Bombay High Court
A Company Incorporated Under The vs Union Of India Through The on 7 September, 2012
Author: R.Y. Ganoo
Bench: J.P. Devadhar, R.Y.Ganoo
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 2744 OF 2012
M/s. Tata Motors Ltd.
A company incorporated under the
provisions of the Companies Act, 1956
having its registered office at
Bombay House, 24, Homi Mody Street,
Fort, Mumbai - 400 001 and
one of its factory at Pimpri, Pune - 411 018. .. Petitioners
v/s.
1. Union of India through the
Secretary, Ministry of Finance,
Department of Revenue, North Block,
New Delhi - 110 001.
2. The Commissioner of Central Excise,
Pune - I, having its office at
ICE House, 41-A, Sasoon Road,
Pune - 411 001. ..Respondents
Mr. V. Sridharan, Sr. Counsel with Mr. Prakash Shah i/b M/s. PDS Legal for
the petitioners
Mr. Pradeep S. Jetly for the respondents
CORAM : J.P. DEVADHAR &
R.Y.GANOO, JJ.
DATE ON WHICH JUDGMENT IS RESERVED : 8th AUGUST, 2012.
DATE ON WHICH JUDGMENT IS PRONOUNCED: 7th SEPTEMBER,2012.
JUDGMENT :(Per R.Y. Ganoo, J.)
1. Rule. Rule made returnable forthwith. Learned Counsel Mr. Jetly waives U.S.Jagtap 1 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc service on behalf of the respondents. By consent, petition is taken up for final disposal.
2. By this petition, the petitioners are seeking following reliefs.
(i) Clause No.7 of the circular bearing No. 643/34/2002-CX dated 1 st July, 2002 issued by the respondents to the extent it states that cost of PDI and free after sales services incurred by the dealers are includable in the assessable value of the vehicles be quashed and set aside.
(ii) The Circular No. 681/72/2002-CX dated 12th December, 2012 issued by the respondents be quashed so far as it relates to the period after 1st July, 2000.
(iii) The order in original dated 5th December, 2011 passed by respondent no.2 by which it is held that cost of PDI and free after sales services have to be included in the assessable value of the vehicles sold by the petitioners be quashed and set aside.
(iv) The judgment delivered by the CESTAT in the case of Maruti Suzuki Ltd. Vs. Commissioner of Central Excise, Delhi III reported at 2010 (257) ELT 226 (Tri-LB) be declared as incorrect and invalid in law.
(v) Writ of mandamus be issued thereby directing respondent no.2 by himself, his subordinates, servants and agents to withdraw and / or cancel the impugned order in original dated 5 th December, 2011 passed by respondent no.2.
(vi) Restrain the respondents from taking any further proceeding or steps in furtherance and or in implementation of the impugned order in original dated 5th December, 2011 passed by the respondent no.2.
3. However, at the hearing of the Petition, Counsel for the petitioners has restricted his arguments regarding the validity of the impugned Circular dated 1st July, 2002 and 12th December, 2012. Hence, the only question U.S.Jagtap 2 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc to be considered in this Writ Petition is whether clause no.7 of the Circular bearing No. 643/34/2002-CX dated 1st July, 2002 read with Circular No. 681/72/2002-CX dated 12th December, 2012 to the extent they state that cost of pre delivery inspection and free after sales services incurred by the dealers are includable in the assessable value of the vehicles is violative of the provisions of the Central Excise Act, 1944?
4. Few facts necessary for the disposal of this petition are as under. The petitioners manufacture Indica / Indigo cars at Pimpari works. These cars are sold to customers through a countrywide network of dealers.
From August, 2008 onwards the petitioners sold the said cars to their subsidiary company M/s. TML Distribution Company Ltd. (For short "M/s. TMLD") who in turn sell the vehicles to dealers. The petitioners have already disclosed that M/s. TMLD is related person and have paid excise duty not on the basis of petitioners' sale price to M/s. TMLD but on the basis of price of M/s. TMLD to the dealers. The petitioners have thus paid duty on 'normal transaction value' i.e. the price at which aggregate quantity of the cars is sold by M/s. TMLD to dealers. The petitioners claim that there is no dispute between the parties that the U.S.Jagtap 3 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc petitioners have correctly paid excise duty on this basis. The petitioners have appointed various persons as dealers who sell the cars in turn to their customers.
5. Between the petitioners and each dealer, an agreement is executed thereby appointing such a person as a dealer on terms and conditions mentioned in the said agreement. According to the petitioners, the petitioners decide the maximum price at which the dealer has to sell the car. On account of this, the dealer cannot sell the car for an amount more than the one which is specified by the petitioners. The dealer pays to the petitioners a particular price quoted by the petitioners and according to the petitioners it is that price on which excise duty is paid.
According to the petitioners that is the price which will have to be termed as assessable value. According to the petitioners on account of the dealership agreement, the dealer is required to carry out Pre Delivery Inspection (For short PDI) before the car is actually delivered to the customer. After the car is delivered to the customer, the customer is expected to bring the car to the dealer for getting the said car serviced after running the car for certain number of kilometers or certain number of days more particularly stated in the owners manual. The dealer is U.S.Jagtap 4 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc required to conduct free servicing in respect of the said car, which would be used by the customer. These services are referred to as free after sales services. (For short Said services).
