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TMI Blog2015 (12) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... DI/ASS charges are not includible in the transaction value of cars cleared by the assessee. Accordingly, we uphold the Commissioner (Appeals) orders to the extent of non-inclusion of PDI charges/ASS charges. Consequently, we set aside orders passed by Commissioner, LTU confirming the demand on PDI and also set aside the penalties and allow the assessee's appeals. As regards the inclusion of overriding commission paid to dealers on the sale of cars to Defence personnel through Canteen Stores Department (CSD), we find the cars were directly sold by the assessee to the CSD and not through the dealers. LAA clearly brought out that the amount which was paid to dealers is nothing but towards payment for providing after sales services of the cars sold to the Defence personnel directly. Revenue s plea is that it is a commission paid to be included as per Section 4 is not justified. Accordingly, the LAA order on this account is liable to be upheld. As regards non-inclusion of Display Kits and Recovery of Incentive Trips from the dealers, we find that both the transactions are related to post-sale transactions. Therefore, any recovery from the dealer on account of cost of display kits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d allow the Revenue appeals on this count. As regards the last issue of denial of cenvat credit on the capital goods viz. steel structuals used in the fabricated shops, we find that there is no dispute on the fact that the structurals are used in paint complex which is capital goods used in the manufacture of motor vehicles. - assessee is eligible for capital goods credit on the structural used in paint complex. The revenue relying on the LB decision in the case of Vandana Global Ltd. (2010 (4) TMI 133 - CESTAT, NEW DELHI (LB) ) and Apex Court decision in the case of Triveni Engineering & Industries Ltd. (2000 (8) TMI 86 - SUPREME COURT OF INDIA) is not relevant in view of the jurisdictional High Court of Madras decision and other High Court orders - Decided partly in favour of assessee. - E/MISC/235/2013 & E/1265/2004, E/487/2011, E/488/2011, E/489/2011, E/MISC/42440/ 2013 & E/473/2012, E/MISC/234/2013 & E/1312/2004, E/398/2009, E/399/2009, E/44/2010, E/45/2010 - Final Order No. 41614-41623/2015 - Dated:- 1-12-2015 - Hon ble Shri R. Periasami, Technical Member And Hon ble Shri P.K. Choudhary, Judicial Member For the Appellant : Shri S. Muthuvenkatraman, Advocate Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s periodically covering the period upto September 2011, and issued orders. The main issues which are relevant to these appeals are as under :- 1. Non-inclusion of cost of Pre-Delivery Inspection (PDI) and After Sales Service (ASS) in the assessable value and consequent short payment of duty. 2. Non-inclusion of overriding commission paid to dealers on sale to canteen store-department (CSD) 3. Demo Cars 4. Cost of display kits collected from dealer through debit note 5. Recovery of incentive trip cost from dealers 6. Non-inclusion of profit margin at HMP 7. Incorrect availment of Cenvat credit on fabricated paint shop structural 5. The details of demands and dispute for each appeal wise are as under : E/1265 (filed by HMIL) 1312/2014 (filed by Revenue): 6. In these appeals, the adjudicating authority finalized the provisional assessment and determined the differential duty of ₹ 35,49,57,756/- and also appropriated an amount of ₹ 2,13,08,449/-. Against this order, both Revenue and appellant filed appeals. Assessee filed against the rejection of value of Demo Cars and inclusion of Overriding Commission on clearance of cars to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant submits that the appellant cleared the cars to the dealers on outright sale. Prior to the sale of cars, the inspection taken place and he submits that cost of the charges incorporated towards this particular delivery inspection is already included in the transaction value. He further submits that as per their agreement with various dealers after sales service is carried out by the dealers. Therefore, the entire cost of the pre-delivery inspection is considered as post manufacturing activity and not includible in the assessable value as there is no flow back. PDI is a mandatory requirement where the dealer checks the quality before taking the delivery. Since all the transactions i.e., both the appellant and the dealer, are on principal to principal basis, therefore, the cost of PDI and After Sales Service, does not form part of the transaction value. He also submits that even after amendment of Section 4 of Central Excise Act w.e.f. 1.7.2000, there is no change, the position remains the same. In this regard, he relied on the following case laws: 11.1 During the period prior to 1.7.2000, this issue is settled by the following rulings: a) 2001(132)ELT 67 (T) in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with reference to any adjudication. ISSUE NO. 2 Non-inclusion of overriding commission paid to dealers on sale to canteen store-department CONTENTION OF HMIL 13. The Ld. Counsel submits that they have cleared the cars to Defence personnel through Canteen Stores Department (CSD) and these cars were directly sold by the