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TMI Blog2012 (9) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by respondent no.2 by which it is held that cost of PDI and free after sales services have to be included in the assessable value of the vehicles sold by the petitioners be quashed and set aside. (iv) The judgment delivered by the CESTAT in the case of Maruti Suzuki Ltd. Vs. Commissioner of Central Excise, Delhi III reported at 2010 (257) ELT 226 (TriLB) be declared as incorrect and invalid in law. (v) Writ of mandamus be issued thereby directing respondent no.2 by himself, his subordinates, servants and agents to withdraw and / or cancel the impugned order in original dated 5th December, 2011 passed by respondent no.2. (vi) Restrain the respondents from taking any further proceeding or steps in furtherance and or in implementation of the impugned order in original dated 5th December, 2011 passed by the respondent no.2. 3. However, at the hearing of the Petition, Counsel for the petitioners has restricted his arguments regarding the validity of the impugned Circular dated 1st July, 2002 and 12th December, 2012. Hence, the only question to be considered in this Writ Petition is whether clause no.7 of the Circular bearing No. 643/34/2002CX dated 1st July, 2002 read with Circul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners manual. The dealer is required to conduct free servicing in respect of the said car, which would be used by the customer. These services are referred to as free after sales services. (For short Said services). 6. According to the petitioners, the dealer has to employ necessary persons as also use necessary machinery to carry out PDI and said services. The expenses to conduct PDI and said services are to be incurred by the dealer without reference to the petitioners. It is also the case of the petitioners that the petitioners do not reimburse the expenses incurred by the dealer on PDI and said services. According to the petitioners they have been paying Excise duty on the amount charged by them to the dealer while selling the car to the dealer. The petitioners received 4 show cause notices calling upon the petitioners to pay duty on account of Clause 7 of Circular No. 643/34/2002 dated 1st July, 2002 (For short Circular dated 1st July, 2002) as according to the respondents the costs incurred by the dealer towards PDI and said services was includable in assessable value. The four show cause notices cover the period from December, 2008 to June, 2011. These show cause notices are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and that the assessee and the such dealers are not related to each other, the price is the sole consideration and that the transaction between the petitioners and individual dealer is on principal to principal basis and the said transaction is governed by the terms and conditions stipulated in the dealership agreement. Learned Senior Counsel Mr. Sridharan therefore submitted that according to the petitioners the Excise duty shall be payable on the transaction value as between the petitioners and the individual dealer. Learned Senior Counsel Mr. Sridharan submitted that on account of amendment to Section 4 as mentioned aforesaid, the term "transaction value" came to be introduced. SubSection 3(d) of Section 4 of said Act defines the term "transaction value". Learned Senior Counsel Mr. Sridharan had therefore submitted that in order to ascertain the assessable value of a car sold by the petitioners to a dealer, all those amounts which can be included in the definition of the term "transaction value" would be relevant and all those amounts taken together would constitute an assessable value and it is on that assessable value, the respondents can demand the Excise duty. 10. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the expressions "by reason of or in connection with the sale whether payable at the time of sale or at any other time" would be relevant for the purposes of deciding the question as to whether the expenses incurred by the dealer towards PDI and said services would form the part of the transaction value. Learned Senior Counsel Mr. Sridharan submitted that on a proper interpretation of this term and on consideration of the facts, it would be clear that the only amount payable by the dealer to the petitioners is the amount charged by the petitioners as the cost of the car. He further submitted that the said amount is payable by the dealer and as such the said amount will be the transaction value. Learned Senior Counsel Mr. Sridharan further submitted that the expression "whether payable at the time of sale or at any other time" shows that while the liability to pay additional amount is created and linked to the sale of goods, however, actual payment may be deferred to a later point of time also (For e.g. Credit Sales). According to the learned Senior Counsel Mr. Sridharan, the aforesaid terms would clearly exclude the expenses incurred for PDI and after sale services by the dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction value and including various items in the said term transaction value, the quantification of assessable value is made simpler. He also submitted that it leaves no scope of doubt and all items which are mentioned in the term transaction value taken together in the facts and circumstance of a case shall constitute assessable value on which the Excise duty would be payable. 