2004 (1) TMI 72 - SC - Central Excise

Whether the amount i.e. security deposit for installation, customer training and cost of labour for repairs done by the dealer during the warranty period is to be included while calculating the assessable value of the diesel engine? Held that - The ratio laid down in cases relied upon by respondents has no application to the facts of the present case. In those cases, no amounts were being recovered from the customer. In these cases there were agreements between the manufacturers and the dealers by virtue of which the dealers were providing free after sales service . The question, therefore, was whether the value of these services was included. As the customer did not pay for them, it was held that this value could not be included. In the present case, the customer is compulsorily paying this amount. Therefore, the ratio of those cases cannot apply. The order of the Commissioner (Appeals) is restored stating that the security deposit in question is on account of installation work and hence should not be included in the assessable value is not factually correct and is seen as an attempt to divert a part of the true price of the goods to installation charges .

Summary

Issues:
1. Inclusion of a sum recovered for security deposit in the assessable value of diesel engines.
2. Exclusion of charges for installation, training, and repair labor from the assessable value.

Issue 1:
The case involved determining whether a sum of Rs. 300 recovered for security deposit, installation, customer training, and repair labor should be included in the assessable value of diesel engines. The lower authorities found that the amount was an 'after sales service charge' and not for installation, leading to the conclusion that it should be included in the assessable value. The Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT) allowed the appeal, holding that charges for installation and training are excludable from the normal price. However, the Supreme Court held that if charges were for installation, they would not be includable in the assessable value. Since it was factually established that there was no installation, the charges were not excludable. The Court found CEGAT's exclusion of Rs. 150 for installation and training erroneous.

Issue 2:
Regarding the amount of Rs. 150 for repair labor by dealers during the warranty period, CEGAT erroneously excluded these charges by conflating service and repairs. The Court clarified that service and repairs are distinct, and charges for repairs during the warranty period should not be excluded based on service provided by dealers. The Court referenced a previous case to emphasize that expenses contributing to the value of an article, such as after-sales service, cannot be deducted from the assessable value. Unlike previous cases where free after-sales service was provided without customer payment, in this case, the customer compulsorily paid the amount. Therefore, the Court held that the charges for repair labor should be included in the assessable value. The Supreme Court set aside CEGAT's judgment and restored the order of the Commissioner (Appeals).

In conclusion, the Supreme Court clarified the inclusion of charges in the assessable value of diesel engines, emphasizing the distinction between installation, training, service, and repairs. The judgment highlighted the importance of factual findings and the compulsory nature of customer payments in determining assessable value components.