assessee and not cleared through dealers. He further submits that the amount paid to the dealers is only to take care of after sales service of the cars directly sold to Defence persons. An amount of ₹ 2,000/- is paid to the dealers to take care of the after sales service. He further submits in the sale of cars to CSD was direct to the customer but a dealer normally earns a sum of ₹ 40,000/- towards margin. He also submits that this amounts to post sale activity. The cars cleared to CSD are as per transaction value. CONTENTION OF REVENUE 14. The submissions made by M/s HMIL are incorrect. The claims of M/s HMIL are found to be not in consonance with the dealership agreement entered into by them. Dealer shall provide service to Hyundai Cars, supplied by any one dealer. Servicing Dealer alone shall provide service to the exclusion of sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alers. They have recovered the amount spent on advertisement material from the dealers separately and this cannot form part of the transaction value. In an automobile industry, it is the common practice to have uniform display materials and display kits. Similarly, for incentive paid, he submits that the cost of incentive trip of the dealers form part of cash price. The amount collected from the dealer is only for the additional person accompanying the trip, this cannot be added to transaction value of the car. Merely by recovering the additional amount in the form of debit note cannot be construed as selling and marketing expenses or towards sales promotion activities by the appellant as it is only a selling activity. He relied on the following decision in the case of Kinetic Engg. Ltd and two others vs CCE, Pune-II reported in 2007-TIOL-723-CESTAT-MUM. CONTENTION BY REVENUE 18. Ld. AR reiterated the grounds of appeal and further stated that it is an activity influencing the product in the market. The revenue places reliance on the Board Circular dated 1.7.2002. ISSUE NO. 6 Non-inclusion of profit margin at HMP: CONTENTION OF HMIL 19. Learned counsel submits tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .102 (Tri.-Chennai). e) Bombay High Court judgment in the Bharti Airtel reported in 2014 TIOL 1452-HC MUM-ST has been negatived by the Tribunal in Dalmia Cement case referred to supra. CONTENTION BY REVENUE 22. The A.R reiterated the grounds of appeal of Revenue and Revenue placed reliance on the judgment of the Hon ble Supreme Court in the case of Triveni Engineering Indus.Ltd. Vs CCE reported in 2000 (120) ELT 273 (SC) and the Larger Bench decision in the case of Vandana Global Ltd reported in 2010 (253) ELT 440 (Tri-LB). 23. We have carefully considered the submissions of both sides on all the issues and examined the relevant records. We find that the period involved in the present appeals relates to 1998 to 2011. The appellant-assessee is a manufacturer of passenger cars who opted for provisional assessment and while finalizing the provisional assessment, the adjudicating authority in his series of orders included the costs on various issues as discussed at para-4 of this order and correspondingly confirmed the demands also for various periods. 24. We find that against the first final assessment order dt. 12.12.2003, passed by the Deputy Commissioner, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinent to state that in the HMIL case this issue started since 1998 onwards and over the years, there were several Tribunal rulings on this issue which led to the LB decision in the case of Maruti Suzuki India. In this regard, we find that subsequent to the Tribunal's LB decision, the Hon ble High Court of Mumbai in the case of Tata Motors Ltd. Vs UOI 2012 (286) ELT 161 (Bom.) held PDI charges not includible and quashed the above two Board's circulars dt. 1.7.2012 and 12.12.2002. The Hon ble Bombay High Court has discussed the issue of PDI charges and ASS charges at length within the scope of Section 4 and also taken into consideration the said LB decision of Maruti Suzuki India (supra) and held that Board s circular referred to above are not inconformity with provisions of Section 4 of Central Excise Act. The relevant paragraphs of the Hon ble Bombay High Court decision (supra) are reproduced as under:- 4. Few facts necessary for the disposal of this petition are as under. The petitioners manufacture Indica/Indigo cars at Pimpari works. These cars are sold to customers through a countrywide network of dealers. From August, 2008 onwards the petitioners sold the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 1999 and further directed that the withdrawal of these two Circulars will apply to past cases only, as the provisions of new Section 4 introduced w.e.f. 1st July, 2000 were not the subject matter of dispute before the Apex Court. This would mean that by this Circular dated 12th December, 2002 the earlier Circular dated 1st July, 2002 was confirmed and directions were issued to the department to carry out assessment accordingly. ... ... ... 