Custom, Excise & Service Tax Tribunal
General Motors India Pvt. Ltd. vs Commisioner Central Excise And Service ... on 11 April, 2022
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
EXCISE APPEAL NO: 1437 OF 2012
[Arising out of Order-in-Original No: 13/CEX/2011 dated 5th December 2011
passed by the Commissioner of Central Excise, Pune - I.]
General Motors India Private Limited
Plot No. A/16, Talagaon MDIC, Phase - II, Tal. Maval
Dist: Pune - 410 507 ... Appellant
versus
Commissioner of Central Excise
Pune - I
ICE House, 41-A Sassoon Road, Opp: Wadia College
Pune - 411001 ...Respondent
APPEARANCE:
Shri Rajesh Ostwal, Advocate for the appellant Ms Anuradha S Parab, Assistant Commissioner (AR) for the respondent CORAM:
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) HON'BLE MR AJAY SHARMA, MEMBER (JUDICIAL) FINAL ORDER NO: A/86257/2022 DATE OF HEARING: 11/04/2022 DATE OF DECISION: 11/04/2022 PER: C J MATHEW In this appeal of M/s General Motors India Private Limited, against order-in-original no: 13/CEX/2011 dated 5th December 2011 E/1437/2012 2 of Commissioner of Central Excise, Pune - I in which tax liability of ` 1,05,51,675/- has been ordered to be recovered under section 11A of Central Excise Act, 1944 along with interest thereon under section 11AB of Central Excise Act, 1944, besides penalties imposed under rule 25 of Central Excise Rules, 2002, the issue for consideration is the correctness of the inclusion of cost of 'pre-delivery inspection' and free 'after-sale service' undertaken by 'dealers' of the appellant for the period from April 2010 to December 2010 in the assessable value.
2. According to Learned Counsel for appellant, no payment has been made to 'dealers' and valuation of these services, which devolves by contractual obligation on them in their agreements, renders the cost computation, based on unwarranted presumptions on the part of central excise authorities, to be not in conformity with section 4 of Central Excise Act, 1944. It was contended that the reliance placed by the adjudicating authority on circular no.
643/34/2002-Cx dated 1st July 2002, read with circular no.
681/72/2002-Cx dated 12th December 2002 of Central Board of Excise and Customs, and on decision of the Larger Bench of the Tribunal in Maruti Suzuki Ltd v. Commissioner of Central Excise, Delhi - III [2010 (257) ELT 226 (Tri.-LB)] is inappropriate considering that the issue stands settled by the decision of the Hon'ble Supreme Court in Commissioner of Central Excise, Mysore v. TVS E/1437/2012 3 Motors Co Ltd [2016 (331) ELT 3 (SC)] which has been followed by the Tribunal in a similar dispute of tax authorities in M/s Tata Motors Ltd v. Commissioner of Central Excise, Pune - I [final order no.
A/87305-87309/2019 dated 11th December 2019 disposing off excise appeal no. 862 of 2009 as well as others].
3. We have heard Learned Authorised Representative who reiterates the findings of the original authority.
4. In re TVS Motors Co Ltd, the inclusion of expenses incurred by the dealers on 'pre-delivery inspection' and 'after-sale service' in assessable value had been set aside with the finding that '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) E.L.T. 198 (Tribunal), and M/s. Escorts Tractors Ltd. - 1998 (78) ECR 342 (Tribunal) = 2000 (124) E.L.T. 496 (Tribunal) and the appeals of the Department against the aforesaid decisions of CESTAT were dismissed by this Court vide order dated 27- 1-2000 which was reported as 2000 (120) E.L.T. 290 (S.C.). Thus, while withdrawing the Circular No. 355/71/97-CX., dated 19-11-1997 and subsequent Circular No. 435/1/99-CX., dated 12-1-1999, PDI and free ASS provided by the dealer of the vehicle, during the warranty period will not be included in the assessable value. Mr. Radhakrishnan, however, tried to overcome the aforesaid circular by submitting that the appeals in the aforesaid cases were dismissed by this Court E/1437/2012 4 on 27-1-2000 with one 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 1-7-2000 which led to issuance of another circular dated 1-7-2002 by the Board. Various clarifications were issued in the circular. 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 Since these services are provided free by the cost of the dealer on behalf of the assessee, the after sales cost towards this is included in the service dealier's margin (or reimbursed to him).
