ORDER
G.R. Sharma, Member (T)
1. There are two appeals. The issue involved in both the appeals is same and, therefore, both the appeals have been heard together and are being disposed of by this common order.
2. In these two appeals, the issue for determination is whether the amount reimbursed to the wholesale dealers out of the margin allowed to them in respect of sales to wholesale dealers and out of a mark up in respect of sales to DGS & D, CSD and other departments for free after-sales services, pre-delivery inspection etc. at different rates from time to time should be included in the assessable value under Rule 5 of the Central Excise (Valuation) Rules, 1975. Other issues are allied to it.
3. Shri S. Madhavan, the Ld. Chartered Accountant appearing for the appellants submits that the appellants M/s. Enfield India Ltd. manufacture motor cycles. For the purpose of sales they have appointed dealers, some sales are effected directly to Govt. Departments, DGS & D and Canteen Stores Department (CSD). The appellants reimburse different amounts at different time to wholesale dealers for undertaking free after sales service and pre- delivery inspection.
4. Tracing the history of the case the Ld. Chartered Accountant submits that the appellant submitted his price list in 1974 and 1975 for approval by the Assistant Collector, stating inter alia that Rs. 150/- reimbursed to wholesale dealers for undertaking the after sales service and pre-delivery inspection may be permitted to be deducted from the price of motor cycles. The Assistant Collector while approving the price list under his order dated 21-2-1976 did not allow deduction of this amount from the assessable value on the ground that dealers were related persons and price to DGS & D and CSD is contract price. That this order of the Assistant Collector was upheld by the Collector (Appeals) in appeal and the Govt. of India in revision. The appellant filed a writ in the Hon’ble High Court at Madras who remanded the case to Asstt. Collector with the direction that he should find out and decide whether the main dealers and the appellant was related persons and also the propriety of inclusion of Rs. 150/- which the appellant was required to pay to the main dealers. The Asstt. Collector adjudicated the case holding that the wholesale dealers were not related persons and that Rs. 150/- reimbursed to wholesale dealers for pre- delivery inspection and after sales service will be included in the assessable value. The Collector in appeal also upheld the decision of the Asstt. Collector and hence one of the appeals.
5. Regarding the 2nd appeal, the Ld. Chartered Accountant submits that the appellant submitted another price list No. 8/91 dated 5-2-1991 for approval to the Asstt. Collector. The Asstt. Collector following the same logic held that the amount reimbursable to wholesale dealers for undertaking the after sales service and pre-delivery inspection would be includible in assessable value. The Collector (Appeals) upheld the view and hence the second appeal.
6. The Ld. Chartered Accountant argued that the Assistant Collector ought to have confined his decision strictly in accordance with the directions of the Hon’ble Madras High Court and should have limited his order to find out whether the wholesale dealers were ‘related persons’ and nothing else.
7. The Ld. Chartered Accountant argued that the fact of appellants dealers bearing the cost of pre-delivery inspection and after sales service charges out of their margin cannot be construed as additional consideration flowing directly or indirectly from the dealers to the appellants. The Ld. Chartered Accountant cited the following case law in support of his contentions.
