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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 5155-5156 OF 2007

COMMISSIONER OF CENTRAL EXCISE, MYSORE

.....APPELLANT(S)

VERSUS

M/S. TVS MOTORS COMPANY LTD. .....RESPONDENT(S)

W I T H

CIVIL APPEAL NOS. 1763-1764 OF 2009

CIVIL APPEAL NO. 7007 OF 2011

CIVIL APPEAL NO. 7550 OF 2011

CIVIL APPEAL NO. 2204 OF 2013

CIVIL APPEAL NO. 2205 OF 2013

CIVIL APPEAL NOS. 957-959 OF 2014

CIVIL APPEAL NOS. 7854-7865 OF 2014

CIVIL APPEAL NO. 7444 OF 2008

A N D

CIVIL APPEAL NOS. 3768-3769 OF 2011

Civil Appeal Nos. 5155-5156 of 2007 & Ors. Page 1 of 27

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J U D G M E N T

A.K. SIKRI, J.

The question of  law which arises for  consideration in all

these appeals is identical, which is the following one;

Whether  the  pre-delivery  inspection  charges  (for  short

'PDI') and after sales service charges (for short 'ASS') are to be

included in the assessable value?   

2. For the sake of convenience, however, we take note of the facts

from the  record  of  Civil  Appeal  Nos.  5155-5156/2007 wherein

M/s.  TVS Motors Company Ltd.  (hereinafter  referred to as the

'assessee') is the respondent.  The assessee is holding central

excise  registration  for  the  manufacturing  and  clearing  two

wheeled motor  vehicles  classified under  Chapter  Sub-Heading

8711.20 and 8711.10 of the Central Excise Tariff Act, 1985.  The

assessee  sells  their  goods  directly  to  the  customers  through

sales depots spread throughout the country.  The assessee had

requested for provisional assessment with respect to the depot

sales as they could not determine the normal transaction value at

the time of  clearance at  factory gate in respect of  such depot

Civil Appeal Nos. 5155-5156 of 2007 & Ors. Page 2 of 27

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clearance.   The  provisional  assessment  was  finalized  for  the

period  from  01.07.2001  to  31.03.2002  and  01.04.2002  to

31.03.2003  vide  Order-in-Original  No.  47  of  2004  dated

19.07.2004  and  44/2005  dated  04.05.2005.   The  above  said

Order-in-Original's included PDI charges and free ASS  charges

in  the  assessable  value.   The  reason  for  doing  so  by  the

Adjudicating  Authority  was  Circular  No.  643/34/2002  dated

01.07.2002 wherein it has clarified the same to be included in the

assessable value.   

The  assessee  filed  an  appeal  against  the  above  cited

orders before the Commissioner (Appeals), Mangalore, who, vide

Order-in-Appeal No. 227/2005 CE dated 24.10.2005, disallowed

inclusion of PDI charges and free ASS charges in the assessable

value by relying on the Custom Excise and Service Tax Appellate

Tribunal  (CESTAT)  decision  in  the  case  of  Maruti  Udyog

Limited  v.  CCE,  Delhi-III1 and  remanded  the  case  to  the

Adjudicating Authority to re-examine the disputed issues in the

light  of  settled  legal  positions  and  finalise  the  provisional

assessments accordingly.

Aggrieved by the above Order-in-Appeal,  the Department

1 2004 (170) ELT 245 (Tri-Del)

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filed  an appeal  before  the CESTAT, Bangalore.   The Tribunal,

vide final Order Nos. 1860 & 1861/2006 dated 03.11.2006 has

rejected  Department's  appeal  and  upheld  the  Commissioner

(Appeals), Order-in-Appeal, holding that the abatement in respect

of PDI charges and ASS charges is correct, by relying upon the

Tribunal's  decision  in  the case of  Maruti  Udyog Limited  and

remanded the case to the original Authority for re-computation.

We may note that the Tribunal's decision in the case of  Maruti

Udyog Limited  was questioned by the Department before this

Court vide C.A. No. D 7670 of 2006, which was rejected on the

ground of  delay.   It  is  under the aforesaid circumstances the

Tribunal's order is challenged by way of instant appeals filed by

the Department.   

