ORDER
U.L. Bhat, President
1. Appeal Nos.E/3705-3710/88-A have been filed by the common appellant, M/s. Mahindra and Mahindra Ltd. (for short, Mahindra) against the common order dated 23-9-1988 passed by the Collector of Central Excise, Bombay pursuant to six show cause notices in respect of different periods :-
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Period Date of SCN Amount ------------------------------------------------------ 1-12-1983 to 30-4-1985 8-10-1995 Rs. 61,11,478.12 1-5-1985 to 31-7-1985 3-1-1986 Rs. 10,94,898.75 1-8-1985 to 31-12-1985 3-1-1986 Rs. 18,21,418.12 1-1-1986 to 30-4-1986 26-5-1986 Rs. 21,23,056.87 1-5-1986 to 31-12-1986 15-9-1986 Rs. 22,46,928.75 1-9-1986 to 31-3-1987 3-4-1987 Rs. 47,03,400.00 ------------------------------------------------------ Appeal No. E/213/90-A has been filed M/s. Maruti Udyog Ltd. (for short, Maruti) against the order dated 23-10-1989 passed by the Collector of Central Excise, New Delhi. The particulars are as follows:- ------------------------------------------------------ Period Date of SCN Amount ------------------------------------------------------ 1984-95 to 27-3-1986 3-8-1988 Rs. 9,77,269.57 ------------------------------------------------------ We have heard the appeals together since certain common questions arise for consideration.
2. Mahindra, engaged in the manufacture of Jeep vehicles has a network of dealers and Sub-dealers appointed under agreements, to cater to the needs of different and allotted areas. They book orders and supply vehicles to customers who place orders, sell spares as authorised stockists, provide free after sales service and advertise as directed by Mahindra. Mahindra effect direct supply to Government Departments on rate contract. The dispute in the present appeals relates to sales to dealers. Mahindra has been declaring prices to dealers and on approval thereof paying central excise duty on assessable value determined accordingly. Dealers margin varied between Rs. 2500 to Rs. 3500 per vehicle, depending on the model and the margin was apparently high. Show cause notices were issued alleging that a part of dealers margin was intended to cover the cost of aftersales service rendered and advertisement conducted as required under the terms of the agreement with the manufacturer, that assessable value under Section 4(l)(a) of the Central Excise Act, 1944 should include the cost of such aftersales services and advertisement but the manufacturer did not include these elements in the assessable value for reckoning and paying duty and there was short payment in contravention of Section 4 of the Act with intent to evade duty. The notices proposed demand of differential duty arrived at on addition of Rs. 1500 (out of the dealers’ margin) to assessable value. Mahindra resisted the notices contending that they were vague, not valid and two earliest notices were barred by limitation and the larger period of limitation under the proviso to Section 11A of the Act has not been invoked, that there was no contravention of Section 4 of the Act, that the addenda issued to notices were invalid and served no lawful purpose, that the notices did not explain how Rs. 1500 has been arrived at, that the transactions with dealers were at arms length and on principal to principal basis, that the declared price was the “normal price”, that no deduction was claimed on account of expenses of advertisement or after sales service, that there was no flow of additional consideration from dealers, that the expenses incurred by the dealers were on their own account and for their own benefit, and not as agents of Mahindra, that no part of dealers margin can be added to the assessable value unless they are related persons of the manufacturer which has not been suggested in the show cause notices, that the dealers’ margin was not high as alleged and the terms of the agreements relating to dealers’ obligation in the matter of advertisement and free after sales services were only a reflection of customary practice in automobile trade. The Collector overruled these contentions holding that the price charged by Mahindra was not the sole consideration and the money value equivalent to cost of services rendered by the dealers flowed back indirectly to Mahindra, that extra margin was allowed to cover cost of services required to be provided by the manufacturer and these services enhanced marketability of the product. The Collector relied on the decision in Bombay Tyre International case 1984 (14) E.L.T. 1896 (S.C.), distinguished the decision of the High Court of Bombay in the Mahindra’s own case reported in 1984 (16) E.L.T. 76 and other cases. The other contentions raised were overruled and demands were confirmed.
