1988 (4) TMI 69 - SC - Central Excise

Whether the four year service contract charge is includible in the value of the refrigerators for the purpose of assessment of Central Excise Duty under Section 4 of the Act? Held that - The Tribunal observed that the respondents herein offered the four years service by a stamped endorsement on their sale invoice, itself, it did not mean that the subsequent exercise of option by the buyer related back to the date of purchase itself. It was also found that there was no evidence to conclude that the service contract was a facade to split the true value of refrigerators into taxable and non-taxable components. In that view of the matter, the Tribunal correctly set aside the order of the Collector of Central Excise (Appeals) and allowed the appeals. The contract for four years warranty service was optional, which was entered into later on. This is clearly after-sale facility and cannot be includible in the assessable value of the refrigerators.

Issues:
1. Inclusion of four-year service contract charge in the value of refrigerators for central excise duty assessment under Section 4 of the Act.

Detailed Analysis:

1. Background:
The case involves appeals under Section 35L(b) of the Central Excises & Salt Act, 1944 by M/s. Kelvinator of India Ltd., manufacturers of refrigerators, regarding the inclusion of a four-year service contract charge in the assessable value of refrigerators for central excise duty assessment.

2. Assistant Collector's Decision:
The Assistant Collector held that the service charge should be included in the value of the refrigerator for central excise duty assessment, citing the decision in Union of India v. Bombay Tyre International Ltd., where it was held that after-sale service charges cannot be deducted from the assessable value.

3. Appellate Proceedings:
The Appellate Collector and Tribunal upheld the Assistant Collector's decision. However, the Tribunal found that the service contract charge for the second and third year after the warranty period was optional and not includible in the assessable value.

4. Tribunal's Findings:
The Tribunal concluded that the service contract charge was optional, entered into after the warranty period, and not compulsory. It was observed that the service contract did not artificially split the value of refrigerators into taxable and non-taxable components.

5. Legal Precedents and Observations:
The Tribunal referenced legal precedents, including the judgment in Union of India v. Bombay Tyre International Ltd., to support its decision that expenses incurred after the sale, such as after-sales service charges, should not be included in the assessable value. The Tribunal emphasized that the service contract was an after-sale facility and not part of the assessable value.

6. Tribunal's Decision:
Based on the findings that the service contract was optional and provided post-warranty, the Tribunal set aside the previous orders and allowed the appeals. The Tribunal held that the service contract charge should not be included in the assessable value of the refrigerators for central excise duty assessment.

7. Supreme Court Judgment:
The Supreme Court affirmed the Tribunal's decision, stating that the service contract charge was optional, entered into after the warranty period, and constituted an after-sale facility. Consequently, the appeals were dismissed, upholding the Tribunal's ruling that the service contract charge should not be included in the assessable value of the refrigerators for central excise duty assessment.

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