3. We may point out, at this stage, that some other Bench(es) of the

Tribunal had taken contrary view and the matter was referred to

the Larger Bench which decided the issue in the case of Maruti

Suzuki  India  Ltd.  v.  CCE,  New Delhi2.   It  has  held  that  the

definition of 'transaction value' would cover the free PDI as well

as ASS charges.  It is in this backdrop that three appeals are filed

by the assessees questioning the validity of the orders passed by

2 2010 (257) ELT 226

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the Bench taking the aforesaid view.   

4. Some of the essential features which needs to be pointed out are

that the excise duty is payable on the 'transaction value' as per

the provisions of Section 4 of the Act.  The provisions of Section 4

amended in  the  year  2000.   All  these  cases  pertained  to  the

period  post  2000.   Therefore,  it  is  the  amended  provision  of

Section 4 which, inter alia, states that excise duty is to be paid on

'transaction value'.  The definition of transaction value is given in

Section 4(3)(d) of the Act.  However, in order to comprehensively

answer the issue, it would be necessary to traverse through the

unamended provision which prevailed before the amendment in

Section 4 by the Finance Act of 2000 and to then determine as to

whether amended provision has resulted in altering the provision

in the context of the issue raised in these appeals.   

5. The counsel for the parties on either side were ad idem that PDI

and  ASS undertaken  by  Dealers  and  expenditure  incurred  by

them which is not recovered or charged by the assessee from the

dealers is not to be included for the purposes of excise duty.  The

position  that  the  agreement  between manufacturer  and  dealer

requires dealer to undertake these activities does not affect this

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position.  Firstly, these are legitimated usual dealer activities in

the automobile  industries  throughout  the world  including India.

Thus, incurring of these items of expenditure by dealer in usual

business  practice  is  not  an  unusual  or  ex-bonding/peculiar

position.  This was so settled, way back in the year 1938 by the

Privy Council in Ford Motor India Ltd. v. Secretary of State3, in

the case of cars itself in the context of valuation in India under

Sea Customs Act.  The same has been applied and followed by

this  Court  in  this  very  context,  though  pertaining  prior  to

01.07.2000 in A.K. Roy v. Voltas Ltd.4   The issue in that case

was as to whether excise duty was payable on retail sale price or

on  wholesale  cash  price.   In  the  said  case,  the

respondent-company carried on the business of  manufacturing

air conditioners, water coolers and component parts thereof.  It

organised  the  sales  of  these  articles  from  its  head  office  at

Bombay as also from its branch office at  Calcutta, Delhi, Madras,

Bangalore, Cochin and Lucknow.  From these offices it effected

direct sales to consumers at list prices and the sales so effected

came to about 90 to 95% of its production.   Apart  from these

sales, it also sold the articles to wholesale dealers from different

3 AIR 1938 PC 15 = 1978 (2) ELT (J 265) (PC) 4 (1973) 3 SCC 503

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parts of the country in pursuance of agreements entered into with

them.  The agreements provided that the dealers should sell the

articles  at  the  list  prices,  the  respondent  would  sell  them the

articles at 22% discount over the list prices, the dealers would not

be entitled to any discount on the prices of accessories, and the

dealers should give service to the units sold in their territory.  The

respondent's  case  was  that  the  list  price,  after  deducting  the

discount  of  22%  allowed  to  the  wholesale  dealers,  would

constitute the “wholesale cash price” for determining ad valorem

value.  This case was accepted by the excise authorities up to the

end of 1962.  However, thereafter Department changed its stand

by taking the position that excise duty would be assessed and

levied not on the footing of the 'wholesale cash price' but on the

basis of retail price.  Order-in-Original was passed to that effect

and the appeal of the respondent-assessee was also dismissed.

