2014 (3) TMI 709 - AT - Central Excise

Valuation of goods - Inclusion of pre-delivery inspection charges and free maintenance expenses - Validity of CBEC Circular No.643/34/2002-CX dated 1.7.2002. - Held that - In Tata Motors Ltd. 2012 (9) TMI 244 - BOMBAY HIGH COURT , it was held 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 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. In the case of Tata Motors Ltd. 2012 (9) TMI 244 - BOMBAY HIGH COURT , HC had taken note of the decision of the Larger Bench in the case of MARUTI SUZUKI INDIA LTD 2010 (8) TMI 49 - CESTAT, NEW DELHI and yet came to the conclusion favourable to the appellants in that case. - Decided in favor of assessee.

Summary

Issues Involved:
1. Whether pre-delivery inspection (PDI) charges and free maintenance expenses incurred by dealers should be included in the assessable value for Central Excise duty.

Issue-wise Detailed Analysis:

1. Context and Background:
The appellant, a manufacturer of motor vehicles, clears vehicles for sale to dealers across the country, paying Central Excise duty on the transaction value charged to dealers. The central issue is whether PDI charges and free maintenance expenses incurred by dealers should be added to the assessable value, as per the proceedings initiated by the department based on CBEC Circular No. 643/34/2002-CX dated 1.7.2002.

2. Arguments by the Appellant:
The appellant's counsel argued that the department's case relies on the aforementioned circular, specifically Item No. 7, which suggests including PDI and free maintenance charges in the assessable value. They cited the decision of the Hon'ble High Court of Bombay in Tata Motors Ltd. (2012 (286) E.L.T. 161 (Bom.)), which concluded that such charges should not be included in the assessable value, asserting that the issue is no longer res integra.

3. Arguments by the Respondent:
The respondent's Additional Commissioner (AR) referred to the decision of the Larger Bench in Maruti Suzuki India Ltd. (MSIL) (2010(257) E.L.T. 226 (Tri.-LB)), which held that PDI and after-sales service charges borne by the dealer must be added to the assessable value. This decision was challenged in the Supreme Court, which refused to grant a stay. The AR also pointed to agreements with dealers to support the submission that the issue is covered by the Bombay High Court decision.

4. Examination of Circular and Judicial Precedents:
The tribunal examined Item No. 7 of the circular, which equates PDI and free service charges with advertisement and publicity charges, including them in the assessable value. However, they noted that several decisions on this issue exist, including those in Hyundai Motor (India) Ltd., Toyota Kirloskar Motors Ltd., Mahindra & Mahindra Ltd., Escorts Tractors Ltd., Hindustan Motors Ltd., and Skoda Auto India Pvt. Ltd. None of these decisions directly covered the appellant's case where dealers incur expenses out of their margin without reimbursement from the manufacturer.

5. Analysis of Tata Motors Ltd. Case:
The tribunal closely analyzed the Tata Motors Ltd. case, where the Bombay High Court concluded that PDI and free service costs should not be included in the assessable value if the expenses are borne by the dealer without reimbursement. The court found that such expenses are not part of the transaction value as defined under Section 4(1)(a) read with Section 4(3)(d) of the Central Excise Act, 1944.

6. Examination of Dealership Agreement:
The tribunal reviewed the appellant's dealership agreement, which indicated that dealers bear the expenses for PDI and free services from their margin, without reimbursement. This aligns with the Tata Motors Ltd. case, where similar circumstances led to a favorable decision for the appellant.

7. Conclusion:
The tribunal concluded that the PDI and free service charges incurred by dealers should not be included in the assessable value, following the Bombay High Court's decision in Tata Motors Ltd. Judicial discipline requires following the higher judicial forum's decision, leading to a judgment in favor of the appellant and against the Revenue. Consequently, all appeals were allowed with consequential relief to the appellants.

Operative Portion:
The operative portion of the order was pronounced in open court upon the conclusion of the hearing.