15. Learned Senior Counsel Mr. Sridharan had submitted that the measure of levy of Excise duty is the transaction value as defined in Section 4(3) (d) of the said Act, which is the price charged by the manufacturer to the buyer. He further submitted that Excise is concerned with the first entry into stream of trade and Excise is not concerned with what happened to the goods thereafter. He submitted that in the present case the profit margin was fixed by the petitioners is irrelevant while determining the transaction value where a car is sold to a dealer. 16. It was submitted by learned Senior Counsel Mr. Sridharan that the respondents have not been able to place on record any material to show that the expenses for PDI and said services were paid by the petitioners to the dealer or reimbursed. According t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel Mr. Sridharan had submitted that on account of Circular dated 12th May, 2000 what would be the transaction value was clarified by the respondents and according to him, the said Circular dated 12th May, 2000 supports the stand of the petitioners. 19. Learned advocate Mr. Sridharan appearing on behalf of the petitioners had relied upon the Circular No.F 354/81/200 TRU dated 30th June, 2000. He pointed out that on that day, the notification was issued bringing into effect new Section 4 effective from 1st July, 2000. Similarly, Central Excise (Determination of value of Excisable Goods) Rules, 2000 were brought into effect from 1st July, 2000. He pointed out that the said Circular dated 30th June, 2000 gives clause by clause explanation of the Section. He, therefore, submitted that the said Circular is clearly a contemporaneous exposition. He wanted this Court to rely upon the following portion of the said Circular. "6. .....It may also be noted that where the assessee charges an amount as price for his goods, the amount so charged and paid or payable for the goods will form the assessable value. If however, in addition to the amount charged as price from the buyer, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period will not be included in the assessable value, then, the Circular dated 1st July, 2002 will have to be treated as having been issued in excess of the provisions of Section 4(1)(a) and 4(3)(d) of the said Act. He, therefore, submitted that this is one more ground on which the Circular dated 1st July, 2002 as well as 12th December, 2002 are required to be declared as illegal, void and not applicable to the case of the petitioners. 22. Learned Senior Counsel Mr. Sridharan had further submitted that the Circular dated 1st July, 2002 impugned in this petition proceeds on the footing that since the services are provided free by the dealer on behalf of the petitioners, the cost towards this is included in the dealer's margin (or reimbursed to him). He further pointed out that respondents have treated this as a consideration for the sale of the goods to the dealer and have therefore applied Rule 6 of the Valuation Rules and have treated those expenses as expenses similar to the advertisement and publicity and have thereafter proceeded to include those expenses in the assessable value. Learned Senior Counsel Mr. Sridharan submitted that it is true that the dealer provides PDI and sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich in fact is recovered from such a car dealer. He submitted that since the expenses for PDI and said services are exclusively incurred by the dealer, there is no question of adding them in the assessable value. Learned Senior Counsel Mr. Sridharan relied upon the judgment in the case of Atic Industries Ltd. Vs. H.H.Dave, Assistant Collector of Central Excise and Ors. reported in 1978, (2) E.L.T. (J 444) (S.C.). He pointed out that the Supreme Court in this judgment has held that the price at which the goods were sold by the manufacturer to the distributor, less trade discount was to be taken as the assessable value of the case. He further submitted that in the aforesaid case, it was also held that the price which was relevant for the purpose of Excise duty was the price when the goods first entered the stream of trade. Learned Senior Counsel Mr. Sridharan submitted that in the present case, there is no question of trade discount given. In the present case, in fact the petitioners are not giving any trade discount to the dealers and the car is sold to the dealer at a price and the petitioners are paying Excise on the said amount. He further submitted that in the present case, once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icing, warranty, commission or any other matter. According to him, the expenses incurred for PDI and said services will be includable in the term transaction value in view of the specific definition of the term transaction value. He further submitted that the transaction value does not merely include the amount paid to the assessee towards price but also includes any amount paid on behalf of the assessee to the dealer or person selling the vehicles. According to him, measure of levying is expanded and its composition broaden to bring all that a buyer is liable to pay or incur by reason of sale or in connection therewith. According to the respondents, clearance of goods subject to fulfillment of sales conditions contribute to the assessable value by the amended definition of the term transaction value. Learned Counsel Mr. Jetly further submitted that the theory of "flow back of consideration or part thereof is not confined to direct monetary benefit to the assessee in connection with the sale of vehicle but rejuvenated to include consideration integrally connected with postsale obligations also and indirect benefit received in the course of or on account of sale as well as subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded in the assessable value. 