The Order-in-Appeal was challenged by filing writ petition in the

High  Court  which  was  allowed  and  the  judgment  of  the  High

Court was upheld by this Court while some of the discussions

which  was  relevant  for  our  purposes  is  contained  in  para  12

wherein the Court took note of and discussed earlier judgment of

the Privy Council.   We would,  therefore,  like to reproduce this

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para in its entirety:

“12.  In Ford Motor Company of India Limited, v. Secretary of State for India in Council (AIR 1938 PC 15 : 65 IA 32 : 172 IC 771) the appellants before  the  Privy  Council,  who  imported  Ford Motor vehicles from Canada to India, where they had a monopoly of the supply of those vehicles, sold  them  only  to  authorised  dealers  or distributors, each of whom was sole agent for a retail seller of the vehicles in a particular district. The  appellants  obtained  from  the  distributors information as to their  future requirements and placed consolidated orders accordingly with the manufacturers  in  Canada.  The  retail  price charged by the distributors to the public was that stated in a price list issued by the appellants and current at  the time of  the arrival  of  vehicles in India, and the price payable by the distributors to the  appellants  was  the  same  price  less  a discount of 20 per cent. The distributors had to pay  that  price  before  obtaining  delivery, which was given “free on rail”.  On arrival in India the vehicles  were  not  completely  assembled,  and were so delivered to the distributors, an agreed allowance against the price being made by the appellants.  On  the  question  whether  Section 30(a)  or  30(b)  of  the Sea Customs Act,  1878, applied, for the purpose of  finding out the real value of the goods for levy of customs duty, the Privy Council held that the price charged by the appellants  to  the  distributors  excluding  the assembling allowance was the “wholesale cash price, less trade discount” for which the vehicles were sold “at the time and place of importation” within the meaning of Section 30(a) of that Act, the terms of  which are more or  less similar  to those of Section 4(a) of the Act. This case is an authority for the proposition that mere existence of the agreements between the respondent and the  wholesale  dealers  under  which  certain obligations were undertaken by them like service to the articles, would not render the price any the less the ‘wholesale cash price’. To put it in other

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words, even if the articles in question were sold only  to  wholesale  dealers  on  the  basis  of agreements  and  not  to  independent  persons, that  would  not  make  the  price  for  the  sales anything other than the ‘wholesale cash price’. The  argument  that  what  was  relevant  to determine  the  ‘wholesale  cash  price’  under clause (a) of Section 30 of the Sea Customs Act, 1878, was the price of goods of a like kind and quality  was  negatived  by  the  Privy  Council  by saying that goods under assessment may, under clause (a)  be considered  as members  of  their own class even though at the time and place of importation there are no other members and that the  price  obtained  for  them  may  correctly represent the price obtainable for goods of a like kind  and  quality  at  the  time  and  place  of importation.”

6. Another  decision which may be relevant for our purposes is the

case  of  M/s.  Philips  India  Ltd.  v.  CCE,  Pune5 wherein

advertisement expenses and free ASS during guarantee period

was  provided  by  dealers  to  the  product  of  Philips  under

agreement.   This  agreement  between  the  appellant  and  their

dealers  are  genuine  agreements  entered  into  an  arms length.

The  assessee/manufacturer  had  agreed  to  share  half  of  the

advertisement expenses since advertisement benefited both the

manufacturer as well as the dealer.  The assessee/appellant had

claimed deductions of the aforesaid expenditure which was held

by the Adjudicating Authority as inadmissible.  The decision was

5 1997 (91) ELT 540

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upheld  in  appeal  before  the  Commissioner  as  well  as  the

Tribunal.   However, this  Court  reversed  the view of  the lower

authorities holding that the assessee would be entitled to claim

deduction  from  price  realised  from  dealers  on  the  aforesaid

account  after  taking  note  of  the  relevant  clauses  of  the

Agreement between the parties from which it was found that the

agreements were genuine entered into on arms length basis and

were between principle to principle under which payments were

in fact made.  Paras 5 and 6 of this judgment are reproduced

below:

“5.  It seems to us clear that the advertisement which the dealer was required to make at its own cost benefited in equal degree the appellant and the dealer  and that  for  this  reason the cost  of such advertisement was borne half and half by the  appellant  and  the  dealer.   Making  a deduction  out  of  the  trade  discount  on  this account was, therefore, uncalled for.

