2010 (8) TMI 49 - AT - Central Excise

Dealer pre-delivery inspection and free service charges held includible in transaction value under Section 4 Central Excise Act

CESTAT held that charges collected by dealers from car buyers towards pre-delivery inspection and three free after-sale services are includible in the ... Valuation - concept of 'transaction value' for the purpose of assessment in place of earlier concept of 'normal wholesale price' - Whether the charges towards pre-delivery inspection (PDI) and after-sale-service by dealers from buyers of the cars are to be included in the assessable value of cars in the light of the definition of 'transaction value' given in Section 4(3) (d) of the Central Excise Act, 1944? - manufacturers of various types of motor vehicles classifiable under Chapter 87 of the Central Excise Act, 1985 - chargeable to duty on ad valorem basis - HELD THAT:- It was the case of the department that while selling the vehicles to the customers after they are made available to the dealers, the dealers add their own margin known as the dealer's margin to the price at which the vehicles were made available to them by the appellants and the difference between sale price at which the vehicles are sold to the customers and the original amount paid by the dealers to the appellants, i.e. dealer's margin contained provision for rendering pre-delivery inspection and three after sale services. Taking into consideration the concept of 'transaction value' under new Section 4 of the said Act, w.e.f. 1st July, 2000, which provided that whatever is recovered from the buyer by reason of or in connection with sale, whether payable at time of sale or any other time, directly or indirectly, to the manufacturer or paid on behalf of the manufacturer to the dealer including the charges for servicing and warranty, was to be included in the transaction value and considering the same for the relevant period, three show cause notices came to be issued, requiring the appellants to show cause against their liability to pay the duty along with interest and penalty. The relevant period is from May, 2005 to August, 2007. The expression 'transaction value' is the guiding principle in the process of ascertaining the assessable value of a product. The sale price, being paid or payable as the sole consideration, forms the base for the transaction value. Depending upon the fact situation relating to all the factors mentioned in said section 4 of the said Act, including the agreement and the arrangement arrived at between the manufacturer and the dealer or the agent in respect of sale of the product to the buyers, and the terms and the conditions thereof, the transaction value arrived at would lead to the quantification of the assessable value of the product, which in turn will determine the duty liability of the manufacturer. In the scheme of the said Act, therefore, the concept of transaction value relates to the manufacturing cost inclusive of any other amount received or receivable directly or indirectly to make the product marketable. The manufacturing of a product and the marketability thereof are inbuilt elements of the scheme of assessable value under Section 4 of the said Act. In Yamaha Motors India Pvt. Ltd. [2008 (4) TMI 258 - CESTAT NEW DELHI], the Tribunal by merely referring to earlier decisions of the Tribunal in the matter of North East Gases Pvt. Ltd. [1997 (12) TMI 396 - CEGAT, CALCUTTA], Philips India Ltd.[1997 (2) TMI 120 - SUPREME COURT], Collector of Central Excise vs. Mahindra & Mahindra Ltd.[1999 (3) TMI 634 - SC ORDER], and Maruti Udyog Ltd. [2004 (4) TMI 159 - CESTAT, NEW DELHI] as well as the appellate order [2006 (7) TMI 676 - SC ORDER], held that the settled legal position is that free after-sale service provided by the dealers to the ultimate buyers for which they are reimbursed by the assessee is not a consideration flowing from dealers to the assessee, and therefore, could not be included in the assessable value. The finding is squarely based upon the decision in the appellants' own case referred to above. Surprisingly the Tribunal therein has observed that the judgment in the appellants' own case was upheld by the Supreme Court in the order reported in [2006 (7) TMI 676 - SC ORDER]. We have already quoted above the order of the Apex Court which clearly discloses that the appeal was dismissed, not on merits, but only on the ground that there was inordinate delay in filing the appeal. Such an order cannot be construed as amounting to upholding the decision of the Tribunal. The point for consideration is to be answered in affirmative in above terms and is accordingly answered. ISSUES PRESENTED AND CONSIDERED 1. Whether charges collected by dealers from buyers for pre-delivery inspection (PDI) and free/after-sale services are includible in the assessable value of motor vehicles under the definition of 'transaction value' in Section 4(3)(d) of the Central Excise Act (post-amendment w.e.f. 01.07.2002). 2. Whether a prior Tribunal decision rendered on admitted facts in a related matter and an appellate dismissal for delay operate as binding precedent barring re-examination of the valuation issue under the amended statutory scheme. