TMI Blog2000 (5) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... d cars known as motor vehicles. Such motor vehicles are manufactured in the appellants factory at Jamshedpur in the State of Bihar, at Lucknow in the State of U.P. and at Pimpri in the State of Maharashtra. The dispute in the present appeal relates to valuation of the motor vehicles manufactured and cleared upon payment of the Central Excise duty from the appellants, Pimpri Works. The appellants sell their motor vehicles to customers through country wide network of dealers. They sell the motor vehicles to such dealers who resell the same to the ultimate customers. The dealership agreement provides for the scope of the territory under which the agreement would apply. Duty of the dealer service to be provided by the dealers to the customers. Stock to be maintained, terms of delivery payment of price, advertising and other motors. The agreement, it is claimed, provides that the relationship between the assessee and the dealers was at arms length and on principal to principal basis. The department in May, 1990 raised certain queries by its letter dated 23-5-1990 about the expenses incurred by the dealers or after sale service and advertising for the vehicles manufactured and sold by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entres as it is mentioned in clause 7 thereof. The agreement also provides for maintenance of records, stocks, limitation, security deposit, organi zational matters of the dealers, booking of orders, procedure for booking under dealers price, retail price, exclusive arrangement, price fixation, specifications warranty, trade marks advertising etc. He states that when the department query of 6th August, 1996 (Exhibit G) about after sale services it was emphasized by the assessees that in view of its large scale production and sales dealers network being not adequate to take care of increase customer needs, free sale services were provided and he emphasizes that whenever free sale services were rendered by these authorised service centres, the free service labour charges are being paid to the servicing dealer by the assessees side by side taking action to recover the said amount from the selling dealer. He states that there is no financial draw-back to the assessees. What the assessees do is where there is no service centre is provided by the dealer the labour charges are recovered from the selling dealer and paid to the serving dealer in respect of the after sale service charge. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be provided by dealers to customers, records / stocks to be maintained, terms of purchase, delivery and payment, price, use of Trade Marks, copy rights and trade names etc. The agreement also clearly brings out the fact that this agreement does not constitute the dealer selling agent of the Appellants in the assigned territory. The transaction between the Appellants and the dealers are accordingly on principal to principal basis i.e. the Appellants sell the vehicles to the dealers in wholesale and the dealers in turn resell the same to the customers in retail at their own risk and cost. The dealers profit/margin on retail sale of motor vehicles is the difference between the Maximum Retail Price (MRP) fixed by the Appellants to the dealer. This retailing profit/margin earned by dealers varies from model to model. It is not in dispute that the Department was/is fully aware of this factual position at all times and the Appellants have also provided copies of dealership agreements to the Department on several occasions. Para 7 of the Dealership Agreement provides as under : 7. The Dealer shall, in accordance with the Service Procedure prescribed or to be prescribed by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f services themselves, which would have resulted in paying the lesser price of the vehicle to that extent. This fact is once again proved considering that material cost for after sale service is reimbursed by M/s. Telco only. It appears that M/s. Telco had adopted a modus operandi by which the part of the value of vehicle represented by after sale services is being separated from assessable value by adding it in the dealer's margin. It appears that the dealer's margin constituted of two parts namely the cost to be incurred on account of free after sale services and the part representing their real margin. The part representing labour cost of after sale service is actually an expenditure incurred by dealer on behalf of M/s. Telco and thus they are under obligation to incur it, hence such part of dealers margin is nothing but a part of price changed by M/s. Telco from the dealers. If Telco would have maintained their own service centre, in that case the cost incurred for after sale service must have increased their cost of production and must have been reflected in their assessable value by way of increase in the assessable value. It is also useful to refer to what is stated in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here in the said case para 2 thereof clearly mentions the facts of the case : 2. Assessee manufactures 2/3 wheeled motor vehicle and parts thereof. Appellants sell such vehicles to dealers appointed by the appellants. The transactions with the dealers are on principal to principal basis and the appellants and dealers are not related persons within the meaning of section 4(4)(c) of the Central Excise Act. The title on the vehicle passes from the appellants to the dealers on sale thereof at the factory gate and the price is the sole consideration for the sale. The vehicles are sold at ex-factory price to the dealers and the assessable value determined under section 4(1)(a) of the Act for the purpose of payment of Excise duty. The appellants had dealings with number of dealers numbering about 325 located in different parts of India. The dealers maintain their own show room from where vehicles are sold in retail to the ultimate buyers/customers. These dealers inter alia are also required to maintain the inventory of spare parts and render after sales services and attend to their individual customers' complaints. For this purpose, the dealers employ mechanical and technical persons o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 12 as follows : In the first place the goods have been sold by the manufacturer, i.e. the assessee to the dealers. What happened to the goods i.e. post removal stage cannot be taken into consideration for the purpose of assessment. The cost incurred by the manufacturer before clearance at the factory gate which is admittedly had taken place in this case can only be included for the purpose of valuation. The Bombay Tyre International's case decided by the Supreme Court will not be applicable to the facts of this case as in that case, the court was concerned about the cost incurred by the manufacturer - (unlike in this case where it is incurred by the dealer after the sale of the clearance) - prior to the clearance of the goods and therefore, the observations of the Supreme Court have to be confined to the facts of that case. In this case also the goods have been sold i.e. after clearance. After sales services have been given it only enhances the value of the products in the eyes of the intending purchaser not only for the benefit of the assessee but also ensures for the benefit of the dealer for, the dealer got sale more at his end and gained a larger profit. This is what th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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