1999 (8) TMI 539 - AT - Central Excise

Issues Involved:
1. Inclusion of expenditure on service engineers in the assessable value.
2. Imposition of penalty under Section 11AC of the Central Excise Act.
3. Liability to pay interest under Section 11AB of the Central Excise Act.
4. Principal to principal relationship between the appellant and the dealers.
5. Optional nature of service engineers' services.
6. Limitation period for raising demand.

Issue-wise Detailed Analysis:

1. Inclusion of Expenditure on Service Engineers in the Assessable Value:
The primary issue is whether the expenditure on service engineers deputed by the appellant to dealers should be included in the assessable value of the vehicles. The adjudicating authority confirmed the demand for Rs. 1,21,14,837/- as excise duty on the amount received from dealers for service engineers' charges. The appellant argued that the service engineers' charges are optional and not compulsory, as per the agreement with the dealers. The Supreme Court's decision in the case of Vijaya Traders v. Bajaj Auto Ltd. was cited, where it was held that the dealer is not an agent of the appellant, and the transaction is on a principal-to-principal basis. The Tribunal concluded that since the relationship is on a principal-to-principal basis and the after-sales service is optional, the expenditure on service engineers should not be included in the assessable value.

2. Imposition of Penalty under Section 11AC of the Central Excise Act:
The Order-in-Original imposed a penalty equal to the duty amount under Section 11AC. The appellant contested this imposition, arguing that the charges for service engineers are optional and not part of the assessable value. Given the Tribunal's finding that the service engineers' charges should not be included in the assessable value, the imposition of a penalty under Section 11AC was also deemed unjustified.

3. Liability to Pay Interest under Section 11AB of the Central Excise Act:
The Order-in-Original also directed the appellant to pay interest under Section 11AB. The Tribunal's decision to exclude the service engineers' charges from the assessable value negated the basis for the interest liability. Consequently, the direction to pay interest under Section 11AB was overturned.

4. Principal to Principal Relationship Between the Appellant and the Dealers:
The Tribunal emphasized that the relationship between the appellant and the dealers is on a principal-to-principal basis, as confirmed by the Supreme Court in the case of Vijaya Traders v. Bajaj Auto Ltd. This relationship implies that once the vehicles are sold to the dealers, the dealers become the owners, and any subsequent services provided by the appellant's engineers are at the dealers' discretion and for their benefit, not the manufacturer's.

5. Optional Nature of Service Engineers' Services:
The Tribunal noted that the service engineers' services are optional and provided at the dealers' request. This optional nature was corroborated by statements from the appellant's representatives, indicating that the service engineers were deputed only upon dealers' requests. Since these services are not mandatory, they do not form part of the manufacturing cost or the assessable value.

6. Limitation Period for Raising Demand:
The appellant raised points regarding the limitation period for raising the demand. The Tribunal acknowledged that the nature of transactions was known to the department as far back as 1987, and there was no significant change in the transactions. The Tribunal implicitly accepted that the demand raised in the Show Cause Notice dated 3-12-1997 might be time-barred, further supporting the appellant's case.

Conclusion:
The Tribunal allowed the appeal, concluding that the expenditure on service engineers should not be included in the assessable value, and thus, the demand for duty, penalty, and interest was unjustified. The principal-to-principal relationship and the optional nature of the service engineers' services were key factors in this decision.

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