1. Moped India v. A.C. C.E. – 1986 (23) E.L.T. 8 (S.C.)
2. Standard Electric Appliances v. Superintendent of Central Excise – 1986 (23) B.L.T. 302
3. Mahindra & Mahindra Ltd. v. Superintendent of Central Excise – 1984 (16) E.L.T. 76 (Bom.)
4. Ashok Leyland Ltd. v. Union of India – 1986 (26) E.L.T. 676 (Bom.)
5. Ashok Leyland Ltd. v. Government of India – 1987 (30) E.L.T. 281 (Mad.)
6. General Industrial Controls Pvt. Ltd. v. Collector of Central Excise – 1991 (52) E.L.T. 449 (Tri.)
7. Eicher Motors Ltd. v. Collector of Central Excise – 1992 (58) E.L.T. 90 (Tri.)
8. Pratap Steels Ltd. v. Collector of Central Excise – 1993 (44) ECR 3 (Tri.)
8. Shri Prabhat Kumar, the Ld. SDR appearing for the Department, submits that there was sufficient case law which supports their contention that the after sales service charges as also the pre-delivery inspection charges reimbursed to the wholesale dealers in respect of sales to wholesale dealers as also to DGS & D, CSD and Govt. Departments, should be included in the assessable value. In support of his contentions, he cited the case of Seshasayee Paper & Board Ltd. v. Collector of Central Excise reported in 1988 (36) E.L.T. 611, wherein the Tribunal held that service charges paid to indentor to procure orders is not trade discount and that it is commission and is not deductible from the assessable value. He also referred to the judgment of Coromondal Fertilizers Ltd. v. Union of India [1984 (17) E.L.T. 670], wherein the Hon’ble Supreme Court held that agreement which the appellants had with the selling agents clearly go to indicate that the selling agents, who are being appointed as the agents of the appellants for the sale of their product are agents; the agreement clearly provides that the selling agents will secure orders on behalf of the appellants; execute such orders on behalf of the appellants; will remain liable to the appellants for realization of the price of the goods sold to various parties and for such services rendered by the selling agents to the appellants; they will be paid commission. In these circumstances of the case, the Hon’ble Supreme Court held that such commission cannot be considered to be in the nature of trade discount which may qualify for deduction while determining the assessable value of the goods for the purpose of imposition of excise duty.
9. The Ld. SDR also relied on this Tribunal’s judgment in the case of Collector of Central Excise v. R. GAC Electrodes (P) Ltd. Bangalore reported in [1988 (33) E.L.T. 485 (Tri.)], wherein this Tribunal held that the expenses incurred by wholesale dealers in connection with the sales promotion, publicity and advertisement of the manufacturers’ goods at its own cost, was an additional consideration which the buyer company was paying for goods over and above the price disclosed in the price list of manufacturers and therefore the additional consideration should be added to the value of the goods under Rule 5 Central Excise (Valuation) Rules, 1975 for the purpose of duty in view of Hon’ble Supreme Court judgment in the case of Bombay Tyre International.
10. Having heard the arguments of both sides and perusing the records let us first examine the mechanism of pricing followed by the appellant. The position in this respect will be clear from the Order-in-Origii C/No.V/32/70/1/75 dated 21-2-1976 passed by the jurisdictional Assist; Collector. The relevant portion dealing with price is reproduced for the sake convenience.
“The prices at which the assessee sells the motor cycles to main dealers for the different models are as follows –
(a) Bullet 350 CC civilian model motor cycle to
standard specification Rs. 5,901.95
(b) Bullet 350 CC Civilian Deluxe Model Motor Cycles Rs. 6,171.95
(iii) DGS & D supply model - for civilian indentors
(c) Enfield India 350 -CC Bullet motor cycles without
pannier set Rs. 5,716.95
(d) Enfield India 350 -CC Bullet Motor cycle with pannier
set with bags for both sides Rs. 5,896.50
The maximum selling price by main dealer to other sub-dealers and other buyers, Rs. 6,153.95 for (a) and Rs. 6,443.95 for (b) and this maximum price is fixed by the assessee. The difference between the price at which the assessee clears the goods to main dealers and the price at which the main dealer sells to sub-dealers/other buyers are for (a) Rs. 252/- for (b) Rs. 272/-.
Actually the difference in prices should have been Rs. 402/- in the case of (a) and Rs. 422/- in the case of (b). The Department has allowed out of Rs. 402/- and Rs. 422/-, Rs. 252/- in the case of (a) and Rs. 272/- in the case of (b) as the discounts to be abated, before arriving at the assessable value.
This is to say that a portion of the difference between the price at which the assessee sells the goods to main dealers and the price at which the main dealer sells to other sub-dealers/other buyers was already abated for arriving at the assessable value. I find that no reason exists to alter the assessable value thus arrived at. This assessment satisfies the base norm of fixing assessable value under section 4.
Next come to the assessment made for the two types of motor cycle sales to DGS & D viz. (c) and (d) above. The marketing pattern in this case is that the assessee sells the goods direct to DGS & D at the factory gate and at rate contract. The break-up of prices to DGS & D for (c) is Rs. 5,738.94 and for (d) Rs. 5,918.49 P.