6. According to the petitioners, the dealer has to employ necessary persons as also use necessary machinery to carry out PDI and said services. The expenses to conduct PDI and said services are to be incurred by the dealer without reference to the petitioners. It is also the case of the petitioners that the petitioners do not reimburse the expenses incurred by the dealer on PDI and said services. According to the petitioners they have been paying Excise duty on the amount charged by them to the dealer while selling the car to the dealer. The petitioners received 4 show cause notices calling upon the petitioners to pay duty on account of Clause 7 of Circular No. 643/34/2002 dated 1 st July, 2002 (For short Circular dated 1st July, 2002) as according to the respondents the costs incurred by the dealer towards PDI and said services was includable in assessable value. The four show cause notices cover the period from December, 2008 to June, 2011. These show cause notices are dated 25th November, 2009, 31st March, 2010, 27th January, 2011 and 23rd September, 2011. The petitioners showed cause to the said show cause U.S.Jagtap 5 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc notices. The petitioners were heard in regard to the said four show causes notices. The Commissioner, Central Excise, Pune-I by his order dated 5th December, 2011 ruled on those show causes notices and directed the petitioners to pay Excise duty as well as interest and penalty more particularly stated in the said order dated 13 th December, 2011.
7. According to the petitioners the said decision contained in order dated 5th December, 2011 was principally based on the Clause no.7 of Circular dated 1st July, 2002 and Circular dated 12th December, 2002. It is also noticed that the said decision was based on account of the decision rendered by the larger bench of the CESTAT in the case of Maruti Suzuki Ltd. reported at 2010 (257) ELT 226 (Tri-LB) (Supra). It is in these circumstances, the petitioners have approached this Court for the reliefs mentioned aforesaid.
8. Mr. G.G. Patke, Deputy Commissioner, Pune-3 Division, Central Excise Pune, Commissionerate has filed affidavit in reply. The respondents justified the correctness of Circular dated 1st July, 2002 as well as Circular dated 12th December, 2012.
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9. Learned Senior Counsel Mr. Sridharan appearing on behalf of the petitioners had taken us through the entire record. It was contended before this Court that the petitioners have been selling cars to M/s.
TMLD, who in turn sell those cars to dealers. Hence, petitioners are paying Excise duty on the aggregate agreed quantity of the cars sold by M/s. TMLD to dealers and that price is the 'transaction value'. Learned Senior Counsel Mr. Sridharan had submitted that there is no dispute on this aspect of the matter. Learned Senior Counsel Mr. Sridharan had taken us through the provisions of Section 4 of the Central Excise Act, 1944 (For Short said Act) as amended w.e.f. 1st July, 2000 by Section 94 of the Finance Act 2000 (100 of 2000). Learned Senior Counsel Mr. Sridharan had submitted that Section 4 (1)(a) provides that the Excise duty is payable on removal of the goods on 'transaction value' provided the assessee and buyer are not related and the price is the sole consideration. Learned Senior Counsel Mr. Sridharan clarified that in the present case, the petitioners are the assessee who sell the cars to various dealers and that the assessee and the such dealers are not related to each other, the price is the sole consideration and that the transaction between the petitioners and individual dealer is on principal U.S.Jagtap 7 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc to principal basis and the said transaction is governed by the terms and conditions stipulated in the dealership agreement. Learned Senior Counsel Mr. Sridharan therefore submitted that according to the petitioners the Excise duty shall be payable on the transaction value as between the petitioners and the individual dealer. Learned Senior Counsel Mr. Sridharan submitted that on account of amendment to Section 4 as mentioned aforesaid, the term "transaction value" came to be introduced. Sub-Section 3(d) of Section 4 of said Act defines the term "transaction value". Learned Senior Counsel Mr. Sridharan had therefore submitted that in order to ascertain the assessable value of a car sold by the petitioners to a dealer, all those amounts which can be included in the definition of the term "transaction value" would be relevant and all those amounts taken together would constitute an assessable value and it is on that assessable value, the respondents can demand the Excise duty.
10. Learned Senior Counsel Mr. Sridharan had submitted that prior to the introduction of Circular dated 1st July, 2002, the cost incurred by the dealer towards PDI and said service was not included in the assessable value on account of provisions of law which stood then. Learned Senior U.S.Jagtap 8 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc Counsel Mr. Sridharan submitted that on account of Clause 7 of Circular dated 1st July, 2002 as well as Circular dated 12 th December, 2002, the respondents have sought to introduce the new concept viz. to add expenses incurred by the dealer towards PDI and said services in the assessable value by interpreting that such expenses form a part and parcel of the transaction value. Learned Senior Counsel Mr. Sridharan appearing on behalf of the petitioners had submitted that the approach of the respondents by issuing Circular dated 1 st July, 2002 and Circular dated 12th December, 2002 is contrary to the provisions of Section 4(1)
(a) and Sub-Section 3(d) of Section 4 of the said Act. He submitted that the Circular dated 1st July, 2002 and Circular dated 12 th December, 2002 are in excess of provisions of Section 4(1)(a) and Sub-Section 3(d) of Section 4 of the said Act.