28.It was submitted by learned Counsel Mr. Jetly that the dealer provides PDI and said services on behalf of the petitioners hence, expenses incurred towards PDI and said services should form the part of the assessable value. According to him the quantum of expenses incurred constitute an additional consideration payable by the dealer to the petitioners for purchasing the car. He therefore submitted that to the facts of this case, Rule 6 of the valuation Rules is applicable like expenses which are incurred on advertisement or publicity. 29. Learned Counsel Mr. Jetly had further submitted that Circular dated 12th December, 2002 makes it abundantly clear that instances of sale on or after 1st July, 2000 shall be governed by the Circular dated 1st July, 2002 in as much as the cost incurred towards PDI and said services will be included in the assessable value. Learned Counsel Mr. Jetly submitted that on account of Circular dated 1st July, 2002 and 12th December, 2002 the showcause notices were issued and order in original is passed. 30. It was submitted by learned Counsel Mr. Jetly that in respect of the 4 show causes notices, the order in original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioners notify to the dealer the maximum amount for which the car can be sold. The amount charged by the dealer to his customer minus the amount charged by the petitioners to such dealer will be dealer's margin. The restriction imposed by the petitioners as not to sell the car for an amount more than the one specified by the petitioners has nothing to do with the facts of the present case. In a typical dealership agreement, various responsibilities are cast on the dealer and the dealer has to comply with those obligations for the purposes of maintaining his dealership. One such obligation is to carry out PDI and said services. The PDI is carried out after the car is delivered to the dealer and before it is handed over to the customer. The free after sales services are to be carried out after the dealer delivers the car to the customer and the customer runs the car for a particular period and then approaches the dealer for getting the Car serviced. As to how and when the customer is supposed to get after sales services from the dealer is provided in the Owner's Manual and those terms are not in dispute. Undoubtedly, the dealer is required to spend money to carry out PDI as als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctually paid or actually payable on such goods". 35. The amendment to Section 4 of said Act came into effect on 1st July, 2000. The respondents thereafter issued Circular No.643/34/2002CX dated 1st July, 2002. In Clause No.7 the respondents clarified its stand about the cost of PDI and said services incurred by the dealer during the warranty period. The relevant portion of the Circular is as under. "Clarifications on points of doubt under the New Valuation provisions introduced w.e.f. 01.07.2000. Sr. No. Point of doubt Clarification 7 What about the cost of after sales service charges and predelivery inspection (PDI and free after sales services) charges, incurred by the dealer during the warranty period? Since these services are 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). This is one of the considerations for sale of the goods (motor vehicles, consumer items etc.) to the dealer and will therefore be governed by Rule 6 of the Valuation Rules on the same grounds as indicated in respect of Advertisement and publicity charges. That is, in such cases the after sales service charges and P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Central Excise, Delhi III being order reported in 2010 (257) E.L.T. 226 (Tri. LB). 40. It must be mentioned that learned Senior Counsel Mr. Sridharan appearing on behalf of the petitioners has restricted his arguments only on the validity of the impugned Circular dated 1st July, 2012 and 12th December, 2012. The said submissions were attended to by learned Counsel Mr. Jetly and he had opposed the said submissions. 41. In our view, the only question which fell for consideration of this Court was whether Clause 7 of Circular dated 1st July, 2002 is in excess of the provisions of Section 4(1)(a) and 4(3)(d) of said Act as amended by Section 94 of the Finance Act of 2000. In our view, the answer to this question will decide the issues as between the petitioners and the respondents. In our view, it is not necessary for us to record our views on the correctness of the judgment delivered by the larger bench in the case of Maruti Suzuki (Supra). Similarly, in our view, it is not necessary to express any view on the order in original dated 5th December, 2011. 