Whether PDI charges and after sales service charges are to be included in assessable value?

PJ/CASE LAW/2014-15/2303

Case:- COMMR. OF C. EX. & CUS., AURANGABAD VersusBAJAJ AUTO LTD.

Citation:- 2014 (300) E.L.T. 434 (Tri. - Mumbai)

Brief facts:-The respondent, M/s. Bajaj Auto Limited, is a manufacturer of automobiles. The issue relates to includibility or otherwise of the pre-delivery inspection charges and after sales service charges reimbursed by the respondent to their dealers in the assessable value of the goods sold by them to the dealers. A show cause notice dated 22-2-2002 was issued to the respondent demanding differential duty on the pre-delivery inspection and after sale service charges reimbursed by the respondent to their dealers and the same was adjudicated vide order dated 8-10-2003 by the jurisdictional Asstt. Commissioner. In the said order, the learned Asstt. Commissioner has held as follows:
“It is clear from the above that the pre-delivery inspection charges are borne by the assessee and returned/reimbursed out of the money consideration received from the customers (dealer) at the time of the sale of the vehicles.
On the contrary I find that there is no evidence on record to establish that there is any additional consideration flowing back to the assessee directly or indirectly after the sale of the vehicles from the factory, no debit notes are forthcoming on the records issued by the assessee as alleged in the SCNs, on this account for recovery of said charges from the dealers.”
Accordingly, the learned Assistant Commissioner dropped the proceedings. Revenue filed an appeal before the lower appellate authority against the said order and the learned appellate authority in para 15 and 16 of the order held as follows :
“15. In view of the above, I find adequate force and substance in the adjudicating authority’s findings that, the Boards Circular No. 643/34/2002-CX., dated 1-7-2002 cannot be made applicable in the present context because there is no evidence on records to establish that the Respondents had recovered any amount of and above the total price of the vehicles charged to their dealers at the time of clearance of the vehicles from their factory. On the contrary the Respondents have substantiated their claims that these PDI charges were reflected as ‘expenses’ and not as ‘income’ in their books of account. These expenses on account of PDI charges were admittedly reimbursed by them to their dealers from the total price realized by them from their dealers. Thus, it can be said that the duty on the element of PDI had already been paid by the Respondents as the element of PDI was already included in their manufacturing profit and on which duty burden had already been discharged. This element of PDI cannot possibly be added again in the assessable value and duty recovered thereon merely because the PDI charges were reimbursed by the Respondents to their dealers at a latter date.
16. I, therefore, do no find any merit in the review appeal filed by the department. I accordingly reject the subject review appeal filed by the department and uphold the impugned order of the lower authority.”
It is against the order of the Commissioner Appeals denying levy of excise duty on PDI charges that the revenue is in appeal before the Tribunal.

Appellant’s contentions:-The learned Additional Commissioner (AR) appearing for the Revenue relies on the Circular No. 643/34/2002-CX., dated 1-7-2002 wherein vide Serial No. 7, the Board had clarified as follows :

“S. No.	Point of Doubt	Clarification
7.	What about the cost of after sales service charges and pre-delivery inspection (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 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 PDI charges will be included in the assessable value.”

Accordingly, he pleads that after-sale service charges and PDI charges/reimbursed to the dealer should be included in the assessable value of the goods.

Respondent’s contentions:- The learned counsel for the respondent submits that in this case, respondent has reimbursed these charges to the dealers and there is no flow-back from the dealer to the respondent towards the recovery of these charges. In the profit and loss account of the respondent, these are shown as expenses. From this, it is evident that there is no flow-back from the dealer to the respondent so as to make any consideration received includible in the assessable value of the goods sold.

Reasoning of judgment:- The question of includibility of any amount in the assessable value would arise if that amount is received by the assessee, either directly or indirectly, from the buyer (dealer) in relation to the sale of the goods. In other words, there has to be flow-back from the dealer to the assessee. In the present case, there is no evidence of any such flow-back. On the contrary, it is the assessee who is reimbursing the expenditure to the dealer. In the absence of any flow-back from the dealer to the respondent-assessee, the question of including PDI and after-sale service charges in the assessable value of the goods sold does not arise at all. Therefore, they do not find any infirmity in the orders passed by the lower authorities who have given a clear factual finding that there is no flow-back. Thus, the appeal filed by the Revenue is devoid of any merits, and is accordingly rejected. The cross-objection is also disposed of.

Decision:- The appeal was rejected.

Comment:- The analogy of the case is that any amount is included in assessable value of goods if the amount is received by the assessee directly or indirectly from the buyer in relation to the sale of goods. In the present case, there is no evidence of flow back from dealer to manufacturer towards recovery of reimbursed charges. Further, in the books of accounts of the assessee, the said charges are reflected as expenses not as income therefore, there is no question of including said charges in assessable value of goods sold. Accordingly, the appeal filed by the revenue was rejected as devoid of any merits.

Prepared by: Monika Tak

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PJ/CASE LAW/2014-15/2303

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