11. Learned Senior Counsel Mr. Sridharan appearing on behalf of the petitioners took us through the typical dealership agreement executed between petitioners and a dealer and pointed out to us clauses, 4, 7, 8, 13 and 14 and submitted that the dealer is required to perform PDI and said services as a part of dealership agreement and not for on behalf of the petitioners. He further submitted that the expenses for PDI and said U.S.Jagtap 9 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc services are borne by the dealer and that the said expenses are not reimbursed by the petitioners to the dealer. He further submitted that those expenses are not incurred by the petitioners. He further submitted that the petitioners do not charge to the dealer any amount other than the one which is recovered from the dealer at the time of sale. He further submitted that no additional consideration flows from the dealer towards petitioners in regard to the sale of a car by the petitioners to the dealer.
12. Learned Senior Counsel Mr. Sridharan appearing on behalf of the petitioners took us through the definition of the term "transaction value"
and submitted that the word "transaction value" is that amount which the dealer is liable to pay to the petitioners at the time of purchase of car. He further submitted that the expressions "by reason of or in connection with the sale whether payable at the time of sale or at any other time" would be relevant for the purposes of deciding the question as to whether the expenses incurred by the dealer towards PDI and said services would form the part of the transaction value. Learned Senior Counsel Mr. Sridharan submitted that on a proper interpretation of this term and on consideration of the facts, it would be clear that the only U.S.Jagtap 10 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc amount payable by the dealer to the petitioners is the amount charged by the petitioners as the cost of the car. He further submitted that the said amount is payable by the dealer and as such the said amount will be the transaction value. Learned Senior Counsel Mr. Sridharan further submitted that the expression "whether payable at the time of sale or at any other time" shows that while the liability to pay additional amount is created and linked to the sale of goods, however, actual payment may be deferred to a later point of time also (For e.g. Credit Sales).
According to the learned Senior Counsel Mr. Sridharan, the aforesaid terms would clearly exclude the expenses incurred for PDI and after sale services by the dealer.
13. Learned Senior Counsel Mr. Sridharan appearing on behalf of the petitioners further submitted that the petitioners charge a particular amount being cost of the car to the dealer and recover the same. He further submitted that while dealing with the dealer, the petitioners are not charging the dealer the cost of PDI and cost of said services. He further submitted that in the entire dealing with the dealer, there is no provision made for expenses incurred by the dealer towards PDI and said services. Learned Senior Counsel Mr. Sridharan had further U.S.Jagtap 11 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc submitted that looking to the provisions of Section 4(1)(a) and 4(3)(d), the expenses incurred by the dealer towards PDI and said services cannot be included in the term "transaction value" and that is how the Circular dated 1st July, 2002 and 12th December, 2002 are contrary to the provisions of Section 4 (1)(a) and Section 4(3)(d) of the said Act.
14. Learned Senior Counsel Mr. Sridharan appearing on behalf of the petitioners had taken us through Section 4 of the said Act prior to its amendment in the year 2000 as well as provisions of Section 4(1)(a) and 4(3)(d) of the said Act as amended for the purposes of placing before the Court the effect of the amendment brought about by the Finance Act, 2000. Learned Senior Counsel Mr. Sridharan had submitted that old Section 4 and present Section 4 are not materially different. According to him by the provisions of Section 4(1)(a) (as amended), the concept of "transaction value" has been introduced and that has been done for giving more clarity as to what should be assessable value as also to remove doubts as regards the quantification of assessable value of goods sold by the assessee to a buyer who is not related to him and where the price is the sole consideration. He submitted that the assessable value has to be quantified as per the U.S.Jagtap 12 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc definition of transaction value with effect from 1 st July, 2000. Learned Senior Counsel Mr. Sridharan had taken us through the definition of the term transaction value and had submitted that the various items included in the definition of the transaction value as forming part of value of excisable goods are in fact the expenses / deductions specifically disallowed by the Supreme Court in Union of India and Ors.
Vs. Bombay Tyres International Ltd. 1983 (14) ELT 1896 (Supreme Court). He submitted that on account of coining the term transaction value and including various items in the said term transaction value, the quantification of assessable value is made simpler. He also submitted that it leaves no scope of doubt and all items which are mentioned in the term transaction value taken together in the facts and circumstance of a case shall constitute assessable value on which the Excise duty would be payable.
15. Learned Senior Counsel Mr. Sridharan had submitted that the measure of levy of Excise duty is the transaction value as defined in Section 4(3)
(d) of the said Act, which is the price charged by the manufacturer to the buyer. He further submitted that Excise is concerned with the first entry into stream of trade and Excise is not concerned with what U.S.Jagtap 13 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc happened to the goods thereafter. He submitted that in the present case the profit margin was fixed by the petitioners is irrelevant while determining the transaction value where a car is sold to a dealer.
16. It was submitted by learned Senior Counsel Mr. Sridharan that the respondents have not been able to place on record any material to show that the expenses for PDI and said services were paid by the petitioners to the dealer or reimbursed. According to him, if this is the position then, the expenses incurred for PDI and said services cannot be added to the assessable value. Learned Senior Counsel Mr. Sridharan had submitted that the dealers do not spend on PDI and said services on behalf of the petitioners and hence, those expenses cannot form part of the assessable value. He submitted that the respondents cannot rely upon dealership agreement to include expenses incurred for PDI and free after sales services and said services in the assessable value. It was submitted that attending to PDI and said services by a dealer was a routine and legitimate activity on the part of the dealer and that the dealer was required to perform the said activity so as to comply with the terms of dealership. It was submitted by learned Senior Counsel Mr. Sridharan that the amount recovered by the petitioners by the reason of U.S.Jagtap 14 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc sale or in connection with the sale only or the price paid or payable in the goods and the amount charged from the buyer, which enrichs the marketability of the goods before their removal would form the part of the assessable value. It was submitted that as no amount is charged, paid / payable by the dealer to the petitioners towards expenses for PDI and said services, the said expenses incurred by the dealer cannot be included in the assessable value.
