TMI Blog2022 (10) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... ITY OF INDIA LTD., SALEM VERSUS COMMISSIONER OF GST CENTRAL EXCISE, SALEM [ 2021 (7) TMI 1092 - CESTAT CHENNAI] , the Tribunal has held that The activities, therefore, that are contemplated under section 66E(e), when one party agrees to refrain from an act, or to tolerate an act or a situation, or to do an act, are activities where the agreement specifically refers to such an activity and there is a flow of consideration for this activity. There are no merits in the impugned order - appeal allowed. - Excise Appeal No. 1541 of 2012 - FINAL ORDER NO. A/85932/2022 - Dated:- 10-10-2022 - MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) AND DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL) Shri Aditya Chitale, Advocate, for the Appellant Shri P.K. Acharya, Superintendent, Authorised Representative for the Respondent ORDER This appeal is directed against Order-in-Appeal No. BC/165/Mum-III/2012-13 dated 26.07.2012 passed by the Commissioner of Central Excise (Appeals), Mumbai-III. By the impugned order, the Commissioner (Appeals) has rejected the appeal filed by the appellant against Order-in-Original No. 462/Adj/KDN/RM/11-12 dated 31.03.2012 of the Assistant Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 This show cause notice was adjudicated as per the order-in- original referred in para 1 above and upheld by the Commissioner (Appeals) by the impugned order. 3.1 We have heard Shri Aditya Chitale, Advocate, for the appellant and Shri P.K. Acharya, Superintendent, Authorised Representative, for the Revenue. 3.2 Arguing for the appellant, learned counsel submits that:- There are no conditions in the agreement as alleged in the show cause notice. Earnest money deposit was taken by the appellant to protect themselves in the event of breach of contract and not as a part of auction price. Show cause notice has not been issued in cases where EMD is returned. The auction conditions are in favour of the appellant. EMD is liable to be returned to the purchaser after removal of the scrap sold to him and cannot be adjusted against deliveries. Forfeiture of EMD is in case of non-payment and non-lifting of sold scrap and the forfeited EMD is an income on which income tax is paid. Once the full payment of the auction sale is made by the purchaser, full payment of excise duty is made simultaneously by the appellant. In the event of no sale, then no excise duty is leviable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by adding any amount that buyer is liable to pay to the price charged by reason of or in connection with sale - Transaction value depends on terms of contract of sale of goods between seller and buyer Transaction value includes any amount charged for outward handling of goods by reason of or in connection with sale. 8. As regards penalty and interest, these kind of transactions can be known by the Department only when the assessee's records are audited. It is incumbent upon the appellants to inform these kind of additional considerations to the Department. The appellants have not shown any evidence that they have ever brought the said issue to the notice of the department. Hence, the provisions of Section 11AC were correctly invoked by the Adjudicating Authority. Where duty is recoverable under Section 11A of the said Act, interest is recoverable under Section 11AB of the said Act. Accordingly, the appeal by the appellants is rejected and the impugned order sustains. 4.3 The definition of transaction value has been defined as reproduced by the Commissioner (Appeals) in para 6 of the order. It clearly states that whatever the amounts paid or payable as the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. We are concerned with point of doubt No. 7 contained in that circular and the explanation thereto which makes the following reading : 7 What about the cost of after sales Service charges and predelivery inspection (PDI) charges, incurred by the dealer during the warranty period? Since these services are provided free by the dealer on behalf of the assessee, the cost towards this is included in the dealer 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 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 Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 amount that the buyer is liable to pay or on behalf of the assessee by reason of sale or in connection of sale whether payable at the time of sale or at any other time including the amount charged for or to make provision for certain items such as advertising etc. One such item is servicing. In view of the definition of the term transaction value, it would be necessary for this Court to apply the definition of the term transaction value to the facts of this case and decide the matter. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The dealer renders PDI and said services as a routine and legitimate activity as a dealer. It is also clear from the record and on the basis of the typical dealership agreement entered into with the dealer by the petitioners that 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 included in the assessable value of the car is required to be negatived on the ground that the petitioners do not charge the dealer any 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioners 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 particular consideration, no other amount is payable by the dealer to the petitioners. It is required to be mentioned that the petitioners are not reimbursing any amount to the dealer towards expenses incurred for the PDI and said services and the petitioners are paying Excise duty on the entire amount for which the petitioners sale the car to the dealer. In the present case, even if it is taken that the petitioners are giving trade discount to the dealer, the petitioners are paying the Excise amount 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. v. H.H. Dave, Assistant Controller of Central Excise and Ors. reported in 1978 (2) E.L.T. (J444) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke to refer to Circular dated 12-5-2000 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 charged or recovered from the buyer on account of factors like advertising or publicity, marketing and selling organization expenses, storage and outward handling etc. will also be part of the transaction value. In fact, most of the charges that are recovered on account of the specific activities by advertising 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 4 read with the definition of transaction value in Section 4(3)(d) enables levy of duty on the transaction value paid or payable for the goods. The value payable in a case where liquidated damages is applied would therefore be the consequent value and this would constitute the transaction value . 17 . Except the decision of United Telecom (supra) followed in HFCL (supra) which are clearly and apparently after due consideration of provisions of the amended Section 4 read with definition of transaction value in Section 4(3)(d), other decisions adverted to above were either on the basis of provisions of Section 4 prior to its amendment by Finance Act, 2000 or without analysis of provisions of the amended Section 4 and the distinct concepts of penalty and liquidated damages , pointed out in United Telecom Ltd. 18 . The decision in Electron Energy Equipments Ltd. (supra), which is in conflict with the decision in United Telecom Ltd. (noticed by the referral order), is subsequent to amendment of Section 4 vide the Finance Act, 2000. However, this decision did not proceed on any analysis of the amended provisions of Section 4 or due consideration of the definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forfeited and the agreement cancelled. 39 . The plaintiff received the agreed sum on March 25, 1949 and possession was delivered, but the sale of the property was not completed before the expiry of the stipulated period. The plaintiff, therefore, sought a decree for possession of land and building and a decree of Rs. 6500/- as compensation for use and occupation of the building. It was alleged that the agreement stood cancelled because the defendant committed a default in performing the agreement and the sum of Rs. 25,000/- paid by the defendant stood forfeited. 40 . It is in this context and in the context of Section 74 of the Contract Act, that the Supreme Court observed : 20. Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of parties predetermined, or where there is a stipulation by way of penalty. But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party; it merely declares the law that notwithstanding any term in the contract for predetermining damages or providing for forfeiture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rain from an act, or to tolerate an act or a situation, or to do an act. There has, therefore, to be a flow of consideration from one person to another when one person agrees to the obligation to refrain from an act, or to tolerate an act, or a situation, or to do an act. In other words, the agreement should not only specify the activity to be carried out by a person for another person but should specify the : (i) consideration for agreeing to the obligation to refrain from an act; or (ii) consideration for agreeing to tolerate an act or a situation; or (iii) consideration to do an act. 26. Thus, a service conceived in an agreement where one person, for a consideration, agrees to an obligation to refrain from an act, would be a declared service under section 66E(e) read with section 65B(44) and would be taxable under section 68 at the rate specified in section 66B. Likewise, there can be services conceived in agreements in relation to the other two activities referred to in section 66E(e). 27. It is trite that an agreement has to be read as a whole so as to gather the intention of the parties. The intention of the appellant and the parties was for s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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