2023 (11) TMI 370 - AT - Central Excise

Valuation - inclusion of after sale service charges, reimbursed by the appellants to their dealers, in the assessable value - providing free service to the customers during the warranty period and the expenses are reimbursed by the appellants to the dealers - HELD THAT - Though, the appellants and the Adjudicating Authority have considered the reimbursed expenses as the demand on the includability of post-delivery inspection charges and after sale service charges, no clarity as to what the reimbursed expenses constitute is given in the show-cause notice. The Show Cause Notice makes a bland and general averment, in Para 2 of the show-cause notice, that it is a well-known fact in case of motor vehicles manufacturers that After Sales service and pre-delivery inspection (PDI) are services provided free by the dealer on behalf of the assessee, the cost towards this is included in the dealer s margin (or reimbursed to him). It is also not made clear, in the show-cause notice, as to whether the amounts reimbursed, by the appellants to their dealers, were towards PDI and ASS. Moreover, the show-cause notice seeks to demand duty on the expenses, understandably incurred by the appellants, reimbursed to the dealers. It is beyond imagination as to how these amounts constitute flow of additional consideration unless it is evidenced either that the appellants are allowing the dealers to collect the margin payable, by the appellant to the dealers, from ultimate customers or that the additional amounts charged by the dealers from ultimate customers is actually flowing back to the appellants. Only under these two conditions the said expenses can be held includable in the assessable value even under the old or amended definition of Section 4 of CEA, 1944 - there is no provision either under Section 4 of the CEA, 1944 or under the Valuation Rules thereof to include an amount which flows out from the manufacturer to their customers. It is not the case of the Department that the appellants, instead of reimbursing the expenses on account of PDI and ASS, allowed the dealers to recover the same from the customers or that the appellants have received some amounts as extra consideration under these Heads. It is not forthcoming from the show-cause notice or from the records of the case that the amount recovered by the dealers over and above the listed price sanctioned by the appellants is towards the amount reimbursable by the appellants to the dealers. It is also not established that the amount extra collected is towards the PDI and ASS. There is no evidence to prove that the amount charged extra by the dealers is flowing back towards the appellant - the impugned order as well as the arguments of the learned Authorized Representative and to some extent, argument of the Counsel also is beyond the scope of the show-cause notice. No case is made for the inclusion of after sale expenses reimbursed to the dealers by the Noticee except for a bland averment in Para 2 of the show-cause notice that it is a well-known fact in case of motor vehicles manufacturers that After Sales service and pre-delivery inspection (PDI) are services provided free by the dealer on behalf of the assessee, the cost towards this is included in the dealer s margin (or reimbursed to him). Thus, it is not made clear in the show-cause notice as to whether these expenses reimbursed by the appellants were towards PDI and ASS - the impugned order cannot be sustained - appeal allowed.

Issues Involved:

1. Inclusion of after-sale service charges in the assessable value.
2. Inclusion of post-delivery inspection (PDI) charges in the assessable value.
3. Invocation of the extended period for demand.
4. Validity of the show-cause notice and impugned order.
5. Reimbursement of expenses by the appellant to the dealers.

Summary:

1. Inclusion of after-sale service charges in the assessable value:

The Department argued that the after-sale service charges reimbursed by the appellants to their dealers should be included in the assessable value. The appellants contended that the issue was settled in several cases, stating that costs incurred by dealers after the sale cannot be added back to the sale price charged by the manufacturer for computing the assessable value. The Tribunal found that the show-cause notice lacked clarity on what constituted the reimbursed expenses and whether they were indeed for PDI and ASS. Therefore, no case was made for their inclusion in the assessable value.

2. Inclusion of post-delivery inspection (PDI) charges in the assessable value:

The Department also sought to include PDI charges in the assessable value, arguing that these charges were necessary for warranty claims and were included in the dealer's margin. The Tribunal found no evidence that the amounts reimbursed by the appellants to the dealers were specifically for PDI and ASS. The Tribunal referred to previous judgments, including General Motors India Pvt. Ltd., which held that PDI and ASS charges should not be included in the assessable value.

3. Invocation of the extended period for demand:

The appellants argued that the extended period could not be invoked as the issue was one of interpretation of law and had been dealt with by various judicial fora. The Tribunal agreed, noting that the show-cause notice and the impugned order did not provide sufficient grounds for invoking the extended period.

4. Validity of the show-cause notice and impugned order:

The Tribunal found that the show-cause notice made a general averment without clear evidence that the expenses reimbursed to the dealers were for PDI and ASS. The Tribunal emphasized that a show-cause notice is the foundation of the case, and a case cannot be made where the foundation is not strong. Consequently, the impugned order was found to be unsustainable.

5. Reimbursement of expenses by the appellant to the dealers:

The Tribunal observed that the whole case of the Department was based on the accepted fact that the appellants reimbursed certain expenses to the dealers. However, it was not established that these amounts were for PDI and ASS or that the extra amounts charged by the dealers flowed back to the appellants. The Tribunal concluded that there was no provision under Section 4 of the CEA, 1944, or the Valuation Rules to include amounts flowing from the manufacturer to the customers in the assessable value.

Conclusion:

The Tribunal allowed the appeal, finding that the impugned order and the show-cause notice did not provide sufficient grounds for including the after-sale service and PDI charges in the assessable value. The Tribunal noted that previous judgments supported the appellants' position and that the show-cause notice lacked the necessary clarity and evidence.

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