charges and This is one of the considerations for sale pre-delivery of the goods (motor vehicles, consumer instpection items etc.) to the dealer and will (PDI) therefore be governed by Rule 6 of the charges, Valuation Rules on the same grounds as incurred by indicated in respect of Advertisement the dealer and Publicity charges. That is, in such during the cases the after sales service charges and warranty PDI charges will be included in the period? 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 Motors Ltd. v. Union of India - 2012 (286) E.L.T. 161 (Bom.), the same was struck down by making following pertinent observations :
E/1437/2012 5
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 Section 4 as they stood prior to the amendment which came into effect from 1st July, 2000. We are in agreement with the submission advanced by learned Senior Counsel Mr. Sridharan that the provisions of Section 4 as amended are not materially different from the provisions of Section 4 as were prevailing prior to 1st July, 2000. By the amendment, a new term has been introduced 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 expenses/deductions specifically disallowed by the Supreme Court in Bombay Tyre International Ltd. reported in 1983 (14) E.L.T. 1896 (S.C.). If one closely observes the definition of the term transaction value, it uses the terminology 'servicing'. It appears that the respondents are taking the benefit of this term 'servicing' for the purpose of adding to the assessable value, the expenses incurred by the dealer towards PDI and free said services by resorting to Clause 7 of Circular dated 1st 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 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 E/1437/2012 6 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 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 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 a car is sold by the petitioners to the dealer at a price, the dealer is not required to pay any further amount to the petitioners on account of PDI and free after sales services/after sales services. It is clear that when the petitioners are selling the car to a dealer, price is the sole consideration and the petitioners and the dealer are not related to each other. Having complied with these requirements set out in Section 4(1)(a) of the said Act, the assessable value of the Cars will have to 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 said services have to be included in the assessable value cannot be accepted. This is being observed on the ground that there is no material to show that the expenses for the pre-delivery inspection as well as after sales services are paid by the dealer to the petitioners. 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 E/1437/2012 7 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 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 services is on the dealer's obligation on account of dealership agreement and not on any other count. Once it is held that the PDI and said services are not provided by the 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 transaction between the petitioners and the dealer does not fall within the ambit of Section 4(1)(b) of the said Act. The transaction of sale of a car between the petitioners and the dealer is governed by the provisions of Section 4(1)(a) of said Act as the petitioners as assessee and the dealer as a buyer of the car are not related to each other and price is the sole consideration for the sale. In our view, reference to the Rule 6 of the Valuation Rules in Clause 7 of Circular dated 1st July, 2002 is totally misconceived. The reference made by learned Senior Counsel Mr. Sridharan to the case of Mr. A.K. Roy and Anr. v. Voltas Ltd. reported in 1977 (1) E.L.T. (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 E/1437/2012 8 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 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 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 said services are solely borne by the dealer and the manufacturer like petitioners have nothing to do with the said expenses then adding those expenses in the assessable value would be contrary to the provisions of Section 4(1)(a) r/w Section 4(3)(d) of the said Act. Looking to the facts and circumstances of this case, the respondents have not been able to place on record any material to show that the amount incurred towards PDI and said services can fall within the definition of the transaction value."
We agree with the enunciation of legal position stated by the High Court.
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 E/1437/2012 9 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 on their behalf and not on behalf of the assessees. The facts disclosed that the amount which was reimbursed by the assessee to their dealers pertaining to free service was being claimed as abatement in relation to the normal transaction value. It was one of the contention of these assessees that free service charges is a post sale activities and all post sale activities continued to be excludable in determining transaction value.
17. On the other hand, we would like 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 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 E/1437/2012 10 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 30-6-2000 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 value. If, however, in addition to the amount charged as price from the buyer, the assessee also recovers any other amount by reason of sale or in connection with sale, then such amount shall also form part of the transaction value for valuation and assessment purposes. Thus if assessee splits up his pricing system and charges a price for the goods and separately charges for packaging, the packaging charges will also form part of assessable value as it is a charge in connection with production and sale of the goods recovered from the buyer ...
7. It would be seen from the definition of 'transaction value' that any amount which is paid or payable by the buyer to or on behalf of the assessee, on account of the factum of sale of goods, then such amount cannot be claimed to be not part of the transaction value. In other words, if, for example, an assessee recovers advertising charges or publicity charges from his buyers, either at the time of sale of goods or even subsequently, the assessee cannot claim that such charges are not includable in the transaction value. The law recognizes such payment to be part of the transaction value that is assessable value for those particular transactions."
19. The sequitur of the aforesaid discussion would be to hold that PDI charges and free ASS charges would not be included in the assessable value under Section 4 of the Act for the purposes of paying excise duty. The view taken by the Tribunal in favour of assessees in this behalf is correct in law and all the appeals of the Department, i.e. C.A. Nos. 5155- 5156/2007, 1763-1764/2009, 2204/2013, 2205/2013, 957- 959/2014, 7854-7865/2014 and 7444/2008 are dismissed. On the other hand, Larger Bench view in Maruti Suzuki does not E/1437/2012 11 lay down the law correctly and is, therefore, overruled and the appeals filed by the assessees, i.e. C.A. Nos. 7007/2011, 7550/2011 and 3768-3769/2011 are allowed.'
5. Respectfully following the above decision, we set aside the impugned order and allow the appeal (Operative Part of the Order pronounced in the open court on 11th April 2022) (AJAY SHARMA) (C J MATHEW) Member (Judicial) Member (Technical) */as