TaxTMI 
TaxTMI 
2015 (12) TMI 874
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....ord of Civil Appeal Nos. 5155-5156/2007 wherein M/s. TVS Motors Company Ltd. (hereinafter referred to as the 'assessee') is the respondent. The assessee is holding central excise registration for the manufacturing and clearing two wheeled motor vehicles classified under Chapter Sub-Heading 8711.20 and 8711.10 of the Central Excise Tariff Act, 1985. The assessee sells their goods directly to the customers through sales depots spread throughout the country. The assessee had requested for provisional assessment with respect to the depot sales as they could not determine the normal transaction value at the time of clearance at factory gate in respect of such depot clearance. The provisional assessment was finalized for the period from 01.07.2001 to 31.03.2002 and 01.04.2002 to 31.03.2003 vide Order-in-Original No. 47 of 2004 dated 19.07.2004 and 44/2005 dated 04.05.2005. The above said Order-in-Original's included PDI charges and free ASS charges in the assessable value. The reason for doing so by the Adjudicating Authority was Circular No. 643/34/2002 dated 01.07.2002 wherein it has clarified the same to be included in the assessable value. The assessee filed an appeal ....
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....ction 4(3)(d) of the Act. However, in order to comprehensively answer the issue, it would be necessary to traverse through the unamended provision which prevailed before the amendment in Section 4 by the Finance Act of 2000 and to then determine as to whether amended provision has resulted in altering the provision in the context of the issue raised in these appeals. 5. The counsel for the parties on either side were ad idem that PDI and ASS undertaken by Dealers and expenditure incurred by them which is not recovered or charged by the assessee from the dealers is not to be included for the purposes of excise duty. The position that the agreement between manufacturer and dealer requires dealer to undertake these activities does not affect this position. Firstly, these are legitimated usual dealer activities in the automobile industries throughout the world including India. Thus, incurring of these items of expenditure by dealer in usual business practice is not an unusual or ex-bonding/peculiar position. This was so settled, way back in the year 1938 by the Privy Council in Ford Motor India Ltd. v. Secretary of State AIR 1938 PC 15 = 1978 (2) ELT (J 265) (PC), in the case of car....
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....before the Privy Council, who imported Ford Motor vehicles from Canada to India, where they had a monopoly of the supply of those vehicles, sold them only to authorised dealers or distributors, each of whom was sole agent for a retail seller of the vehicles in a particular district. The appellants obtained from the distributors information as to their future requirements and placed consolidated orders accordingly with the manufacturers in Canada. The retail price charged by the distributors to the public was that stated in a price list issued by the appellants and current at the time of the arrival of vehicles in India, and the price payable by the distributors to the appellants was the same price less a discount of 20 per cent. The distributors had to pay that price before obtaining delivery, which was given "free on rail". On arrival in India the vehicles were not completely assembled, and were so delivered to the distributors, an agreed allowance against the price being made by the appellants. On the question whether Section 30(a) or 30(b) of the Sea Customs Act, 1878, applied, for the purpose of finding out the real value of the goods for levy of customs duty, the Privy Council....
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.... 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. Paras 5 and 6 of this judgment are reproduced below: "5. It seems to us clear that the advertisement which the dealer was required to make at its own cost benefited in equal degree the appellant and the dealer and that for this reason the cost of such advertisement was borne half and half by the appellant and the dealer. Making a deduction out of the trade discount on this account was, therefore, uncalled for. 6. As to the after sales service that the dealer was required under the agreement to provide, it did of course enhance in the eyes of intending purchasers the value of the appellant's product, but such enhancement of value enured not only for the benefit of the appellant; it also enured for the benefit of the dealer for, by reason thereof, the dealer got to sell more and earn a larger profit. The guarantee attached to the appellant's products specified that they could be repaired during the guarantee period by the appella....
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.... be included in the assessable value of the vehicle or not. The Tribunal rejected the contention of the Department and the aforesaid decision was upheld by this Court in the judgment reported as 1999 (111) ELT A126. 10. The position in respect of unamended provision, thus, is very clear. Coming to the amendment in Section 4 of the Act, in the year 2000, it may be noted in the first instance that definition of 'transaction value' as per Section 4(3)(d) is exhaustive and covers within its purview, the price of goods and various other amounts charged by the assessee by reason of sale or in connection with sale. This provision reads as follows: "(d) "transaction value" means the price actually paid or payable for the goods, when sold, 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, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warran....
