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Commissioner of Central Excise, Mysore Versus M/s TVS Motors Company Ltd.

2015 (12) TMI 874 - SUPREME COURT

Valuation of goods - Whether the pre-delivery inspection charges and after sales service charges are to be included in the assessable value - Held that:- The assessee/manufacturer had agreed to share half of the advertisement expenses since advertisement benefited both the manufacturer as well as the dealer. The assessee/appellant had claimed deductions of the aforesaid expenditure which was held by the Adjudicating Authority as inadmissible. The decision was upheld in appeal before the Commissi .....

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s goods to his dealer and wholesale dealer thereafter does ASS to the customer and incurs expenditure therefore, it cannot be added back to the sale price charged by the manufacturer from the dealer for computing the assessable value. This is more so, where the ASS is done by the dealer many weeks after the goods have been sold to him by the manufacturer. Such a post-sale activity undertaken by the dealer is not relevant for the purpose of excise since the goods have already been marketed to the .....

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IVIL APPEAL NOS. 5155-5156 OF 2007, CIVIL APPEAL NOS. 1763-1764 OF 2009, CIVIL APPEAL NO. 7007 OF 2011, CIVIL APPEAL NO. 7550 OF 2011, CIVIL APPEAL NO. 2204 OF 2013, CIVIL APPEAL NO. 2205 OF 2013, CIVIL APPEAL NOS. 957-959 OF 2014, CIVIL APPEAL NOS - Dated:- 15-12-2015 - A. K. Sikri And Rohinton Fali Nariman, JJ. For the Appellant : Mr. B. Krishna Prasad, Adv. Mr. M. P. Devanath, Adv. Mr. Shreekant N. Terdal, Adv For the Respondent : Mr. M. P. Devanath, Adv. Mr. Jay Kishor Singh, Adv. Mr. Arvind .....

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otors 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 t .....

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ar 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 against the above cited orders before the Commissioner (Appeals), Mangalore, who, vide Order-in-Appeal No. 227/2005 CE dated 24.10.2005, disallowed inclusion of PDI charges and free ASS charges in the assessable value by relying on the Custom Excise and Service Tax Appellate Tribunal (CESTAT) decision in the case of Maruti Udyog Limited v. CCE, Delhi-III 2004 .....

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in respect of PDI charges and ASS charges is correct, by relying upon the Tribunal's decision in the case of Maruti Udyog Limited and remanded the case to the original Authority for re-computation. We may note that the Tribunal's decision in the case of Maruti Udyog Limited was questioned by the Department before this Court vide C.A. No. D 7670 of 2006, which was rejected on the ground of delay. It is under the aforesaid circumstances the Tribunal's order is challenged by way of inst .....

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e orders passed by the Bench taking the aforesaid view. 4. Some of the essential features which needs to be pointed out are that the excise duty is payable on the 'transaction value' as per the provisions of Section 4 of the Act. The provisions of Section 4 amended in the year 2000. All these cases pertained to the period post 2000. Therefore, it is the amended provision of Section 4 which, inter alia, states that excise duty is to be paid on 'transaction value'. The definition o .....

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s 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 practi .....

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cise duty was payable on retail sale price or on wholesale cash price. In the said case, the respondent-company carried on the business of manufacturing air conditioners, water coolers and component parts thereof. It organised the sales of these articles from its head office at Bombay as also from its branch office at Calcutta, Delhi, Madras, Bangalore, Cochin and Lucknow. From these offices it effected direct sales to consumers at list prices and the sales so effected came to about 90 to 95% of .....

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respondent's case was that the list price, after deducting the discount of 22% allowed to the wholesale dealers, would constitute the wholesale cash price for determining ad valorem value. This case was accepted by the excise authorities up to the end of 1962. However, thereafter Department changed its stand by taking the position that excise duty would be assessed and levied not on the footing of the 'wholesale cash price' but on the basis of retail price. Order-in-Original was pas .....

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y of India Limited, v. Secretary of State for India in Council (AIR 1938 PC 15 : 65 IA 32 : 172 IC 771) the appellants 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 pla .....