17. Learned Senior Counsel Mr. Sridharan had further submitted that the respondents had issued Circular F. No. B-10/1/2000 TRU dated 12 th May, 2000 and Circular F. No. 354/81/2000 TRU dated 30 th June, 2000 after Section 4 of the Said Act was amended to incorporate concept of transaction value. He submitted that by said Circulars respondents took a specific stand about the introduction of the term "transaction value".
He pointed out to the Court the relevant portion, which is as under.
"As such, the definition of the 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 buyer by reason of, or in connection with the sale, whether payable at the U.S.Jagtap 15 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc time of sale or at any other time is included in the transaction value".
18. Learned Senior Counsel Mr. Sridharan had submitted that on account of Circular dated 12th May, 2000 what would be the transaction value was clarified by the respondents and according to him, the said Circular dated 12th May, 2000 supports the stand of the petitioners.
19. Learned advocate Mr. Sridharan appearing on behalf of the petitioners had relied upon the Circular No.F 354/81/200 TRU dated 30th June, 2000. He pointed out that on that day, the notification was issued bringing into effect new Section 4 effective from 1st July, 2000. Similarly, Central Excise (Determination of value of Excisable Goods) Rules, 2000 were brought into effect from 1 st July, 2000. He pointed out that the said Circular dated 30 th June, 2000 gives clause by clause explanation of the Section. He, therefore, submitted that the said Circular is clearly a contemporaneous exposition. He wanted this Court to rely upon the following portion of the said Circular.
"6. .....It may also be noted that where the assessee charges an U.S.Jagtap 16 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc 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 for 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."
20. Learned Senior Counsel Mr. Sridharan submitted that on consideration of text of Circular dated 12th May, 2000 and 30th June, 2000, this Court should hold that the stand of the petitioners that expenses incurred by the dealer towards PDI and said services cannot be included in the assessable value.
21. Learned Senior Counsel Mr. Sridharan took us through Circular No. U.S.Jagtap 17 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc 681/72/2002 dated 12th December, 2002. He submitted that the petitioners are challenging this Circular dated 12 th December, 2002 to the extent it confirms the operation of Circular No. 643/34/2002 dated 1st July, 2002. Learned Senior Counsel Mr. Sridharan clarified that in this Circular dated 12th December, 2002 it has been admitted by the respondents that PDI and said services provided by the dealer of the vehicle during the warranty period will not be included in the assessable value. Learned Senior Counsel Mr. Sridharan had submitted that this assertion on the part of the respondents has come up on 12th December, 2002 after the Circular dated 1st July, 2002 has been issued. According to the Learned Senior Counsel Mr. Sridharan if in Circular dated 12th December, 2002, the respondents have accepted that PDI and said services provided by the dealer of the vehicle during the warranty period will not be included in the assessable value, then, the Circular dated 1st July, 2002 will have to be treated as having been issued in excess of the provisions of Section 4(1)(a) and 4(3)(d) of the said Act. He, therefore, submitted that this is one more ground on which the Circular dated 1st July, 2002 as well as 12th December, 2002 are required to be declared as illegal, void and not applicable to the case of the U.S.Jagtap 18 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc petitioners.
22. Learned Senior Counsel Mr. Sridharan had further submitted that the Circular dated 1st July, 2002 impugned in this petition proceeds on the footing that since the services are provided free by the dealer on behalf of the petitioners, the cost towards this is included in the dealer's margin (or reimbursed to him). He further pointed out that respondents have treated this as a consideration for the sale of the goods to the dealer and have therefore applied Rule 6 of the Valuation Rules and have treated those expenses as expenses similar to the advertisement and publicity and have thereafter proceeded to include those expenses in the assessable value. Learned Senior Counsel Mr. Sridharan submitted that it is true that the dealer provides PDI and said services to the customers and these expenses have to be borne by the dealer as a part of condition for having a dealership. Even if it is accepted that the dealer spends a portion of the monies towards PDI and said services from and out of the amount which he gets from the dealer's margin, still that cannot be considered as a consideration for sale of the car to the dealer. He submitted that the petitioners do not reimburse to the dealer any U.S.Jagtap 19 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc amount towards the costs incurred for PDI and said services. He further pointed out that the provisions of Rule 6 of the Valuation Rules cannot be invoked in the facts and circumstance of the case because the transaction between the petitioners and the dealer is covered by the provisions of Section 4(1)(a) and not by provisions of Section 4(1)(b) of the said Act. He, therefore, submitted that treating the expenses incurred by the dealer towards PDI and said services on par with expenses for advertisement and publicity charges would not be proper. He, therefore, submitted that the contents of the Circular dated 1 st July, 2002 which are impugned in this petition are required to be quashed and set aside.
23. Learned Senior Counsel Mr. Sridharan had further submitted that no additional consideration is flowing from the dealer to the petitioners.
He further pointed out that the Circular states that there is additional consideration flowing back to the manufacturer in terms of Rule 6 of the said Rules. According to him, no such consideration flows back to the manufacturer and as such the application of the Rule 6 of the Valuation Rules is contrary to the provisions of law.