6.  As to the after sales service that the dealer was required under the agreement to provide, it did of course enhance in the eyes of intending purchasers the value of the appellant's product, but such enhancement of value enured not only for the benefit of the appellant; it also enured for the benefit of the dealer for, by reason thereof, the  dealer  got  to  sell  more  and  earn  a  larger profit.  The guarantee attached to the appellant's products  specified  that  they  could  be  repaired during  the  guarantee  period  by  the  appellant's dealers anywhere in the country.  Thus, though one dealer might have to repair goods sold by another dealer and incur costs in that regard, he

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also had the benefit of having the goods he sold reparable throughout the country.  The provision as to after sales service, therefore, benefited not only the appellant; it was a provision of mutual benefit to the appellant and the dealer.”

7. Likewise,  in the case of  Commissioner  v.  Telco Ltd.6, by brief

order, this Court affirm the view of the Tribunal holding that when

sale  to  independent  dealers  is  at  an  arm's  length,  payment

directly  made  by  the  assessee  for  labour  ASS  to  additional

service  centres  arranged  by  the  assessee  and   subsequent

recovery of such expenses by the assessee from the dealer, is

not a case of flow back of additional consideration nor does such

an arrangement make such dealer an agent of the assessee.

8. What follows from the above is that where manufacturer himself

does the ASS and incurs any expenditure thereon, the same is

not  deductible  from the  price  charged by  him from his  buyer.

Likewise,  where  the  manufacturer  has  sold  his  goods  to  his

dealer and wholesale dealer thereafter does ASS to the customer

and incurs expenditure therefore, it cannot be added back to the

sale  price  charged  by  the  manufacturer  from  the  dealer  for

computing the assessable value.  This is more so, where the ASS

is done by the dealer many weeks after the goods have been 6 2001 (130) ELT A260 (S.C.)

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sold  to  him  by  the  manufacturer.   Such  a  post-sale  activity

undertaken by the dealer is not relevant for the purpose of excise

since the goods have already been marketed to the dealer.   

9. The aforesaid decisions were followed by this Court in Union of

India  v.  Bombay  Tyre  International7 and  in  the  case  of

Government  of  India  and Ors.  v.  MRF Ltd.  and Ors.8  The

aforesaid judgments were followed by the Tribunal in  Mahindra

and Mahindra Ltd. v. Collector of Central Excise9 wherein the

Tribunal was considering the issue as to whether the cost of ASS

rendered  by  the  dealers  and  the  advertisement  expenses

incurred  by  the  dealers  should  be  included  in  the  assessable

value of the vehicles manufactured and cleared by Mahindra and

Mahindra.   Incidental  issue  as  to  whether  PDI  conducted  by

dealers under the terms of agreement entered into by them with

Maruti Udyog should be included in the assessable value of the

vehicle  or  not.   The  Tribunal  rejected  the  contention  of  the

Department and the aforesaid decision was upheld by this Court

in the judgment reported as 1999 (111) ELT A126.   

10. The position  in  respect  of  unamended provision,  thus,  is  very 7 (1984) 1 SCC 467 8 (1995) 4 SCC 349 9 1998 (103) ELT 606

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clear.  Coming to the amendment in Section 4 of the Act, in the

year 2000, it may be noted in the first instance that definition of

'transaction  value'  as  per  Section  4(3)(d)  is  exhaustive  and

covers within its purview, the price of goods and various other

amounts  charged  by  the  assessee by  reason  of  sale  or  in

connection with sale.  This provision reads as follows:

“(d)  “transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount  charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at  the  time  of  the  sale  or  at  any  other  time, including, but not limited to, any amount charged for,  or  to  make  provision  for,  advertising  or publicity,  marketing  and  selling  organization expenses, storage, outward handling, servicing, warranty, commission or  any other matter;  but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.”

