assessable value

The SC held that pre-delivery inspection charges and after sales service charges cannot be included in assessable value for excise duty purposes. The ... Valuation of goods - Inclusion of pre-delivery inspection charges and after sales service charges in the assessable value - definition of 'transaction value' - motor vehicle manufacturer, requested provisional assessment for depot sales due to the inability to determine the transaction value at the factory gate. Held that:- The assessee/manufacturer had agreed to share half of the advertisement expenses since advertisement benefited both the manufacturer as well as the dealer. The assessee/appellant had claimed deductions of the aforesaid expenditure which was held by the Adjudicating Authority as inadmissible. The decision was upheld in appeal before the Commissioner as well as the Tribunal. However, this Court reversed the view of the lower authorities holding that the assessee would be entitled to claim deduction from price realised from dealers on the aforesaid account after taking note of the relevant clauses of the Agreement between the parties from which it was found that the agreements were genuine entered into on arms length basis and were between principle to principle under which payments were in fact made. - where the manufacturer has sold his goods to his dealer and wholesale dealer thereafter does ASS to the customer and incurs expenditure therefore, it cannot be added back to the sale price charged by the manufacturer from the dealer for computing the assessable value. This is more so, where the ASS is done by the dealer many weeks after the goods have been sold to him by the manufacturer. Such a post-sale activity undertaken by the dealer is not relevant for the purpose of excise since the goods have already been marketed to the dealer. PDI charges and free ASS charges would not be included in the assessable value under Section 4 of the Act for the purposes of paying excise duty. The view taken by the Tribunal in favour of assessees in this behalf is correct in law and all the appeals of the Department, are dismissed. On the other hand, Larger Bench view in Maruti Suzuki [2010 (8) TMI 49 - CESTAT, NEW DELHI] does not lay down the law correctly and is, therefore, overruled - Decided in favour of Assessee. Issues Involved:1. Whether pre-delivery inspection charges (PDI) and after-sales service charges (ASS) are to be included in the assessable value for excise duty purposes.Issue-wise Detailed Analysis:1. Inclusion of PDI and ASS Charges in Assessable Value:The primary legal question addressed in the judgment is whether pre-delivery inspection charges (PDI) and after-sales service charges (ASS) should be included in the assessable value for excise duty purposes. The facts of the case are derived from Civil Appeal Nos. 5155-5156/2007, where the assessee, a motor vehicle manufacturer, requested provisional assessment for depot sales due to the inability to determine the transaction value at the factory gate. The Adjudicating Authority included PDI and ASS charges in the assessable value based on Circular No. 643/34/2002 dated 01.07.2002.The Commissioner (Appeals) disallowed the inclusion of these charges, relying on the CESTAT decision in Maruti Udyog Limited v. CCE, Delhi-III, which was upheld by the Tribunal. However, the Tribunal's decision was challenged by the Department, leading to the current appeals.2. Legal Precedents and Interpretation:The court examined previous legal precedents, including the Privy Council decision in Ford Motor India Ltd. v. Secretary of State and the Supreme Court's rulings in A.K. Roy v. Voltas Ltd., M/s. Philips India Ltd. v. CCE, Pune, and Commissioner v. Telco Ltd. These cases established that expenses incurred by dealers for PDI and ASS, which are not recovered from the manufacturer, should not be included in the assessable value.3. Definition of 'Transaction Value':The court analyzed the amended Section 4 of the Central Excise Act, 2000, which defines 'transaction value' as the price actually paid or payable for the goods, including any amount the buyer is liable to pay to or on behalf of the assessee by reason of or in connection with the sale. The court emphasized that the expression 'any amount that the buyer is liable to pay to' indicates that additional amounts paid by the buyer to the manufacturer should be included in the transaction value.4. Circulars and Clarifications:The court noted that Circular No. 355/71/97-CX dated 19.11.1997, which included ASS expenses in the assessable value, was withdrawn by Circular No. 435/1/99-CX dated 12.01.1999. The court also referred to the Bombay High Court's decision in Tata Motors Ltd. v. Union of India, which struck down Clause 7 of Circular dated 01.07.2002, stating that expenses incurred by dealers for PDI and ASS should not be included in the assessable value.5. Post-2000 Legal Position:The court highlighted that the cases pertain to the period post-2000 and that the services provided by dealers were on their behalf, not on behalf of the assessees. The court referred to Circular dated 12.05.2000, which stated that any amount recovered from the buyer by the assessee should be included in the transaction value.Conclusion:The court concluded that PDI and ASS charges should not be included in the assessable value under Section 4 of the Act for excise duty purposes. The Tribunal's decision in favor of the assessees was upheld, and the Department's appeals were dismissed. The Larger Bench view in Maruti Suzuki was overruled, and the appeals filed by the assessees were allowed.