Learned Senior Counsel Mr. Sridharan relied upon the judgment in U.S.Jagtap 20 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc the case of A.K. Roy Vs. Voltas Ltd. 1977 (1), ELT (J 177) (S.C.).
He took us through paragraph 20 of the said judgment where the Supreme Court had an occasion to deal with old Section 4 of the said Act and where the Supreme Court had observed that the Section makes it clear that the Excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post manufacturing costs and the profit arising from post manufacturing operation namely selling profits. Learned Senior Counsel Mr. Sridharan had therefore submitted that so far as the present petitioners are concerned, Excise will be leviable on the amount which is charged to the car dealer and which in fact is recovered from such a car dealer. He submitted that since the expenses for PDI and said services are exclusively incurred by the dealer, there is no question of adding them in the assessable value.
Learned Senior Counsel Mr. Sridharan relied upon the judgment in the case of Atic Industries Ltd. Vs. H.H.Dave, Assistant Collector of Central Excise and Ors. reported in 1978, (2) E.L.T. (J 444) (S.C.). He pointed out that the Supreme Court in this judgment has held that the price at which the goods were sold by the manufacturer to the distributor, less trade discount was to be taken U.S.Jagtap 21 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc as the assessable value of the case. He further submitted that in the aforesaid case, it was also held that the price which was relevant for the purpose of Excise duty was the price when the goods first entered the stream of trade. Learned Senior Counsel Mr. Sridharan submitted that in the present case, there is no question of trade discount given. In the present case, in fact the petitioners are not giving any trade discount to the dealers and the car is sold to the dealer at a price and the petitioners are paying Excise on the said amount. He further submitted that in the present case, once the car is sold by the petitioners to the dealer, no further transaction takes place between the petitioners and the dealer. It was contended that though the dealer has to sell the car to a customer at a price fixed by the petitioners and earn profit, however, that has nothing to do with the assessable value as the petitioners have paid excise on the amount which is received from the dealer as the cost of the car.
Learned Senior Counsel Mr. Sridharan therefore submitted that the reliefs sought in the petition be granted and the petition be allowed.
24. Learned Counsel Mr. Jetly had opposed the submissions advanced by the learned Senior Counsel Mr. Sridharan. He submitted that the U.S.Jagtap 22 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc dealer incurs expenses on PDI and said services. Mr. Jetly submitted that price is not the sole consideration for sale and, therefore, the value of a car should be deemed to be aggregate of such transaction value i.e. cost at which the car is sold plus the expenses incurred by the dealer towards PDI and said services. He submitted that such expenses will have to be treated as an additional consideration flowing directly or indirectly from the dealer to the petitioners. He, therefore, submitted that the Circular dated 1st July, 2002 clearly takes care of the present case and that is how the said Circular is required to be applied to the facts of this case. He further submitted that the said Circular is well within the meaning of Section 4(1)(a) and Section 4(3)(d) of the said Act. Learned Counsel Mr. Jetly had further submitted that the petitioners had cleared the motor vehicles to various dealers during the period December, 2003 to June, 2011 giving fixed discount / commission and as per the agreement entered with the dealer and from this discount, the dealers were under obligation to provide PDI and 4 to 6 free after sales services to the customers on behalf of the petitioners. According to him, in other words, cost for these services was inbuilt in the dealer's discount / margin given to the dealers.
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25.Learned Counsel Mr. Jetly submitted that the expression "transaction value" does not merely include the amount paid to the assessee towards price but also includes any amount that a buyer is liable to pay to, or on behalf of the assessee, by reason of, or in connection with the sale of goods, whether payable at the time of the sale or at any other time, including the servicing, warranty, commission or any other matter. According to him, the expenses incurred for PDI and said services will be includable in the term transaction value in view of the specific definition of the term transaction value. He further submitted that the transaction value does not merely include the amount paid to the assessee towards price but also includes any amount paid on behalf of the assessee to the dealer or person selling the vehicles. According to him, measure of levying is expanded and its composition broaden to bring all that a buyer is liable to pay or incur by reason of sale or in connection therewith. According to the respondents, clearance of goods subject to fulfillment of sales conditions contribute to the assessable value by the amended definition of the term transaction value. Learned Counsel Mr. Jetly further submitted that the theory of "flow back of consideration or U.S.Jagtap 24 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc part thereof is not confined to direct monetary benefit to the assessee in connection with the sale of vehicle but rejuvenated to include consideration integrally connected with postsale obligations also and indirect benefit received in the course of or on account of sale as well as subsequent to the sale pursuant to any service rendered by the person who sells the vehicles under the contract with the manufacturer relating to the sale of the vehicles in view of meaning of transaction value as incorporated into the provisions of section 4(3)(d) of the Act w.e.f. 01.07.2002. According to him sales in such type of contracts is conceived by both parties to be complete if postsales obligation are dischargable by settled terms known to each other making performance of contract certain.