3. The dispute in the case of Maruti in Appeal No. E/213/90-A relates to cost of free aftersales services obligatorily rendered by and of predelivery inspection (PDI) conducted by dealers under terms of agreements entered into with Maruti. Price lists were filed claiming deduction of dealers’ margin of Rs. 2000 per vehicle from the declared wholesale price and the same were approved and duty was being paid on that basis. Internal records of Maruti showed that the dealers’ margin of Rs. 2000 included Rs. 350 per vehicle towards expenses of aftersales services and PDI. Margin was being paid to dealers in instalments. The cost element of Rs. 350 was being paid only after being satisfied about performance of aftersales services and PDI. These elements should have been declared as part of assessable value but were actually suppressed with intent to evade duty. Accordingly show cause notice was issued proposing demand of differential duty on the basis of addition of Rs. 350 per vehicle to the assessable value and invoking the larger period of limitation under the proviso to Section 11A of the Act. Maruti resisted the notice on the ground of limitation and on merits. It was contended that there was no deliberate suppression of facts. The objected elements of cost were not declared to be part of assessable value under the belief that they were not required to be added. Price list dated 17-3-1987 specifically referred to these aspects. All expenses subsequent to clearance at the factory gate should be excluded from assessable value. The expenses were being incurred not by Maruti but by the dealers independently and have no nexus with the activity of manufacture. The margin allowed to dealers was trade discount. The amount adjusted was Rs. 300 and not Rs. 350 per vehicle. The Collector overruled these contentions and confirmed the demand.
4. Sri A.M. Setalvad, appearing for Mahindra contended at the outset that the appellant has filed an affidavit of Sri Avinash Datta who was Deputy General Manager during the relevant period and certain documents. The appeals were adjourned to enable the departmental representative to obtain instructions in regard to contents of the affidavit and the documents. The contents of the affidavit can be summarised as follows :-
Mahindra incurs substantial expenditure on advertisements of the products in print media, television, hoarding etc. meeting the entire expenditure. Advertisements in local papers contain names of local dealers also. No part of such expenditure was passed on to dealers. Under the terms of the agreements dealers also advertise the product and their status at their cost; out of such cost, Mahindra reimbursed 50% to the respective dealers, though not required to do so under the terms of agreements. Reimbursement was made as per credit notes. Copies of a few credit notes are submitted along with the affidavit. The particulars furnished in the affidavit are as follows :-
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Year Amount spent by Amount Amount spent
Mahindra reimbursed to by Dealers
(including amount Dealers
reimbursed to Dealers)
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1983-1984 Rs. 19.85 lakhs Rs. 1.60 lakhs Rs. 3.20 lakhs
1984-1985 Rs. 22.18 lakhs Rs. 0.55 lakhs Rs. 1.10 lakhs
1985-1986 Rs. 25.46 lakhs Rs. 1.74 lakhs Rs. 3.48 lakhs
1986-1987 Rs. 25.57 lakhs Rs. 2.03 lakhs Rs. 3.06 lakhs
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The CA's certificate produced along with the affidavit certified the amounts reimbursed by Mahindra to dealers as being 50% of the amounts spent by dealers for advertisement. According to the affidavit the amounts spent by Mahindra for advertisements were taken from the balance sheets for the respective years.
5. According to Shri K.M. Mondal, Consultant appearing for the Department, the affidavit and accompanying documents are in the nature of additional evidence on an aspect not pleaded in the replies to the show cause notices and as such should not be looked into. On an earlier occasion, the Bench adjourned the case to enable Mahindra to produce the particulars of the expenses of advertisement and after the affidavit and documents were filed the Bench also granted an adjournment to enable the departmental representative to take instructions regarding the contents of the affidavit and documents. Evidently it has not been possible to obtain instructions.
That the agreements required dealers to advertise at their own cost does not necessarily indicate that Mahindra did not advertise at own expense. It is true, as pointed out for the department, that these particulars were not furnished to the Collector in spite of the particulars being called for. At the same time, the Collector could have called for the balance sheets of Mahindra and could have conducted enquiry with the dealers with a view to obtain the particulars of the expenses incurred by them on advertisement. The aspect is of such significance, importance and relevance, that we do not think it will be proper to refuse to take cognizance of the particulars furnished in the affidavit. At the same time the department should also be given due opportunity to verify the particulars and arrive at the true facts to be placed before the adjudicating authority. This aspect may have to be considered by the adjudicating authority.