The department have allowed the 3% discount. This 3% discount is on the NDP and is as contracted. It will be seen from the break-up of (c) and (d) that a sum of Rs. 193.50 is shown as fixed mark up for civil indentors. It is the assessee’s contention that out of the fixed mark up, a sum of Rs. 150/- is in effect passed on to the main dealers of the respective territory for doing after sales service.
I have also perused the contract entered into with DGS & D. In para 8, free service, a mention is made about the assessee’s dealers performing free service according to Standard Factory instructions to motor cycles supplied to Civilian Indentors.
I am unable to accept the assessee’s contention for deduction of Rs. 150/- from the assessable value for the following reasons.
(a) The price contracted with the DGS & D includes Rs. 150/-.
(b) Nowhere in the contract with the DGS & D, the assessee has indicated about the charges to be incurred for after sales service.
(c) The contract with DGS & D itself reads (vide para 8) that free service according to Standard Factory instructions to motor cycles supplied to civilian indentors will have to be done is evident for the free service the assessee has included Rs. 150/- in his fixed mark up and invoice to DGS &D.”
11. Whereas the Department did not question the trade discount the amount of money being reimbursed to wholesale dealers for doing after sales services and pre-delivery inspection was questioned. It, therefore, becomes very pertinent to examine whether the said charges have a nexus to price for purpose of computing the duty.
12. From the above order we find that the appellants were clearing the motor cycles from the factory at a particular price on payment of duty. The motor cycles so cleared were being taken to the local duty paid godown. Invoices to wholesale dealers, DGS & D, CSD and Govt. Departments were being prepared there. In these invoices, higher prices than the ones at which clearance was taken at the factory gate were being shown, and these prices were being collected from the buyers. These additions were termed as dealers margin in respect of sales to wholesale dealers and mark up price in respect of sales to DGS & D, CSD and Government Departments. The Dealers’ margin and the mark up comprised of two amounts i.e. (a) discount (b) the amount to be reimbursed to wholesale dealers for free after sales services and pre-delivery inspection.
13. We are not prepared to accept the plea of the appellants that these were the expenses incurred by them in their duty paid godown after the goods are cleared from the factory or that this amount was realised by the wholesale dealers long after clearance. This plea of the appellants is not relevant because it is not the realisation by the wholesale dealers which is material for consideration but it is the realisation of the amount by the appellants which is material. Moreover, the said charges do not cover any work done in the duty paid godown as they were for a specific purpose namely for undertaking pre- delivery inspection and free after sales services. The appellants have not produced any evidence that the said charges were incurred by them as expenses in godown. The appellants were realising this amount at the time of sale of its goods to wholesale dealers/DGS & D/CSD. The wholesale dealer DGS & D, CSD and Govt. Departments were paying the said charges at the time of delivery of the goods and transfer of title in goods to them. We therefore hold that the amount of the said charges reimbursed to wholesale dealers had nothing to do with any work in the godown.
14. Now coming to the plea put forth in the grounds of appeal, we observe that the Ld. Chartered Accountant had pleaded that the adjudicating authority ought to have confined his order strictly within the directions of the High Court and should have not included Rs. 150/- per vehicle on a ground different from that of ‘related person’. From the statement of facts, we observe that the appellants have themselves stated “The matter was remanded to the adjudicating authority with directions that he should find out and decide whether the main dealers and the appellants were ‘related persons’ and also the propriety of inclusion of Rs. 150 which the appellants were required to pay to the main dealers.” Without sitting on judgment on the directions of the Hon’ble High Court, we respectfully say that the Assistant Collector was directed to examine two issues viz. whether the wholesale dealers were ‘related persons’ and whether Rs. 150/- should be included. The Asstt. Collector held that dealers were not ‘related persons’ and that Rs. 150/- should be included as is evident from his adjudication order.
15. The contention that after sales service charges and pre-delivery inspection charges were being borne by their buyers and this cannot be construed as additional consideration; we have already examined this issue at length in the foregoing paragraphs and have held that in view of the fact that the said charges were being collected from buyers at the time of sale by the manufacturer, we have held that this is an amount collected at the time of delivery of the goods over and above the price declared to the department and hence an additional consideration.
