2005 (1) TMI 150 - AT - Central Excise

Summary

Issues:
1. Differential duty demand on motor vehicles
2. Inclusion of service charges in assessable value

Analysis:

Issue 1: Differential duty demand on motor vehicles
The appellants, who manufacture motor vehicles near Bangalore, were subjected to a differential duty demand of approximately Rs. 7.5 crores by the Commissioner of Central Excise, Bangalore for vehicles cleared between July 1998 and August 2002. The demand arose from the alleged incorrect determination of assessable value by including amounts collected under service contracts. The appellants contested this demand, arguing that the service agreement amounts were not directly related to the sale of motor vehicles but for post-sale maintenance. They highlighted that the free service provided after 10,000 Kms. was the only service connected to the sale. The appellant's counsel referred to legal precedents, including the Kelvinator case, to support their position that optional service charges post-sale are not includible in the assessable value. They emphasized that even under the revised Section of the Central Excise Act from July 2000, only servicing "by reason of and or in connection with the sale" should be included. The appellant's stance was supported by the Acer India Ltd. case, emphasizing that only excisable goods' value should be considered for assessable value calculation.

Issue 2: Inclusion of service charges in assessable value
The Revenue's Senior Counsel argued that servicing is explicitly included in the transaction value definition under Section 4 of the Central Excise Act. They contended that the service agreement was integral to the sale of motor vehicles, as preventive maintenance was a prerequisite for the manufacturer's warranty. Referring to legal precedents like the State of Gujarat case, the Senior Counsel highlighted the proximate connection between cause and effect, asserting that servicing under the agreement was linked to the sale. However, upon thorough examination, the Tribunal concluded that the service agreement for preventive maintenance was a separate transaction from the sale of motor vehicles. The free service provided post-sale was deemed part of the sale consideration, while the service agreement was a distinct activity unrelated to the sale. Citing the Philips India Ltd. case, the Tribunal emphasized legitimate business considerations and found no direct connection between the service agreement and the sale of motor vehicles. Consequently, the Tribunal ruled in favor of the appellants, holding that the service agreement payments should not be included in the assessable value of the motor vehicles. The impugned order was set aside, and the appeal was allowed with consequential relief for the appellants.