26. Learned Counsel Mr. Jetly had further submitted that expenses incurred towards PDI and said services is deferred and future consideration payable by the dealer to the petitioners and that is how the cost of PDI and said services is to be included in the assessable value keeping in view the provisions of Section 4(1)(a) and 4(3)(d) and Circular dated 1st July, 2002. Learned Counsel Mr. Jetly further submitted that the amount spent by the dealer towards U.S.Jagtap 25 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc PDI and said services indirectly flows to the petitioners and same should be added to the net dealer price. In the affidavit-in-reply filed by the respondents at paragraph 10, it is stated as under :-
"In case of paid services after utilized free services the value of these services are fixed at Rs.1200/- and Rs.1550/- per vehicle and this amount, which is not reimbursed by the manufacturer, is collected by the dealers from the customers at the time of sale itself as a part of price, for and on behalf of the petitioner towards providing warranty and free servicing.
The warranty is provided by the petitioner and not the dealer and ideally, the amounts fixed for these services should be made over by the dealer selling the vehicle. However, instead of physically transferring the said amount to the petitioner, the dealer absorbs this amount spent towards services rendered for PDI and after sales service in the dealer commission which is fixed and paid by petitioner to their dealers".
27.Learned Counsel Mr. Jetly had submitted that warranty is given by the petitioners to the ultimate customer and said warranty is linked with PDI and said services i.e. if these PDI and said services are not carried out, the warranty cannot be availed of by the customer who U.S.Jagtap 26 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc purchased the car. Learned Counsel Mr. Jetly had therefore submitted that for these reasons, the expenses incurred by the dealer towards PDI and said services will have to be included in the assessable value.
28.It was submitted by learned Counsel Mr. Jetly that the dealer provides PDI and said services on behalf of the petitioners hence, expenses incurred towards PDI and said services should form the part of the assessable value. According to him the quantum of expenses incurred constitute an additional consideration payable by the dealer to the petitioners for purchasing the car. He therefore submitted that to the facts of this case, Rule 6 of the valuation Rules is applicable like expenses which are incurred on advertisement or publicity.
29. Learned Counsel Mr. Jetly had further submitted that Circular dated 12th December, 2002 makes it abundantly clear that instances of sale on or after 1st July, 2000 shall be governed by the Circular dated 1 st July, 2002 in as much as the cost incurred towards PDI and said services will be included in the assessable value. Learned Counsel U.S.Jagtap 27 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc Mr. Jetly submitted that on account of Circular dated 1 st July, 2002 and 12th December, 2002 the show-cause notices were issued and order in original is passed.
30. It was submitted by learned Counsel Mr. Jetly that in respect of the 4 show causes notices, the order in original dated 5 th December, 2011 has been passed. He pointed out that the said order in original can be challenged before the appropriate appellate forum and, therefore, this Court should not entertain the plea of the petitioners which arise on account of order in original dated 5 th December, 2011. He further submitted that the validity of the Circular has been considered by the CESTAT by its larger bench in the case of Maruti Suzuki Ltd. Vs. Commissioner of Central Excise, Delhi-3, reported in 2010 (257) ELT 226 (Tri.LB). He submitted that the Circular dated 1st July, 2002 and 12th December, 2002 have been considered by the judgment mentioned aforesaid and the same have been accepted as properly issued. He submitted that challenge to the judgment of CESTAT larger bench is pending in the Supreme Court and, therefore, this petition should not be entertained. Learned Counsel Mr. Jetly had further submitted that the petitioners have a U.S.Jagtap 28 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc larger interest in seeing that the PDI and said services are rendered to a customer as it has a direct bearing on the market share of the petitioners and hence, the expenses incurred by the dealer towards PDI and said services are includable in the assessable value. He further submitted that the expenses for PDI and said services are incurred by the dealer in terms of the agreement between the petitioners and the dealers and hence those expenses are includable in the after sales services. Learned Counsel Mr. Jetly, therefore, submitted that the petition be dismissed.
31.We have considered the rival submissions as also the judgments which have been relied upon. The questions before the Court for its consideration is already mentioned.
32.The petitioners are manufacturers of Cars. From August, 2008, the petitioners have sold Cars to their subsidiary companies M/s. TMLD who in turn sale Cars to the dealers. The petitioners are paying Excise duty on the normal transaction value i.e. the price at which the aggregate quantity of the cars is sold by M/s. TMLD to the dealers. There is no dispute between the parties on this count.
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33.The petitioners appoint various persons as dealers to sell the car in the market. On selection of a person for being appointed as a dealer, an agreement is entered into between the petitioners and the said dealer and the dealership is granted to such a person. The petitioners sell the car to the dealer and the petitioners notify to the dealer the maximum amount for which the car can be sold. The amount charged by the dealer to his customer minus the amount charged by the petitioners to such dealer will be dealer's margin.
The restriction imposed by the petitioners as not to sell the car for an amount more than the one specified by the petitioners has nothing to do with the facts of the present case. In a typical dealership agreement, various responsibilities are cast on the dealer and the dealer has to comply with those obligations for the purposes of maintaining his dealership. One such obligation is to carry out PDI and said services. The PDI is carried out after the car is delivered to the dealer and before it is handed over to the customer. The free after sales services are to be carried out after the dealer delivers the car to the customer and the customer runs the car for a particular period and then approaches the dealer for getting the Car serviced.
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As to how and when the customer is supposed to get after sales services from the dealer is provided in the Owner's Manual and those terms are not in dispute. Undoubtedly, the dealer is required to spend money to carry out PDI as also said services. The petitioners give warranty to the customer provided the customer gets the car duly inspected as per the PDI requirements as also avails of the benefit of said services as set out in the Owner's Manual. If it is found that a particular customer does not get the PDI done or does not submit his car for said services, he would not be able to get the benefit of terms of warranty and such an omission on the part of the customer would be to the detriment of the customer.