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 provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a car is sold to a dealer 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 clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cost incurred towards 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 oblig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Ors. reported in 1978 (2) E.L.T. (J444) (S.C.) that the price which is relevant for the purpose of Excise duty was the price when the goods 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 deale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to say that such expenses form as one of the considerations 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta Kirloskar Motors Pvt. Ltd. Vs CCE ST Bangalore 2014 (306) ELT 504 (Tri.-Bang.) (ii) CCE Cus Aurangabad Vs Bajaj Auto Ltd. 2014 (300) ELT 434 (Tri.-Mumbai) (iii) CCE Chandigarh Vs Punjab Tractors Ltd. 2013-TIOL-28-CESTAT-Del. The ratio of the Hon ble Bombay High Court decision in the case of Tata Motors Ltd. Vs UOI (supra) and the Tribunal s decisions (supra) are squarely applicable to the facts of the present case as the appellant is a manufacturer of cars and the PDI is mandatory before sale of cars to ultimate customers. The revenue's contention that the Department's appeal filed against the said Bombay High Court order is still pending before the Hon'ble Supreme Court cannot be a reason that the High Court order should not be followed. The very fact that co-ordinate Benches of the Tribunal in the above decisions have decided the PDI issue by following the ratio of the Hon'ble Bombay High Court order confirms our view that the ratio of High Court decision is applicable. Therefore, the Revenue relying on the LB decision in the case of Maruti Suzuki case is not relevant in view of Hon'ble High Court of Bombay's judgement. By respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Tri.-Del.) By virtue of the above Tribunal s decisions, we hold that these charges does not form part of the assessable value of cars and has no nexus with the transaction value of cars. Therefore, we do not find any infirmity in the order of the LAA on this issue. The Revenue relying on the Board's circular dt. 1.7.2002 is of no avail. Accordingly, the LAA's orders on these issues are liable to be upheld. 26.3 As regards the issue of non-inclusion of Profit Margin to Hyundai Motors Plaza (HMP), Revenue s main contention is that assessee had sold the cars through their depots situated at Chennai, Mumbai and Delhi. We find that these are plazas/retail show rooms called as Hyundai Motors Plaza where the cars are sold directly to the customers on retail sale. The department had initially alleged that as per amendment of definition of place of removal , the depot becomes place of removal for delivery and sale and the price at which the goods are sold at the depot should be taken as the price. In this regard, we find that these plazas are not depot and there is no sale to whole sale dealers. Since in this case, there is no transaction of whole sale transaction to dealers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls except waiving the penalties. The relevant paragraphs 3 4 of the latest decision of this Tribunal s order in the case of Ford India Pvt. Ltd. Vs CCE Chennai 2014 (302) ELT 257 (Tri.-Chennai) are reproduced as under :- 3. The assesses have not been able to demonstrate an difference between the demo cars/ normal cars sold through dealers. The demo cars are put to test and usage as desired by prospective buyers and the assesses also permit such usage to enhance the marketability of their cars. In these circumstances, the transaction value cannot be accepted and comparable price adopted for other cars (other than demo cars ) has correctly been adopted and differential duty charged thereon. We, therefore, uphold the duty demands together with interest but set aside the penalties imposed on the grounds that penalty is not warranted as the assessees received and paid the duty on the transaction value and the demands are also within the normal period of limitation. 4. The appeals are partly allowed by setting aside penalties. Further, we also find that the Hon ble Supreme Court has dismissed the civil appeal filed by M/s.Ford India Pvt. Ltd. against the above Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Cenvat credit on the structurals used in fabricated paint complex. As regards the last issue of denial of cenvat credit on the capital goods viz. steel structuals used in the fabricated shops, we find that there is no dispute on the fact that the structurals are used in paint complex which is capital goods used in the manufacture of motor vehicles. We find that this issue stands settled in favour of the assessee by various High Court s orders in the following cases :- (i) CCE Trichy Vs India Cements 2014 (305)ELT 558 (Mad.) [decided on 13.12.2012] (ii) CCE ST Vs India Cements Ltd. 2014 (310) ELT 636 (Mad.) [decided on 10.7.2014] (iii) CCE Mysore Vs ICL Sugars Ltd. 2011 (271) ELT 360 (Kar.) (iv) CCE Belgaum Vs Hindalco Industries Ltd. 2012 (286) ELT 503 (Kar.) This Tribunal vide Final Order No.40890/2014 dt. 16.9.2014 in the case of Dalmia Cements (Bharat) Ltd. Vs CCE Trichy allowed cenvat credit on the capital goods viz. structurals used in the process of manufacture of cement. By respectfully following the High Court s decision (supra), we hold that assessee is eligible for capital goods credit on the structural used in paint complex. The revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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