6. Shri Setalvad contended that Bombay Tyre International case 1984 (14) E.L.T. 1896 (S.C.) dealt only with the plea for deduction from assessable value of cost of advertisement or free aftersales service incurred by the manufacturers and not with any plea of the department for addition to assessable value of cost incurred by dealers on their own account, which according to him has been considered in earlier decisions, such as Voltas Limited – 1971 Tax L.R. 1184 (Bombay H.C.) confirmed by the Supreme Court in 1977 (1) E.L.T. (J 177) (S.C.) (A.K. Roy), and later decisions in Mahindra and Mahindra Ltd. – 1984 (16) E.L.T. 76 (Bombay H.C.) confirmed by the Division Bench in 1989 (43) E.L.T. 611, Standard Electric Appliances – 1986 (23) E.L.T. 302 (Madras H.C.) and Philips India Ltd. – 1997 (91) E.L.T. 540 (S.C.). It is pointed out that while aftersales service and advertisement of the product, enhance the marketability of the product as pointed out in Bombay Tyre International – 1984 (14) E.L.T. 1896 (S.C.) the benefit thereof accrues to both the manufacturer and the dealers which aspect did not arise for consideration in Bombay Tyre International – 1984 (14) E.L.T. 1896 (S.C.). Mahindra spent a substantial sum of money for advertisement and all the dealers together spent only a small fraction of such amount and the same cannot be added to the assessable value. No part of the cost of after sales service can be added to the assessable value.
Shri V. Sridharan appearing for Maruti supported the above submissions. He also contended that cost of PDI cannot be included in the assessable value as it was a pure post-clearance activity not having any connection with manufacture or marketability.
Shri K.M. Mondal rebutted the above contentions. According to him the decisions relied on by the appellants were contrary to Bombay Tyre International – 1984 (14) E.L.T. 1896 (S.C.) and hence cannot be followed by the Tribunal. He contended that the burden of the manufacturer in the matter of advertisement, after sales service and PDI was shifted to the dealers under terms of the relevant agreements and if the manufacturer themselves had met the expenditure, the same would have been made up by reducing the dealers’ margin and hence it must be taken that there was flow of additional consideration. The dealers attended to these activities not of their own account, but under the terms of the agreements as compelled by the manufacturers. The agreements clearly specify that the amount of dealers margin includes the element of cost of marketing, after sales service and advertisement.
7. In Bombay Tyre International – 1984 (14) E.L.T. 1896 (S.C.), the Supreme Court held :-
“Now, the price of an article is related to its’ value (using this term is a general sense), and into that value have poured several components, including those which have enriched its’ value and given to the article its’ marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its’ value upto the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee upto the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely, after sales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after sales service promote the marketability of the article and enter into its’ value in the trade.”
(Emphasis supplied)
In M.R.F. Ltd. – 1995 (77) E.L.T. 433 (S.C.) it was accepted that the law enunciated by the Supreme Court in Bombay Tyre International represented the correct interpretation of Section 4 of the Act (see Para 6 of the reported judgment).
8. The principle enunciated in the Bombay Tyre International was in the context of the claim for deduction from assessable value of expenses incurred by the manufacturer on the above counts. In Mahindra and Mahindra Ltd. -1984 (16) E.L.T. 76 (Bombay H.C.), the agreement between the manufacturer and Distributor required the latter to maintain sales organisation, store the tractors till they are sold to consumers, carry out after sales service to consumers and share half the amount spent on advertisement. The margin of the distributor was about 4.1% of the price. The learned single Judge held :-
“…the conditions requiring Voltas to set up sales organisation and to provide after sales service are the usual conditions provided in the agreement with the wholesale buyer and such conditions were also in existence, in the agreement which was considered by the Supreme Court in the Voltas’ case….The fact that the expenses in regard to the advertisements were to be shared by the petitioner and Voltas merely indicate that both the wholesale buyer and the petitioners were interested in having greater production and sale thereof and that condition, in my judgment, cannot be considered as relevant to reach the conclusion that the agreement was not at arms length”.