42.We have considered the provisions of Section 4 (1)(a) as amended as well as the provisions of Section 4 as they stood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the terms and conditions entered into mentioned in the dealer's agreement, a dealer is required to carry out Pre Delivery Inspection as well as said services in regard to a car which is sold to a customer. From the record it is seen that a dealer is required to pay an amount to the petitioners towards the cost of the car and a dealer cannot charge more than the amount specified by the petitioners. The difference between the price so fixed by the petitioners and the price paid by the dealer constitutes what is called as dealer's margin. A dealer has to spend money to conduct PDI as well as render said services. We are inclined to accept the stand of the petitioners that the dealer is required to perform PDI as well as said services as a part of the dealer's responsibility cast on him as per the dealership agreement. The contention of the petitioners that the petitioners do not charge the dealer for the expenses incurred by the dealer towards PDI and said services is required to be accepted. From the record it is clear that the case of the petitioners so far as the amount incurred by the dealer towards PDI and said services does not form any of the clauses viz. (a) Any amount char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards PDI and free after sales services. 44. It has been the contention of the respondents that the petitioners provide warranty in regard to the car which is sold by the dealer to the customer. According to the respondents the customer can avail of the benefit of this warranty, provided PDI is carried out in respect of the car and the customer avails of the benefit of said services. According to the respondents the warranty given by the petitioners is linked with expenses incurred towards PDI and said services and that is how the expenses incurred for PDI and said services become a part of the transaction value. We are not inclined to accept this contention. It is true that the Owner's Manual specifically indicates that if the PDI and said services are not availed of, then the customer would not be able to claim the benefit of the warranty. This will go to show that the petitioners undertake responsibilities so far as the warranty aspect is concerned provided the customer takes the benefit of PDI and said services. It has no bearing on the assessable value as it is abundantly clear that to perform PDI as well as render said services is on the dealer's obligation on account of deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E.L.T. (J 444) S.C that the price which is relevant for the purpose of Excise duty was the price when the good first entered in the stream of trade is required to be accepted. In the present case, when the petitioners sell the car to the dealer, the goods enter the stream of trade for the first time and, therefore, the amount at which the car is sold to the dealer would be the assessable value on which the Excise duty would be payable. In the present case, the expenses incurred by the dealer for PDI and said services has nothing to do with the term "servicing' mentioned in the transaction value and as such, the said expenses cannot be added to assessable value. 45. On consideration of the Clause 7 of Circular dated 1st July, 2000, it is apparent that the respondents have brought into existence a deeming provision that is to say the respondents have treated all the manufacturers of cars on one platform and by fiction taken a decision to add the expenses incurred towards PDI and said services in the assessable value. It will have to be mentioned that in all cases where the expenses incurred towards PDI and said services are solely borne by the dealer and the manufacturer like petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration for the sale of goods. In our view, equating the expenses incurred towards PDI and said services with the advertisement and publicity charges is incorrect. In our view, Clause No.7 of Circular dated 1st July, 2002 is not in conformity with the provisions of Section 4(1)(a) r/w Section 4(3)(d) of the said Act. 48. The matter can be looked from yet another angle namely; a perusal of the term 'transaction value' would show that servicing is one item, which is included in the definition of the term 'transaction value'. In our view, on the basis of record it is clear that the petitioners do not render any services to the dealer and no cost is incurred by the petitioners qua the dealer towards the term "servicing". As such, the petitioners have not included any amount in the assessable value with reference to term "servicing" and as such the expenses incurred towards PDI and said services, which expenses are incurred solely by the dealer without reference to the petitioners cannot be included in the term "servicing" appearing in the term "transaction value". For the reasons mentioned aforesaid if a dealer incurs expenses towards the PDI as well as free after sales services w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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