11. The expression 'any amount that the buyer is liable to pay to' is of

significance.  This expression shows that, apart from the price of

the goods, the buyer should also be liable to pay an additional

amount to the manufacturer/seller.  In other words, the sale of the

goods would not  be made unless the buyer  is  also to pay an

additional amount to the manufacturer, apart from the price of the

goods.  This is also supported by use of expression 'by reason or'

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or 'in connection with the sale' of the goods.  The expression 'in

connection with the sale of the goods' would only mean that but

for the payment of the additional amount, the sale of the goods

would not take place.  When we keep in mind the aforesaid legal

position, we find no error in the view taken by the Tribunal giving

benefit  to  the  assessee.   Both  the  sides  were  in  unison  in

accepting  the  position  that  no  major  change  had  been

incorporated  w.e.f.  01.07.2000  with  emphasis  on  the  'different

transaction  value'  from the  'assessable  value',  the  essence of

valuation principles  had  not  undergone major  change and the

decisions  delivered  by  this  Court  with  regard  to  unamended

provision  on  the  principle  of  valuation  were  still  applicable  in

determining the transaction value under  the new provisions of

Section  4  of  the  Act  red  with  Central  Excise  Valuation

(Determination of price of Excisable Goods) Rules, 2000.  In fact,

the Order-in-Original in  M/s. TVS Motors Company Ltd. or in

other cases itself proceeds on that basis.

12. Mr.  Radhakrishnan,  learned  senior  counsel  appearing  for  the

Department, attacked the decision of the Tribunal by referring to

the Board's circular dated 19.11.1997 and submitted that the said

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circular  was issued by the Board after  settling the law on the

issue of inclusion of ASS, expenses in the assessable value in

the case of  Bombay Tyre International.   The circular accepts

the position that though the law has been settled much earlier by

the aforesaid judgment rendered in the year 1984, a doubt has

been raised relating to the inclusion of expenses of PDI and three

initial services performed free of cost during initial usage of the

vehicle  by  dealers  in  the  assessable  value  of  motor  vehicle.

Since these services are provided by the dealer and no separate

charges for these services are paid by the manufacturer to the

dealer and it is the dealer who is incurring the expenses out of

the margin  allowed by the manufacturer, the doubt  was as to

whether a portion of dealer's margin has to be included in the

assessable value.  The circular, thus, clarifies that going by the

ratio in the case of Bombay Tyre International, ASS being part

of the selling expenses will be includible in the assessable value.

The Circular also clarified that subsequent judgment of this Court

in  M/s. Philips India Ltd. would have no bearing.  As per this

Circular, the said judgment is related to a case of sale of audio

equipments  and  services  are  provided  under  a  guarantee

attached  to  the  manufacturer's  product  that  these  could  be

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repaired during the guarantee period by their dealer anywhere in

the  country  and,  therefore,  was  differentiated  on  facts.   The

learned senior counsel, thus, argued that the aforesaid circular

amply clarifies the position and the fact situation in the present

case  would  be  covered  by  the  judgment  in  Bombay  Tyre

International.

13. We may mention that the aforesaid circular was withdrawn vide

another  Circular  dated  12.12.2002 issued by the  Board taking

note of the fact that the CESTAT had decided otherwise in the

case  of  M/s.  Mahindra  &  Mahindra  Ltd.  (supra),  M/s.

Hindustan Motors Ltd.10, and M/s. Escorts Tractors Ltd.11 and

the appeals of the Department against the aforesaid decisions of

CESTAT  were  dismissed  by  this  Court  vide  order  dated

27.01.2000 which was reported as 2000 (120) ELT 290 (S.C.).

Thus,  while  withdrawing the Circular  No.  355/71/97-CX.,  dated

19.11.1997  and  subsequent  Circular  No.435/1/99-CX.,  dated

12.01.1999,  PDI  and  free  ASS  provided  by  the  dealer  of  the

vehicle,  during  the  warranty  period will  not  be included in  the

assessable  value.   Mr.  Radhakrishnan,  however,  tried  to

overcome the aforesaid circular by submitting that the appeals in 10 1998 (101) ELT 198 (T) 11 1999 (078) ECR 342 (T)

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the aforesaid cases were dismissed by this Court on 27.01.2000

with one line order without giving any reasons.  He emphasized

and insisted that the issue involved in the present case is more

proximate with the factual position that prevailed in Bombay Tyre

International and, therefore, the same should be followed.   

14. We would like to point out here that the aforesaid circular was in

respect  of  the  statutory  provision  that  prevailed  prior  to  2000.

