Tribunal clarifies assessable values for tax purposes in case involving technical services for computers

The Tribunal modified the lower orders in a case concerning various charges related to technical consultancy, training, installation, warranty, service, and software supply for computers. It was clarified that charges directly connected to the manufacturing or marketability of the computers were includible in the assessable value for tax purposes, while post-removal expenses and pure service activities were not. The Assistant Collector was instructed to verify the nature of each charge and determine assessable values accordingly, ensuring no diversion of true goods price to service charges and allowing a reasonable profit margin for service activities.

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Issues Involved:
1. Technical consultancy fee
2. Installation and commissioning charges
3. Charges for training the staff of the customer
4. Warranty charges
5. Other service charges
6. Software/ROMs supply charges

Summary:

Technical Consultancy Fee:
The nature of the technical consultancy provided by the respondents was unclear. If the consultancy involved pre-manufacturing activities like research, planning, and designing, it would form part of the assessable value. However, if it was merely advice on how to use the computer in the customer's environment, it would not be taxable. The Assistant Collector was directed to verify the nature of the consultancy in each case.

Training of the Customer's Staff:
Training, whether before or after delivery, was deemed to have no nexus with the manufacture or marketability of the computer. However, any goods supplied as part of the training would be taxable on their own merits.

Installation and Commissioning Charges:
These charges were considered post-removal expenses with no nexus to the manufacturing and marketability of the computer. Therefore, their cost was not includible in the assessable value.

Warranty Charges:
Free warranty service for a reasonable period is essential for marketing costly machinery. The cost of such after-sale service during the warranty period is generally included in the sale price. If recovered separately, it would still be includible in the assessable value.

Other Service Charges:
Charges for services like post-warranty maintenance or specific on-site programming were considered post-removal expenses and not connected with the manufacture or marketability of the computers. These charges were not includible in the assessable value. However, any goods supplied in pursuance of these services would be taxable on their own merits.

Software/ROMs Supply Charges:
Software recorded on a medium (e.g., floppy, cartridge, chip) was considered goods in its own right and includible in the assessable value of the computer. If there was a single contract for the supply of hardware and software, the total value, including software, would be assessed to duty. If software was supplied separately, it would be assessed on its own merit unless exempt from duty. Pure service activities involving no goods would not attract central excise duty.

General Principles:
The judgment emphasized that excise is a tax on goods, not services. However, care must be taken to ensure no part of the true price of goods is diverted to service charges. Verification and determination of actual expenses related to includible and excludible items were the responsibility of the assessing officers. A reasonable margin of profit should be allowed for service activities.

Conclusion:
Both lower orders were modified, and the Assistant Collector was directed to determine the assessable values in accordance with the Tribunal's orders after due verification.

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