(Emphasis supplied)
A Division Bench of the High Court confirmed the above decision in the judgment reported in 1989 (43) E.L.T. 611 (Bombay H.C.). It was held that the relationship between the manufacturer and the distributor was on principal to principal basis and the distributor was not in any way an agent of the manufacturer and the price charged to the distributor was the wholesale price. The Court held :-
“…both the Company and the distributor had mutual interest in maximising the sale of the products in question. In the above view, these provisions relating to advertisement etc., were in furtherance of the said desire on the part of the Company and its’ distributor and in no way affected the real nature of the transactions which appear to be sales on principal to principal basis.”
(Emphasis supplied)
9. In Standard Electric Appliances, 1986 (23) E.L.T. 302 (Madras H.C.), the manufacturer appointed a dealer who was prepared to lift 90% of the production and charged price lower than the price charged to retailers. The dealer was advertising the product and had also undertaken to give after sales services and comply with the normal warranties. The Court observed :-
“It is common knowledge that when a consumer purchases an article from a dealer, in the case of service facilities, he looks to the dealer and not to the manufacturer. In case of replacement of defective parts also he will look to the dealer from whom he has purchased and notwithstanding the fact that the wholesaler may ultimately have the parts replaced by them reimbursed from the manufacturers, the service facilities are provided by the wholesaler with a view to earn the goodwill and attract customers. Advertising a product by wholesaler is one of the well-known methods by which the wholesaler attracts the customers and if as a result of increasing his business the demand for the product of a manufacturer increases, the advertising by the wholesaler cannot be said to be for and on behalf of the manufacturer. The view taken by the Excise authorities appears to us to be wholly contrary to and inconsistent with normal commercial business practices on which business is carried on by wholesalers and manufacturers.”
(Emphasis supplied)
The Court held that above circumstances do not lead to the conclusion that the dealer was a favoured buyer.
10. The disputed aspect came up directly for consideration before the Supreme Court in the appeal filed by the assessee against the decision of the Tribunal in Philips India Ltd. – 1994 (71) E.L.T. 1053 (T). The decision of the Supreme Court is reported in 1997 (91) E.L.T. 540 (S.C.). The agreement required the dealers to strictly comply with the terms of guarantee of free after-sales-service laid down by the Company from time to time regardless of where the purchase has been made and not to charge for repairs during the guarantee period. The dealers also undertook to carry out, at their own expenses advertisement campaign to promote sales of the product. The expenses of repairs were not reimbursed by the manufacturer and dealers were to meet the expenses out of the discount or margin offered by the manufacturer. The service workshop required approval of the manufacturer. 2% out of the discount was towards advertisement and after-sales-service etc. The adjudicating authority disallowed discount to the extent of 2%. The Tribunal held that the obligation of the dealers was under the agreement and not out of their own free will for the purpose of their own business, that the dealers were not acting independently, but as agent of the supplier and confirmed the disallowance of deduction of 2% out of the discount relying on the Bombay Tyre International – 1984 (14) E.L.T. 1896 (S.C.). Though the agreement did not so provide, the manufacturer actually reimbursed the dealer to the extent of 50% of the cost of advertisement incurred by the dealer in terms of the agreement. Regarding the aspect of advertisement, the Supreme Court held :-
“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.”
(Emphasis supplied)
Regarding the obligation to carry out free after-sales-service, the Court held :-
“…it did of course enhance in the eyes of intending purchasers the value of the appellants’ product, but such enhancement of value enured not only for the benefit of the appellant, it enured for the benefit of the dealer for, by reason thereof, the dealer got to sell more and earn a larger profit…thus though one dealer might have to repair goods sold by another dealer and incur costs in that regard, he 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.
We think that in adjudicating matters such as this, the Excise authorities would do well to keep in mind legitimate business considerations.”