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Inclusion of PDI and after-sale service charges in transaction value Legal framework: Section 4(1)(a) (valuation by transaction value) read with the definition of 'transaction value' in Section 4(3)(d) (as amended w.e.f. 01.07.2002) - which defines transaction value as the price actually paid or payable and 'includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale ... including ... servicing, warranty, commission ...', but excludes certain taxes. Precedent treatment (followed/distinguished/overruled): Earlier decisions rendered under the pre-amendment regime or decided on specific factual findings (e.g., where no amount flowed to the manufacturer) were examined and distinguished on the basis that they pre-date or do not address the widened scope of 'transaction value'. Decisions based solely on fact findings that nothing flowed to the manufacturer were treated as not addressing the statutory change and therefore inapposite. No earlier authority was treated as overruling the amended definition. Interpretation and reasoning: The Court adopts a purposive and expansive interpretation of 'transaction value'. The definition's use of 'means', 'includes', 'including but not limited to', and repeated use of 'any amount' demonstrates legislative intent to capture comprehensively all amounts for which the buyer is liable by reason of or in connection with the sale. The crucial legal test is liability of the buyer to pay an amount by reason of or in connection with the sale - not strict direct monetary flow back to the manufacturer. Where a buyer pays the dealer PDI/service charges under an arrangement or contract between manufacturer and dealer, such payments amount to consideration paid 'on behalf of' or 'in connection with' the sale and therefore fall within transaction value. The Court rejects a narrow 'flow back' doctrine that would confine assessable value to amounts directly remitted to the manufacturer; such a narrow view would undermine the enlarged scope intended by the 2002 amendment. The terms of sale are treated as encompassing post-sale obligations determinative of the total consideration for the transaction; deferred and future considerations integrally connected with sale contribute to assessable value. Ratio vs. Obiter: Ratio - the amended definition of 'transaction value' extends assessable value to include amounts the buyer is liable to pay to, or on behalf of, the manufacturer by reason of or in connection with the sale (including PDI and after-sale service charges collected by dealers pursuant to arrangements with the manufacturer), irrespective of direct flow back to the manufacturer. Obiter - observations distinguishing specific earlier fact-based authorities and commentary on income-tax consequences of dealer profit were ancillary and not essential to the holding. Conclusions: Charges collected by dealers from buyers for PDI and free/after-sale services, where such charges are payable by reason of or in connection with the sale (including payments made to dealers pursuant to arrangements with the manufacturer), are includible in the transaction value and thus form part of the assessable value for excise duty under the amended Section 4(3)(d). Issue 2 - Preclusive effect of earlier Tribunal decision and appellate dismissal for delay Legal framework: Principles concerning precedential effect - distinction between decisions based on law and those decided on admitted facts; effect of appellate dismissal for procedural reasons; general rules of statutory interpretation and finality of adjudication. Precedent treatment (followed/distinguished/overruled): The earlier Tribunal decision in a related matter was examined and treated as binding only to the extent it decided legal questions on the merits. Where that decision turned on admitted facts (specifically that nothing flowed to the manufacturer), it was not treated as deciding the broader legal question under the amended statutory definition. The appellate dismissal for delay was held not to be a decision on merits and therefore not to constitute affirmation of the Tribunal's reasoning on the substantive legal issue. Interpretation and reasoning: The Court distinguishes fact-specific findings from general legal rulings: an order resolving a dispute because, on the admitted facts, no amount flowed to the manufacturer does not determine the legal scope of the amended definition in other factual matrices. Dismissal of an appeal for inordinate delay does not amount to judicial affirmation of the lower court's legal conclusions. Therefore, the department is not precluded from re-opening valuation for periods post-amendment and assessing amounts now captured by the broader statutory definition. Ratio vs. Obiter: Ratio - a prior adjudication based on admitted facts cannot be read as a binding determination of a broader statutory construction issue; procedural dismissal of an appeal is not a substantive affirmation of the lower decision. Obiter - discussion of specific prior orders in other fora and interim orders being prima facie views were explanatory. Conclusions: The earlier Tribunal decision decided on admitted facts and the appellate dismissal for delay do not preclude re-examination and fresh assessment under the amended Section 4(3)(d). The department may lawfully seek to include PDI and after-sale service charges in assessable value where the statutory tests under the amended definition are met. Cross-references and final legal point The Court emphasizes that the statutory definition is inclusive and expansive; interpretation clauses using 'includes' and 'any' should be construed widely to effect legislative intent. Exclusions enumerated in the statute are exhaustive; absent an exclusion no further items fall outside the defined transaction value. Consequently, where the arrangement between manufacturer and dealer makes post-sale charges part of the buyer's liability by reason of or in connection with sale, those charges are assessable irrespective of whether the manufacturer receives them directly.