16. Perusal of the agreement and the manual of instructions indicate that the manufacturer had asked the wholesale dealers to undertake warranty repairs and free after sale services and pre-delivery inspections on their behalf. This was necessary for promoting the sales and creating public confidence in the motor cycles manufactured by the appellants. These charges were being collected by the appellant from the buyers and the money was going to his pocket. This legitimately was a part of price for computing duty. As this part of price was not shown in the price lists submitted to the Department, the price disclosed to the Department was not sole consideration. Now a very important point arises for our consideration. This point is whether these charges reimbursed to wholesale dealers can be termed as discount. For consideration of this point we have to examine the sale transactions closely. All sales can be divided into 2 categories, namely, sales to wholesale dealers and sales to Govt. Departments, DGS & D and CSD.
17. On examination of the issue in the light of various pronouncements made by the Hon’ble Supreme Court, the High Courts and the Tribunal in the case law cited earlier, we find that the transaction between the manufacturer appellant and wholesale dealers are transactions from principal to principal as the property in the goods in this case (motor cycle) passes on to the wholesale dealer the moment delivery of the goods is effected to them. There is no allegation that there is a flow back of the amount reimbursed to the wholesale dealers as expenses incurred on them free after sale services. The transactions between the manufacturer and wholesale dealers are not transactions between related persons. Therefore, the charges reimbursed to wholesale dealers in respect of sales to them will be admissible for consideration as discount and we hold that they will not be included in the assessable value for computing duty.
18. In regard to transactions between the appellant and DGS & D, CSD and Govt. Departments, it may be stated that the sales are direct to the buyers in the course of wholesale trade and the wholesale dealers are not a party in these transactions. Therefore, the said charges reimbursed to them later on for pre-delivery inspection and after sale services can by no stretch of imagination be termed as discount. Discount is always paid out of the price charged. No price is charged from wholesale dealers in these transactions and therefore no discount can be given in respect of such transactions, therefore, the amount of the said charges reimbursed to wholesale dealers is an additional consideration. As the amount of the said charges was not reflected in the price declared to the Department, therefore the price was not the sole consideration.
19. This view is fully supported by the ratio of the judgment in the case of Standard Motor Products India Ltd. v. Collector of Central Excise reported in 1989 (41) E.L.T. 646. For the sake of convenience the relevant portion is extracted as under :-
“We have carefully considered the arguments of both the sides. The facts are not disputed. We have perused the contract between the appellants and the DGS & D. We have perused the invoices and credit notes. In respect of vehicles supplied to civilian indentors, the invoices included an amount of Rs. 1,000 over and above the price declared in the price lists. This amount appears as an item in the invoices. We also note that the appellants issued credit notes to the dealer for Rs. 1,000 with reference to the invoice under which the vehicles were sold to the civilian indentors. On these clear facts, it has to be held that at the time and place of sale, the amount received by the appellants as consideration for the sale included the amount of Rs. 1,000. The fact that at a subsequent point the same amount was given to the dealer does not alter this fact. The provisions of Section 4 are quite clear in this regard. The items deductible are defined therein. Therefore, there is no question of exclusion of this amount from the sale price. In the circumstances we hold that the orders passed by the authorities below are correct in law. We, therefore, reject the appeal”.
20. We have held that price declared to the Department by the appellants in respect of sales to DGS & D/CSD was not the sole consideration, therefore, we proceed to examine it under Rule 5 of the Central Excise (Valuation) Rules, 1975. In this connection, the appellants have cited the case of VST Industries v. Collector of Central Excise wherein the Tribunal held that the monetary value of the additional consideration should be added to the cumduty price and the duty amount should be arrived at after working backwards. The respondents have cited the case of R. Gac Electrodes v. Collector of Central Excise reported in 1988 (33) E.L.T. 485 (Tri.) in which the Tribunal held that the monetary value of the additional consideration should be added to the assessable value. Having regard to the fact that the judgment in the VST Industries case is a recent one, coupled with the fact that while considering the issue the Tribunal had examined the ratio of the judgment in the case of R. Gac Electrodes, we would like to respectfully agree with the judgment in the case of VST Industries and order that the amount shall be added to the declared cum-duty price and then duty to be calculated by working backwards.
21. The appeals are rejected except to the extent stated above. Consequential relief, if any, shall be paid in accordance with law.