34. For the purposes of determining the assessable value of a car to be sold by the petitioners to the dealer, such assessable value was to be computed as per the provisions of Section 4 as it stood prior to the amendment which came into effect on 1 st July, 2000 on account of introduction of Section 94 of the Finance Act, 2000 (10 of 2000).
The provisions of Section 4 of the said Act were amended by the Finance Act, 2000 w.e.f. 1st July, 2000 and the Excise duty became chargeable on goods with reference to its value on each removal of U.S.Jagtap 31 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc the good. So far as the facts of this case is concerned, as and when the car is removed out of the factory of the petitioners, Excise duty was payable. The assessable value was to be determined as per the provisions of Section 4(1)(a) of said Act as amended as the petitioners and the dealers were not related to each other and the price was the sole consideration. In such a case, the value to be taken up for the purposes of Excise duty was the transaction value.
For the first time the concept of transaction value was introduced by Finance Act, 2000 w.e.f. 1st July, 2000. The term "transaction value"
has been defined in terms of Section 4(3)(d) of said Act. The said term "transaction value" is defined as under.
" "transaction value" means the price actually paid or payable for 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 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 organizational expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods".
35. The amendment to Section 4 of said Act came into effect on 1 st July, U.S.Jagtap 32 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc 2000. The respondents thereafter issued Circular No.643/34/2002- CX dated 1st July, 2002. In Clause No.7 the respondents clarified its stand about the cost of PDI and said services incurred by the dealer during the warranty period. The relevant portion of the Circular is as under.
"Clarifications on points of doubt under the New Valuation provisions introduced w.e.f. 01.07.2000.
Sr. Poitn of doubt Clarification
No.
7 What about the cost Since these services are provided
of after sales service free by the dealer on behalf of the charges and pre- assessee, the cost towards this is delivery inspection included in the dealer's margin (or (PDI and free after reimbursed to him). This is one of sales services) the considerations for sale of the charges, incurred by goods (motor vehicles, consumer the dealer during the items etc.) to the dealer and will warranty period? 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 and free after sales services charges will be included in the assessable value."
36. It is to be noted that the respondents also issued another Circular bearing No. 681/72/2002-CX dated 12th December, 2002 thereby withdrawing earlier Circular No.355/71/97 CX dated 19th November, U.S.Jagtap 33 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc 1997 and subsequent Circular No.435/1/1999 CX dated 12th January, 1999 and further directed that the withdrawal of these two Circulars will apply to past cases only, as the provisions of new Section 4 introduced w.e.f. 1st July, 2000 were not the subject matter of dispute before the Apex Court. This would mean that by this Circular dated 12th December, 2002 the earlier Circular dated 1 st July, 2002 was confirmed and directions were issued to the department to carry out assessment accordingly.
37. The respondents on account of the provisions of Section 4 (1)(a) and 4(3)(d) of said Act as also Circular dated 1 st July, 2002, issued 10 show cause notices for the separate periods covering total period from July, 2000 to November, 2008. These show causes notices were attended to by the petitioners and by order in original dated 30th April, 2009 passed by the Commissioner, Pune, petitioners were ordered to pay Excise duty along with the interest under Section 11AB. of the said Act more particularly mentioned in the order dated 30th April, 2009. The petitioners have challenged this order before the appropriate forum.
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38. The respondents also issued 4 show cause notices to the petitioners for the period December, 2008 to June, 2011. These 4 show cause notices were dealt with by the petitioners and by order in original dated 5th December, 2011 passed by Commissioner, Central Excise, Pune I, the respondents ordered the petitioners to pay duty, interest and penalty more particularly stated in the said order dated 5 th December, 2011.
39. The petitioners have not challenged this order dated 5 th December, 2011 before the appropriate appellate authority. They have chosen to approach this Court to have the clause 7 of the Circular dated 1 st July, 2002 and Circular dated 12 th December, 2002 quashed and set aside. They have also approached this Court to have order in original dated 5th December, 2011 quashed and set aside. They have also approached this Court to quash and aside order dated 13th August, 2010 passed by larger bench of CESTAT in the case of Maruti Suzuki India Ltd. Vs. Commissioner of Central Excise, Delhi III being order reported in 2010 (257) E.L.T. 226 (Tri. LB).
40. It must be mentioned that learned Senior Counsel Mr. Sridharan U.S.Jagtap 35 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc appearing on behalf of the petitioners has restricted his arguments only on the validity of the impugned Circular dated 1 st July, 2012 and 12th December, 2012. The said submissions were attended to by learned Counsel Mr. Jetly and he had opposed the said submissions.
41. In our view, the only question which fell for consideration of this Court was whether Clause 7 of Circular dated 1 st 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 1 st July, 2000. We are in agreement with the submission advanced by learned Senior Counsel U.S.Jagtap 36 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc 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) ELT 1896 SC. 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.