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....sable value of motor vehicle. Since these services are provided by the dealer and no separate charges for these services are paid by the manufacturer to the dealer and it is the dealer who is incurring the expenses out of the margin allowed by the manufacturer, the doubt was as to whether a portion of dealer's margin has to be included in the assessable value. The circular, thus, clarifies that going by the ratio in the case of Bombay Tyre International, ASS being part of the selling expenses will be includible in the assessable value. The Circular also clarified that subsequent judgment of this Court in M/s. Philips India Ltd. would have no bearing. As per this Circular, the said judgment is related to a case of sale of audio equipments and services are provided under a guarantee attached to the manufacturer's product that these could be repaired during the guarantee period by their dealer anywhere in the country and, therefore, was differentiated on facts. The learned senior counsel, thus, argued that the aforesaid circular amply clarifies the position and the fact situation in the present case would be covered by the judgment in Bombay Tyre International. 13. We may m....
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..... 15. The aforesaid clarification, if that was to be acted upon, may go in favour of the Department. However, it is pertinent to point out that this very clarification as given by the Board was challenged in the High Court of Bombay and in the judgment rendered by the Bombay High Court in the case of Tata Motors Ltd. v. Union of India 2012 (286) ELT 161 (Bom.), the same was struck down by making following pertinent observations: 41. In our view, the only question which fell for consideration of this Court was whether Clause 7 of Circular dated 1st July, 2002 is in excess of the provisions of Section 4(1)(a) and 4(3)(d) of said Act as amended by Section 94 of the Finance Act of 2000. In our view, the answer to this question will decide the issues as between the petitioners and the respondents. In our view, it is not necessary for us to record our views on the correctness of the judgment delivered by the larger bench in the case of Maruti Suzuki (Supra). Similarly, in our view, it is not necessary to express any view on the order-in-original dated 5th December, 2011. 42. We have considered the provisions of Section 4(1)(a) as amended as well as the provisions of ....
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.... that 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. From the record it is seen that 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. We are 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. The contention of the petitioners that the petitioners do not charge the dealer for the expenses incurred by the dealer towards PDI and said services is required to be accepted. From the record it is clear that the case of the petitioners so far as the amount incurred by the dealer towards PDI and said services does no....
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....ny amount equivalent to the cost incurred towards PDI and free after sales services. 44. It has been the contention of the respondents that the petitioners provide warranty in regard to the car which is sold by the dealer to the customer. According to the respondents the customer can avail of the benefit of this warranty, provided PDI is carried out in respect of the car and the customer avails of the benefit of said services. According to the respondents the warranty given by the petitioners is linked with expenses incurred towards PDI and said services and that is how the expenses incurred for PDI and said services become a part of the transaction value. We are not inclined to accept this contention. It is true that the Owner's Manual specifically indicates that if the PDI and said services are not availed of, then the customer would not be able to claim the benefit of the warranty. This will go to show that the petitioners undertake responsibilities so far as the warranty aspect is concerned provided the customer takes the benefit of PDI and said services. It has no bearing on the assessable value as it is abundantly clear that to perform PDI as well as render said ....
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....istant Controller of Central Excise and Ors. reported in 1978 (2) E.L.T. (J 444) S.C. that the price which is relevant for the purpose of Excise duty was the price when the good first entered in the stream of trade is required to be accepted. In the present case, when the petitioners sell the car to the dealer, the goods enter the stream of trade for the first time and, therefore, the amount at which the car is sold to the dealer would be the assessable value on which the Excise duty would be payable. In the present case, the expenses incurred by the dealer for PDI and said services has nothing to do with the term "servicing" mentioned in the transaction value and as such, the said expenses cannot be added to assessable value. 45. On consideration of the Clause 7 of Circular dated 1st July, 2000, it is apparent that the respondents have brought into existence a deeming provision that is to say the respondents have treated all the manufacturers of cars on one platform and by fiction taken a decision to add the expenses incurred towards PDI and said services in the assessable value. It will have to be mentioned that in all cases where the expenses incurred towards PDI and sa....
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....ertising or publicity, etc. mentioned in the definition of transaction value are includable in the computation of 'value' under the existing section. 4. As such, the definition of transaction value does not seem to be divergently wider in content and scope from the interpretation of 'value' under existing Section 4. The definition of 'transaction value' should help set at rest any doubt regarding amounts that are charged or recovered from the buyer in respect of specific kind of operations done by the assessees. In essence, whatever is recovered from the buyer by reason of, or in connection with the sale, whether payable at the time of sale or at any other time is included in the transaction value. ... (emphasis supplied)" 18. This very position is reiterated by the Board in its circular Letter F. No. 354/81/2000-TRU dated 30.06.2000 which gives clause by clause explanation of the Section. Relevant extract from the same is reproduced herewith as under: "6. ...It may also be noted that where the assessee charges an amount as price for his goods, the amount so charged and paid or payable for the goods will form the assessable valu....