There was statutory amendment carried out in the year 2000 and

new valuation procedures were made effective from 01.07.2000

which led to issuance of another circular dated 01.07.2002 by the

Board.  Various clarifications were issued in the circular.  We are

concerned with point of doubt No.7 contained in that circular and

the explanation thereto which makes the following reading:

7 What  about  the  cost of  after  sales service charges and pre-delivery instpection  (PDI) 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 dealier'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 PDI charges will be included in the assessable value.

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15. The aforesaid clarification, if that was to be acted upon, may go in

favour of the Department.  However, it  is pertinent to point out

that this very clarification as given by the Board was challenged in

the High Court of Bombay and in the judgment rendered by the

Bombay High Court in the case of Tata Motors Ltd. v. Union of

India12, the same was struck down by making following pertinent

observations:   

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 prior to the amendment which came into effect from 1st July, 2000. We are in agreement with the submission advanced  by  learned  Senior  Counsel  Mr. Sridharan  that  the  provisions  of  Section  4  as amended  are  not  materially  different  from  the provisions of Section 4 as were prevailing prior to 1st July, 2000.  By the amendment, a new term has been introduced by name "transaction value" and  the  said  term transaction  value  has  been

12 2012 (286) ELT 161 (Bom.)

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specifically defined in Section 4(3)(d) of the said Act. The present Section 4(1)(a) r/w definition of term transaction value gives more clarity and all doubts as to how the assessable value is to be arrived at are removed. It is also noted that the various  items  incorporated  in  the  term transaction value as defined in Section 4(3)(d) of said  Act  as  forming  part  of  value  of  Excisable goods  are  in  fact  the  expenses/deductions specifically disallowed by the Supreme Court in Bombay Tyre International Ltd. reported in 1983 (14) ELT 1896 SC. If one closely observes the definition of  the term transaction value,  it  uses the  terminology  'servicing'.  It  appears  that  the respondents are taking the benefit  of  this  term 'servicing'  for  the  purpose  of  adding  to  the assessable value, the expenses incurred by the dealer  towards  PDI  and  free  said  services  by resorting to Clause 7 of Circular dated 1st July, 2002 and Circular dated 12th December, 2002.

43. Turning to point  in question, it  is  noticed that  the  definition  of  the  transaction  value  in Section 4(3)(d) of the said Act is extensive and ropes  in  the  price  of  the  goods  and  other amounts charged by the assessee by the reason of sale or in connection with sale. A close reading of Section 4(3)(d) of the said Act would indicate that  the  term  transaction  value  comprises  of price actually paid or payable by the buyer and includes  additional  amount  that  the  buyer  is liable  to  pay  or  on  behalf  of  the  assessee  by reason of sale or in connection of sale whether payable at the time of sale or at any other time including  the  amount  charged  for  or  to  make provision  for  certain  items  such  as  advertising etc.  One such item is servicing. In view of  the definition of the term transaction value, it would be necessary for this Court to apply the definition of the term "transaction value" to the facts of this case and decide the matter. It is admitted by the petitioners that after 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

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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 charged  for  (b)  Amount  charged  to  make provision  for  (c)  Any  amount  that  the  buyer  is liable to pay to the assessee (d) Any amount that the  buyer  is  liable  to  pay  on  behalf  of  the assessee. The record indicates that once a car is sold by the petitioners to the dealer at a price, the  dealer  is  not  required  to  pay  any  further amount to the petitioners on account of PDI and free after sales services/after sales services. It is clear that when the petitioners are selling the car to a dealer, price is the sole consideration and the petitioners and the dealer are not related to each  other.  Having  complied  with  these requirements  set  out  in  Section  4(1)(a)  of  the said Act,  the assessable value of  the Cars will have to be treated as the one which will be the transaction value. The transaction value will have to be arrived at by taking into consideration the definition of the term transaction value appearing in  Section  4(3)(d)  of  the  said  Act.  The  record clearly  goes to  show that  apart  from the  price which is paid by the dealer to the petitioners, no