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pletely 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 held that the price charged by the appellants to the distributors excluding the assembling allowance was the wholesale cash price, less trade discount for which the vehicles were so .....

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es in question were sold only to wholesale dealers on the basis of agreements and not to independent persons, that would not make the price for the sales anything other than the wholesale cash price . The argument that what was relevant to determine the wholesale cash price under clause (a) of Section 30 of the Sea Customs Act, 1878, was the price of goods of a like kind and quality was negatived by the Privy Council by saying that goods under assessment may, under clause (a) be considered as me .....

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lips under agreement. This agreement between the appellant and their dealers are genuine agreements entered into an arms length. The assessee/manufacturer had agreed to share half of the advertisement expenses since advertisement benefited both the manufacturer as well as the dealer. The assessee/appellant had claimed deductions of the aforesaid expenditure which was held by the Adjudicating Authority as inadmissible. The decision was upheld in appeal before the Commissioner as well as the Tribu .....

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ems 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 purc .....

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er and incur costs in that regard, he also had the benefit of having the goods he sold reparable throughout the country. The provision as to after sales service, therefore, benefited not only the appellant; it was a provision of mutual benefit to the appellant and the dealer. 7. Likewise, in the case of Commissioner v. Telco Ltd. 2001 (130) ELT A260 (S.C.), by brief order, this Court affirm the view of the Tribunal holding that when sale to independent dealers is at an arm's length, payment .....

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here the manufacturer has sold his goods to his dealer and wholesale dealer thereafter does ASS to the customer and incurs expenditure therefore, it cannot be added back to the sale price charged by the manufacturer from the dealer for computing the assessable value. This is more so, where the ASS is done by the dealer many weeks after the goods have been sold to him by the manufacturer. Such a post-sale activity undertaken by the dealer is not relevant for the purpose of excise since the goods .....

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ent expenses incurred by the dealers should be included in the assessable value of the vehicles manufactured and cleared by Mahindra and Mahindra. Incidental issue as to whether PDI conducted by dealers under the terms of agreement entered into by them with Maruti Udyog should 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 .....

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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, warranty, commission or any other matter; bu .....

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acturer, apart from the price of the goods. This is also supported by use of expression 'by reason or' or 'in connection with the sale' of the goods. The expression 'in connection with the sale of the goods' would only mean that but for the payment of the additional amount, the sale of the goods would not take place. When we keep in mind the aforesaid legal position, we find no error in the view taken by the Tribunal giving benefit to the assessee. Both the sides were in .....

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ation (Determination of price of Excisable Goods) Rules, 2000. In fact, the Order-in-Original in M/s. TVS Motors Company Ltd. or in other cases itself proceeds on that basis. 12. Mr. Radhakrishnan, learned senior counsel appearing for the Department, attacked the decision of the Tribunal by referring to the Board's circular dated 19.11.1997 and submitted that the said circular was issued by the Board after settling the law on the issue of inclusion of ASS, expenses in the assessable value in .....

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urer 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 .....

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judgment in Bombay Tyre International. 13. We may mention that the aforesaid circular was withdrawn vide another Circular dated 12.12.2002 issued by the Board taking note of the fact that the CESTAT had decided otherwise in the case of M/s. Mahindra & Mahindra Ltd. (supra), M/s. Hindustan Motors Ltd. 1998 (101) ELT 198 (T), and M/s. Escorts Tractors Ltd. 1999 (078) ECR 342 (T) and the appeals of the Department against the aforesaid decisions of CESTAT were dismissed by this Court vide order .....

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ne line order without giving any reasons. He emphasized and insisted that the issue involved in the present case is more proximate with the factual position that prevailed in Bombay Tyre International and, therefore, the same should be followed. 14. We would like to point out here that the aforesaid circular was in respect of the statutory provision that prevailed prior to 2000. There was statutory amendment carried out in the year 2000 and new valuation procedures were made effective from 01.07 .....

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towards this is included in the dealier's margin (or reimbursed to him). This is one of the considerations for sale of the goods (motor vehicles, consumer items etc.) to the dealer and will therefore be governed by Rule 6 of the Valuation Rules on the same grounds as indicated in respect of Advertisement and Publicity charges. That is, in such cases the after sales service charges and PDI charges will be included in the assessable value. 15. The aforesaid clarification, if that was to be act .....

