In the matter of

Commissioner of Central Excise, Mysore (Appellant)

Versus

TVS Motors Company (Respondent)

QUESTION OF LAW BEFORE THE HON’BLE APEX COURT

Whether the pre-delivery inspection charges (“PDI”) and after sales service charges (“ASS”) are to be included in the assessable value?

BRIEF FACTS

M/s TVS Motors Company Ltd. (hereinafter referred to as the ‘Assessee‘) is the respondent. The Assessee was registered with the central excise Department as the manufacturer of two wheelers and clearing 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 clearance. The provisional assessment were finalised for the relevant period of dispute. Vide order-in-originals; PDI charges and free ASS were included in the transaction value basis the Circular No. 643/34/2002 dated 01.07.2002.

The Assessee filed an appeal against the orders before the Commissioner (Appeals), Mangalore, who, vide Order-in-Appeal dated 24.10.2005, disallowed inclusion of PDI charges and free ASS charges in the assessable value relying upon with the Custom Excise and Service Tax Appellate Tribunal (CESTAT) decision in the case of Maruti Udyog Limited v. CCE, Delhi-III 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.

The Department filed an appeal before the Hon’ble CESTAT which was rejected by and the Tribunal upheld the Commissioner (Appeals) order-in-appeal relying upon the Tribunal’s decision in the case of Maruti Udyog Limited and remanded the case to the original Authority for re-computation.

The Tribunal’s decision in the case of Maruti Udyog Limited was questioned by the Department before the Hon’ble Supreme Court vide C.A. No. D 7670 of 2006, which was rejected on the ground of delay. Under the aforesaid circumstances the Tribunal’s order was challenged by way of instant appeals filed by the Department.

It is relevant to mention here that some other benches 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 Limited v. CCE Delhi. It was held that the definition of ‘transaction value’ would cover the free PDI as well as ASS charge.

 HELD

The Hon’ble Supreme Court relying upon the with the view of the Hon’ble Bombay High Court in the case of Tata Motors Ltd. v. Union of India [2012-TIOL-721-HC-MUM-CX][1], held that where the expenses incurred towards PDI and other services are solely borne by the dealer and the manufacturer 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) read with Section 4(3)(d) of the Excise Act. Therefore, the amount incurred towards PDI and other services cannot fall within the definition of the transaction value.

Thus, the Hon’ble Supreme Court held 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 and upheld the view taken by the Tribunal in favour of the Assessee.

It was further held that the Larger Bench view in Maruti Suzuki does not lay down the law correctly and is, therefore, overruled.

The complete text of the judgment can be downloaded from the below link:

http://judis.nic.in/supremecourt/imgs1.aspx?filename=43187

[1] 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 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.”