2006 (5) TMI 5 - AT - Central Excise

Central Excise Automobile Valuation Automobiles extended optional warranty charges not includible

Summary

Issues:
1. Whether the cost of extended warranty should be included in the assessable value of cars for the purpose of Central Excise duty?
2. Whether the extended warranty is in connection with the sale of cars, justifying its inclusion in the assessable value?
3. Whether the extended warranty scheme administered by the manufacturer is a separate business from the sale of cars?

Analysis:
Issue 1:
The appellant, engaged in automobile manufacturing, introduced an optional extended warranty for 3rd and 4th years on cars sold, leading to a Central Excise duty demand of over Rs. 18 crores for the period April 2002 to March 2005. The authorities held that the extended warranty cost should be part of the assessable value of cars. The appellant contested this, arguing that the extended warranty is a separate scheme from the sale of cars, with no direct connection to the sale price.

Issue 2:
The Central Excise authorities contended that the extended warranty is in connection with the sale of cars and should be included in the assessable value. They argued that the warranty, being an extension of the original warranty, is part of the sale transaction and administered by the manufacturer in relation to the sale of cars. They referred to a Board's Circular supporting the inclusion of service warranty in the transaction value and emphasized the connection between the extended warranty and the sale of cars.

Issue 3:
The appellant's position was that the extended warranty scheme is a separate business from the sale of cars, with no direct or proximate connection to the sale transaction. They highlighted that the first sale of cars is to dealers, and the extended warranty purchase is not obligatory for buyers. The Tribunal referred to a previous case involving preventive maintenance service for vehicles, where it was held that such services not directly connected to the sale should not be included in the assessable value. The Tribunal concluded that the extended warranty scheme is a separate business from the sale of cars, following its earlier decision in a similar case involving preventive maintenance services.

In conclusion, the Tribunal allowed the appeals, setting aside the impugned orders and holding that the extended warranty charges should not be included in the assessable value of cars for Central Excise duty purposes.