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amount is recovered by the petitioners from the dealer or the customer.  As such, the stand of the respondents that the expenses incurred towards PDI as well as said services have to be included in  the  assessable  value  cannot  be  accepted. This is being observed on the ground that there is no material to show that the expenses for the pre-delivery  inspection  as  well  as  after  sales services are paid by the dealer to the petitioners. The dealer renders PDI and said services as a routine and legitimate activity  as a dealer. It  is also clear from the record and on the basis of the typical  dealership  agreement  entered  into  with the  dealer  by  the  petitioners  that  a  dealer renders PDI as well as said services on account of  dealership.  It  is  pertinent  to  note  that  the respondents have in affidavit in reply dated 29th June, 2012 admitted that the dealer carries out free PDI and after sales services at their end. It is admitted that labour cost towards PDI and said services  is  borne  out  of  retailing  profit.  The contention of the respondents that the expenses incurred  for  PDI  and  said  services  must  be included in the transaction value and is required to be included in the assessable value of the car is required to be negatived on the ground that the  petitioners  do  not  charge  the  dealer  any amount equivalent to the 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

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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  dealership agreement and not on any other count.  Once it is  held  that  the PDI and said  services are not provided  by  the  dealer  on  behalf  of  the petitioners, it cannot be treated as consideration for sale.  It also cannot be treated as a deferred consideration.  The  respondents  while  issuing Circular  dated  1st  July,  2002  have  wrongly referred to the Rule 6 of the said Rules and have wrongly linked the expenses incurred for PDI and said services with expenses for advertisement or publicity.  It  is  required  to  be  noted  that  the provisions of the said Rules will not be applicable to  the  facts  of  this  case  as  the  transaction between the petitioners and the dealer does not fall within the ambit of Section 4(1)(b) of the said Act. The transaction of sale of a car between the petitioners  and  the  dealer  is  governed  by  the provisions of Section 4(1)(a) of said Act as the petitioners  as  assessee  and  the  dealer  as  a buyer of the car are not related to each other and price is the sole consideration for the sale.  In our view, reference  to  the  Rule  6  of  the  Valuation Rules  in  Clause  7  of  Circular  dated  1st  July, 2002  is  totally  misconceived.  The  reference made by learned Senior Counsel Mr. Sridharan to the case of Mr. A.K. Roy and Anr. Vs. Voltas Ltd. reported in 1977 (1) ELT (J-177) SC is apt. We  have  perused  the  said  judgment  and applying  the  said  judgment  to  the  facts  of  the present case, the respondents would be able to demand  Excise  duty  on  the  amount  which  is charged by the petitioners to the dealer. It is to be noted that as per the record, once the car is sold  by  the  petitioners  to  the  dealer  for  a

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particular  consideration,  no  other  amount  is payable  by  the  dealer  to  the  petitioners.  It  is required to be mentioned that the petitioners are not  reimbursing  any  amount  to  the  dealer towards expenses incurred for the PDI and said services  and the  petitioners  are  paying  Excise duty  on  the  entire  amount  for  which  the petitioners  sale  the  car  to  the  dealer.  In  the present  case,  even  if  it  is  taken  that  the petitioners  are  giving  trade  discount  to  the dealer,  the  petitioners  are  paying  the  Excise amount on the whole amount and not the amount which is arrived at after giving the trade discount. Learned  Senior  Counsel  Mr.  Sridharan's submission in terms of judgment in the case of Atic  Industries  Ltd.  Vs.  H.H.  Dave,  Assistant Controller of Central Excise and Ors. reported in 1978 (2) 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

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manufacturer like petitioners have nothing to do with  the  said  expenses  then  adding  those expenses  in  the  assessable  value  would  be contrary to the provisions of Section 4(1)(a) r/w Section 4(3)(d) of the said Act.  Looking to the facts  and  circumstances  of  this  case,  the respondents  have  not  been  able  to  place  on record  any  material  to  show  that  the  amount incurred towards PDI and said services can fall within the definition of the transaction value.”

We agree with the enunciation of legal position stated by the High

Court.   

