2018 (9) TMI 307 - AT - Central Excise

Valuation - inclusion of price of warranty services in assessable value - contract entered into between the appellant and State Bank of India and their associates - Banks were required to make payment for warranty services half-yearly in arrears, the price of which was not included in the price of the ATM and was required to be paid separately by the banks - Held that - While the transaction value would bring within its scope not the price actually paid but that which is actually payable. Amongst the other ingredients, charges towards warranty in connection with the sale, whether payable at the time of the sale or at any other time, etc., will form part of the transaction value. Only then will the transaction value become the assessable value for levy of Central Excise Duty. What comes to the fore is that the price of warranty services is not included in the price of the products and is payable separately by the bank as per agreed rates. Not only that, after expiry of warranty period of two years, the second line maintenance charges will also kick in. Discernibly, without agreement on payment of warranty charges for two years and second line maintenance charges after expiry of that period for another three years, the ATM machine is not sold. Evidently, the agreement to pay these warranty charges and their actual payment is nothing but a condition precedent to the same. It is mandatory for the buyers of the ATMs to also accept the warranty agreement referred to above and pay warranty charges for the first two years and second line maintenance charges for the next three. Although the amounts become payable only later, in our view, this would still come within the scope of the definition of the type of warranty charges that would be required to be incorporated into transaction value for the purposes of Section 4(3)(d) of the Act. Time Limitation - Penalty u/s 11AC - Held that - The ingredients of attracting invocation of extended period, in particular suppression, are very much present in this case and hence, not only will the extended period of limitation provided under the Central Excise Act be applicable but also equal penalty under Section 11AC imposable. However, the penalty of ₹ 10,000/- imposed under Rule 25 of the Central Excise Rules, 2002 is unjustified and therefore, set aside. Appeal allowed in part.

Summary

Issues:
1. Whether warranty charges and second line maintenance charges should be included in the assessable value of Automatic Teller Machines (ATMs) for the purpose of Central Excise Duty?
2. Whether the demand for Central Excise Duty, interest, and penalty is barred by limitation in the case of the appellant?
3. Whether the penalty imposed under Rule 25 of the Central Excise Rules, 2002 is justified in one of the appeals?

Issue 1: Warranty and Maintenance Charges in Assessable Value:
The case involved a dispute regarding whether warranty charges and second line maintenance charges should be included in the assessable value of ATMs for Central Excise Duty purposes. The appellant contended that warranty charges were separate from the sale price of the ATMs and were optional, not forming part of the sale consideration. However, the Department argued that these charges were compulsory and connected with the supply of ATMs. The Tribunal analyzed the Master Solutions Agreement and addenda, concluding that payment of warranty charges and maintenance charges was mandatory for the sale of ATMs. As per Section 4 of the Central Excise Act, charges towards warranty in connection with the sale are to be included in the transaction value, making them part of the assessable value for Central Excise Duty.

Issue 2: Limitation on Demand for Central Excise Duty:
The appellant raised the issue of limitation, arguing that they believed they were only liable to pay service tax and not include warranty charges in the assessable value for excise duty. However, the Tribunal found that the appellant's failure to include warranty charges in the assessable value was a suppression of facts, justifying the application of the extended period of limitation under the Central Excise Act. The Tribunal upheld the demand for Central Excise Duty, interest, and imposed a penalty under Section 11AC due to the suppression of facts by the appellant.

Issue 3: Justification of Penalty under Rule 25:
In one of the appeals, a penalty of ?10,000 was imposed under Rule 25 of the Central Excise Rules, 2002. The Tribunal deemed this penalty unjustified and set it aside, partly allowing the appeal. However, in the other appeal, the penalty under Section 11AC was upheld due to the appellant's failure to include warranty charges in the assessable value and the suppression of facts, leading to the imposition of the penalty.

In conclusion, the Tribunal dismissed Appeal No. E/41210/2017, upholding the demand for Central Excise Duty, interest, and penalty. In Appeal No. E/449/2010, the penalty under Rule 25 was set aside, partially allowing the appeal. The judgment highlighted the importance of including warranty charges in the assessable value for Central Excise Duty and the consequences of suppression of facts in excise duty matters.