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ly, 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 .....

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d by name "transaction value" and the said term transaction value has been specifically defined in Section 4(3)(d) of the said Act. The present Section 4(1)(a) r/w definition of term transaction value gives more clarity and all doubts as to how the assessable value is to be arrived at are removed. It is also noted that the various items incorporated in the term transaction value as defined in Section 4(3)(d) of said Act as forming part of value of Excisable goods are in fact the expens .....

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July, 2002 and Circular dated 12th December, 2002. 43. Turning to point in question, it is noticed that the definition of the transaction value in Section 4(3)(d) of the said Act is extensive and ropes in the price of the goods and other amounts charged by the assessee by the reason of sale or in connection with sale. A close reading of Section 4(3)(d) of the said Act would indicate that the term transaction value comprises of price actually paid or payable by the buyer and includes additional a .....

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It is admitted by the petitioners 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 betwe .....

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e 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 not form any of the clauses viz. (a) Any amount charged for (b) Amount charged to make provision for (c) Any amount that the buyer is liable to pay to the assessee (d) Any amount that the buyer is liable to pay on behalf of the assessee. The record indicates that once .....

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o be treated as the one which will be the transaction value. The transaction value will have to be arrived at by taking into consideration the definition of the term transaction value appearing in Section 4(3)(d) of the said Act. The record clearly goes to show that apart from the price which is paid by the dealer to the petitioners, no amount is recovered by the petitioners from the dealer or the customer. As such, the stand of the respondents that the expenses incurred towards PDI as well as s .....

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at a dealer renders PDI as well as said services on account of dealership. It is pertinent to note that the respondents have in affidavit in reply dated 29th June, 2012 admitted that the dealer carries out free PDI and after sales services at their end. It is admitted that labour cost towards PDI and said services is borne out of retailing profit. The contention of the respondents that the expenses incurred for PDI and said services must be included in the transaction value and is required to be .....

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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 .....

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e dealer on behalf of the petitioners, it cannot be treated as consideration for sale. It also cannot be treated as a deferred consideration. The respondents while issuing Circular dated 1st July, 2002 have wrongly referred to the Rule 6 of the said Rules and have wrongly linked the expenses incurred for PDI and said services with expenses for advertisement or publicity. It is required to be noted that the provisions of the said Rules will not be applicable to the facts of this case as the trans .....

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s totally misconceived. The reference made by learned Senior Counsel Mr. Sridharan to the case of Mr. A.K. Roy and Anr. Vs. Voltas Ltd. reported in 1977 (1) ELT (J-177) SC is apt. We have perused the said judgment and applying the said judgment to the facts of the present case, the respondents would be able to demand Excise duty on the amount which is charged by the petitioners to the dealer. It is to be noted that as per the record, once the car is sold by the petitioners to the dealer for a pa .....

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unt on the whole amount and not the amount which is arrived at after giving the trade discount. Learned Senior Counsel Mr. Sridharan's submission in terms of judgment in the case of Atic Industries Ltd. Vs. H.H. Dave, Assistant 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 pe .....

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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 said services are solely borne by the dealer and the manufacturer like petitioners .....

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16. We have also to keep in mind these cases pertain to the period post 2000. It is also to be borne in mind that the clarification very categorically proceeded on the basis that the services were provided free by the dealer 'on behalf of the assessee' and the same was 'during the warranty period'. The clarification given, keeping in mind the aforesaid two features, makes all the difference inasmuch in these cases, we find that the services which are provided by the dealers are o .....

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.05.2000 which was issued contemporaneously with the amendment in Section 4. It expressly states that amount should be recovered from the buyer by the assessee-manufacturer and makes the following reading in this behalf: 2.2 Definition of 'transaction value' has also been modified to make it more transparent. Any amount paid by the buyer himself or on his behalf to the assessee by reason of, or in connection with the sale, would form part of the transaction value. Any amount that is char .....

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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 inc .....

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