16. We have also to keep in mind these cases pertain to the period

post 2000.  It is also to be borne in mind that the clarification very

categorically  proceeded  on  the  basis  that  the  services  were

provided free by the dealer 'on behalf of the assessee' and the

same was 'during the warranty period'.  The clarification given,

keeping  in  mind  the  aforesaid  two  features,  makes  all  the

difference  inasmuch  in  these  cases,  we find  that  the  services

which are provided by the dealers are on their behalf and not on

behalf  of  the assessees.  The facts disclosed that  the amount

which was reimbursed by the assessee to their dealers pertaining

to free service was being claimed as abatement in relation to the

normal transaction value.  It was one of the contention of these

assessees that free service charges is a post sale activities and

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all post sale activities continued to be excludable in determining

transaction value.

17. On  the  other  hand,  we  would  like  to  refer  to  Circular  dated

12.05.2000  which  was  issued  contemporaneously  with  the

amendment in Section 4.   It expressly states that amount should

be recovered from the buyer by the assessee-manufacturer and

makes the following reading in this behalf:

“2.2   Definition  of  'transaction  value'  has  also been modified to make it more transparent.  Any amount  paid  by  the  buyer  himself  or  on  his behalf  to  the  assessee  by  reason  of,  or  in connection with the sale, would form part of the transaction value.  Any amount that is charged or  recovered  from  the  buyer  on  account  of factors  like  advertising  or  publicity,  marketing and selling organization expenses, storage and outward  handling  etc.  will  also  be  part  of  the transaction value.  In fact, most of the charges that  are  recovered  on  account  of  the  specific activities  by  advertising  or  publicity,  etc. mentioned in the definition of transaction value are  includable  in  the  computation  of  'value' under the existing section.

4. As such, the definition of transaction value does not seem to be divergently wider in content and  scope  from  the  interpretation  of  'value' under  existing  Section  4.   The  definition  of 'transaction  value'  should  help  set  at  rest  any doubt  regarding  amounts  that  are  charged  or recovered from the buyer in respect of specific kind of operations done by the assessees.  In essence, whatever is recovered from the buyer by  reason  of,  or  in  connection  with  the  sale, whether payable at  the time of  sale or  at  any

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other time is included in the transaction value. … (emphasis supplied)”

18. This very position is reiterated by the Board in its circular Letter F.

No. 354/81/2000-TRU dated 30.06.2000 which gives clause by

clause  explanation  of  the  Section.   Relevant  extract  from  the

same is reproduced herewith as under:

“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  assessee also  recovers  any other  amount  by  reason of sale  or  in  connection  with  sale,  then  such amount  shall  also form part  of  the transaction value  for  valuation and assessment  purposes. Thus  if  assessee  splits  up  his  pricing  system and  charges  a  price  for  the  goods  and separately charges for packaging, the packaging charges will also form part of assessable value as it is a charge in connection with production and sale of the goods recovered from the buyer …

7. It  would  be  seen  from  the  definition  of 'transaction value' that any amount which is paid or payable by the buyer to or on behalf of the assessee, on account of the factum of sale of goods, then such amount cannot be claimed to be not  part  of  the transaction value.   In other words,  if,  for  example,  an  assessee  recovers advertising charges or publicity charges from his buyers,  either  at  the time of  sale  of  goods or even subsequently, the assessee cannot claim that  such  charges  are  not  includable  in  the transaction  value.   The  law  recognizes  such payment to be part of the transaction value that is  assessable  value  for  those  particular

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transactions.”

19. The sequitur of the aforesaid discussion would be to hold that PDI

charges  and  free  ASS  charges  would  not  be  included  in  the

assessable value under Section 4 of the Act for the purposes of

paying excise duty.  The view taken by the Tribunal in favour of

assessees in this behalf is correct in law and all the appeals of

the Department, i.e. C.A. Nos. 5155-5156/2007, 1763-1764/2009,

2204/2013,  2205/2013,  957-959/2014,  7854-7865/2014  and

7444/2008 are dismissed.  On the other hand, Larger Bench view

in  Maruti  Suzuki does not  lay  down the law correctly  and is,

therefore, overruled and the appeals filed by the assessees, i.e.

C.A.  Nos.  7007/2011,  7550/2011  and  3768-3769/2011  are

allowed.

.............................................J. (A.K. SIKRI)

.............................................J. (ROHINTON FALI NARIMAN)

NEW DELHI; DECEMBER 15, 2015.

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