9911796707
TMI Blog1987 (11) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... them. 2. The appellants manufacture Refrigerators. They market them through their four exclusive wholesale dealers, namely, M/s. Gem, M/s. Leonard, M/s. Expo Machinery and M/s. Tropicana. The appellants give one year's warranty for the complete Refrigerator and all parts thereof (except the light bulb and the crisper glass). During this warranty period, they provide free repair and replacement for defects in material and workmanship under normal use and service. This free service is available only within the municipal limits of the area served by an office of the wholesale dealer or his authorised dealer from whom the Refrigerator has been originally purchased. The appellants include the cost of this one year warranty in their sale price a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and when the dealer anticipated further demand from his customers. 3. The point of dispute before us is whether the four year service contract charge is includible in the value of the Refrigerator for the purpose of assessment of central excise duty under Section 4 of the Central Excises and Salt Act, 1944. The lower authorities have held that for all intents and purposes this charge was not optional as it was not exercised only in respect of about 9% of the sales. The lower authorities have relied on the Supreme Court judgment in the case of Bombay Tyres International Limited (1983 E.L.T. 1896 SC) in which, according to them, it was laid down that after-sale-service charges could not be deducted from the assessable value. On these ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors in the country - M/s. Allwyn and M/s. Godrej & Boyce, that in the case of M/s. Allwyn, the Collector, by his order dated 7-1-1977, had dropped the proceedings for inclusion of optional service contract charge in the assessable value, that in the case of M/s. Godrej & Boyce the Appellate Collector had allowed, by his order dated 28-10-1980, exclusion of optional service contract charges, that both these orders of the Collector and the Appellate Collector were allowed by the Department to become final as no appeal or revision had been initiated by the Department against them and that because of later developments the matter relating to M/s. Godrej & Boyce was now pending before the Bombay High Court. 4. We have given the matter our earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket, the nature of the appliance, its life period and consumer expectancy. The manufacturer has to incur some costs on providing free repairs and replacements during the warranty period. If he could sell his products reasonably well by providing one year's free warranty, he would obviously not like to increase his costs by providing a longer free warranty. But the appliance may have much longer average life. It would need repairs and replacements even after the initial warranty period, perhaps more so as the appliance becomes older. Some manufacturers may choose to provide after-sale-service even during post-warranty period on payment basis. So long as the buyer has a choice whether to opt for the post-warranty service contract or not, it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised was in thousands, ranging from over 18,000 to over 39,000 per year. We find no force in the department's pleading that the service charge, for all intents and purposes, was a compulsory one. As to what machinery the appellants devised for extending this service is not material. If any customer did not like to have the service, there was no compulsion on him to go in for it. That is the important thing. 6. Once we reach the conclusion that the post-warranty service activity could not be subjected to excise, it ceases to be material that 91% of the customers had opted for the service contract. The ordinary or normal price referred to in Section 4(l)(a) can take in the costs upto the stage of factory gate and not beyond as held by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self. The appellants claimed that their service charge compared favourably with what the other repairers in the market charged. This was not controverted by the department. 10. The appellants made certain other pleas also before us, such as - (1) they were entitled to the benefit of the principle of promissory estoppel because "pending final decision" the Collector decided on 4-4-1981 to exclude the service charge from the value, the Asstt. Collector thereafter approved most of their price-lists finally without service charge and for that reason the appellants had not collected excise duty on the service charge from their customers; (2) the assessments which the department called provisional were in fact not so because no. B13 Bond had b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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