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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 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 U.S.Jagtap 38 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc 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 U.S.Jagtap 39 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc 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 the 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 U.S.Jagtap 40 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc 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 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 U.S.Jagtap 41 of 49 ::: Downloaded on - 09/06/2013 19:04:53 ::: 2744-12-wp-Judgment=.doc 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 U.S.Jagtap 42 of 49 ::: Downloaded on - 09/06/2013 19:04:54 ::: 2744-12-wp-Judgment=.doc 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. 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 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 U.S.Jagtap 43 of 49 ::: Downloaded on - 09/06/2013 19:04:54 ::: 2744-12-wp-Judgment=.doc Mr. Sridharan's submission in terms of judgment in the cast 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 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 1 st 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 U.S.Jagtap 44 of 49 ::: Downloaded on - 09/06/2013 19:04:54 ::: 2744-12-wp-Judgment=.doc 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.
46. We have noted that after the amendment to Section 4 of the said Act in the year 2000, pursuant to Section 94 of the Finance Act, 2000, the respondents issued Circular No.F B-10/1/2000/TRU dated 12th May, 2000 as also Circular letter F. No.354/81/2000/TRU a dated 30th June, 2000. A reading of these two Circulars would clearly go to show that the respondents wanted to clarify the term transaction value and these two Circulars were to be used as guidelines while arriving at the assessable value. Considering these Circulars, we are inclined to accept the submission advanced by learned Senior Counsel Mr. Sridharan that the expenses incurred towards PDI and U.S.Jagtap 45 of 49 ::: Downloaded on - 09/06/2013 19:04:54 ::: 2744-12-wp-Judgment=.doc said services cannot be included in the assessable value. It is peculiar to note that after issuing Circular dated 1 st July, 2002, the respondents issued Circular dated 12 th December, 2002 and in the said Circular, the respondents clearly admitted that the expenses incurred towards pre delivery inspection and free after sales services provided by the dealer to a vehicle during the warranty period will not be included in the assessable value. Paragraph 4 of the Circular dated 12th December, 2002 reads as under.
"In view of the above facts Board withdraws the Circular No. 355/71/97 CX., dated 19th November, 1997 and subsequent Circular No.435/1/99 CX., dated 12th January, 1999 referred to above. In other words, PDI (Pre-Delivery Inspection) and free after sales services provided by the dealer of the vehicle, during the warranty period will not be included in the assessable value".
47. This assertion viz. Expenses for the PDI and said services is not to be included in the assessable value is at variance from Circular dated 1 st July, 2002. The Clause 7 of Circular dated 1 st July, 2002, in our view wrongly proceeds to hold that the expenses incurred by the dealer towards PDI and said services are on behalf of the assessee hence, it is wrong to say that such expenses form as one of the consideration for the sale of goods. In our view, equating the expenses incurred U.S.Jagtap 46 of 49 ::: Downloaded on - 09/06/2013 19:04:54 ::: 2744-12-wp-Judgment=.doc towards PDI and said services with the advertisement and publicity charges is incorrect. In our view, Clause No.7 of Circular dated 1 st July, 2002 is not in conformity with the provisions of Section 4(1)(a) r/w Section 4(3)(d) of the said Act.
48. The matter can be looked from yet another angle namely; a perusal of the term 'transaction value' would show that servicing is one item, which is included in the definition of the term 'transaction value'. In our view, on the basis of record it is clear that the petitioners do not render any services to the dealer and no cost is incurred by the petitioners qua the dealer towards the term "servicing". As such, the petitioners have not included any amount in the assessable value with reference to term "servicing" and as such the expenses incurred towards PDI and said services, which expenses are incurred solely by the dealer without reference to the petitioners cannot be included in the term "servicing" appearing in the term "transaction value". For the reasons mentioned aforesaid if a dealer incurs expenses towards the PDI as well as free after sales services without reference to the manufacturer like petitioners, then, the said expenses incurred by the dealer cannot form a part and parcel of the assessable value. To U.S.Jagtap 47 of 49 ::: Downloaded on - 09/06/2013 19:04:54 ::: 2744-12-wp-Judgment=.doc that extent, Clause 7 of the Circular dated 1st July, 2002 is illegal and void and is contrary to the provisions of Section 4(1)(a) r/w Section 4(3)(d) of the said Act. Similarly, the Circular dated 12 th December, 2002 to the extent it confirms Clause 7 of Circular dated 1 st July, 2002 is void and illegal.
49. For all the aforesaid reasons, we hold that as per Section 4(3)(d) of the Central Excise Act, 1944 the PDI and free after sales services charges can be included in the transaction value only when they are charged by the assessee to the buyer. The impugned circulars, inter alia, purport to hold that where the assessee sells the motor vehicles to a dealer (buyer) at a given price and the dealer in turn sells the said motor vehicles to a customer at a price with dealers margin which includes the PDI charges and after sales service charges, then, the assessable value for determining the Central Excise duty payable by the assessee has to be determined by including the PDI and after sales service charges even if they are not been charged by the assessee to the dealer, which in our opinion is contrary to the provisions of Section 4(3)(d) of the Central Excise Act, 1944 and, hence, liable to be quashed and set aside. Whether the adjudicating U.S.Jagtap 48 of 49 ::: Downloaded on - 09/06/2013 19:04:54 ::: 2744-12-wp-Judgment=.doc authority in the present case is justified in including the PDI and after sales service charges is a question to be decided in the appeal, if any, filed against the order-in-original.
ORDER
(i) The question framed is answered in favour of the petitioners i..e assessee and against the respondents i.e. the Revenue.
(ii) In the facts and circumstances of the case, there shall be no order as to costs.
[R.Y.GANOO, J.] [J.P. DEVADHAR, J.]
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