(Emphasis supplied)
The Supreme Court set aside the order of the Tribunal and allowed the appeal, thereby holding that 2% out of discount was also to be deducted in arriving at the assessable value.
11. It is difficult to accept the contention of the Revenue that the decision of the Supreme Court in Philips India Ltd. – 1997 (91) E.L.T. 540 (S.C.) is contrary to the decision in Bombay Tyre International case 1984 (14) E.L.T. 1896 (S.C.). The earlier decision was on the simple question whether cost of advertisement and cost of after-sales-service incurred by the manufacturer was deductible in determining assessable value. The Court answered the question in the negative as these expenses enhanced the marketability of the product. The aspect of the dealer incurring such expenditure under the terms of the agreement with the manufacturer and the question whether such activity undertaken by the dealer enured to his benefit also did not arise for consideration in Bombay Tyre International – 1984 (14) E.L.T. 1896 (S.C.). These aspects arose for consideration in Philips India Ltd. – 1997 (91) E.L.T. 540 (S.C.). The later decision supplements the earlier decision. The controversy relating to cost of advertisement and after-sales-service has to be decided in the light of the decision in Philips India Ltd.
12. In General Industrial Controls (P) Ltd. – 1991 (52) E.L.T. 449 (T), under the agreement entered into between the Manufacturer and Distributor, the Distributor was to be given 30% discount on the list selling price and the entire production was to be sold to him. The dealer undertook the responsibility of sales promotion, market survey, preparation of sale forecasts, advertisements etc. The Tribunal held that if contract of sale and purchase disclose that the transaction is from principal to principal and property in goods passed on to the buyer on delivery, the aforesaid conditions of the agreement do not have any effect on the transaction and it cannot be said that the activities were carried on by buyers on behalf of the manufacturer.
13. In Hero Honda Motors Ltd. 1997 (19) RLT 842, the manufacturer was conducting advertisement campaign, also printing the names and addresses of wholesale dealers and collecting proportionate charges from them. The Tribunal held that where the dealer was not in the picture and the advertisement campaign was conducted by the manufacturer that can certainly be regarded as contribution wholly or exclusively to the marketability of the product but where there is a dealer in the picture and the advertisement helps the dealer apart from helping the manufacturer, the matter has to be looked at differently.
14. In Appeal Nos. E/2270/90-A and 3003/92-A (M/s. Escorts Ltd.), the manufacturer was supplying publicity material to dealers at its own initial cost and recovering subsequently 50% of the cost from the dealers. The agreement also required the dealer to advertise at his own expense in his territory in such a manner as may be required by the manufacturer, the layouts being subject to the approval and supervision of the appellant. The Tribunal held that where dealer incurs expense on advertisement that would benefit not only the manufacturer but also the dealer, that both have mutual interest in maximising sales and that did not affect the real nature of the transaction if it was on principal to principal basis and the transaction was at arms length. In such circumstances, the fact that advertisement was shared would not stand in the way of manufacturer’s price being accepted. The question in every case would be whether in the facts and circumstances it can be held that there was flow of additional consideration from the dealer to the manufacturer for sale of the manufactured products. Several aspects require scrutiny in this regard, namely, the terms of agreement, trade practice, the quantum of manufactured products and of sales made to the dealer in question, the amount of money spent by the manufacturer or dealer for advertising the products, the proportion between the sales of the dealer and the cost of advertising incurred. It was held that 50% of the cost of gift articles recovered by the manufacturer cannot be added to the assessable value.
15. The principles laid down by the Tribunal in the three decisions of the Tribunal are in conformity with the decision of the Supreme Court in Philips India Ltd. The facts of the case have to be examined in the light of the above decisions.
16. Margin of dealers of Mahindra during the relevant period ranged between Rs. 2500 to Rs. 3500 depending on the model of the vehicle. The main provisions of the agreement relied on by the Revenue are :-
(a) Dealers agreed that only Mahindra guarantees are to be binding.
(b) Dealers cannot sell the vehicles at prices higher than the maximum retail prices published by Mahindra.
(c) Dealers shall promote and extend sales in their respective territories and for that purpose maintain efficiently trained staff organisation, branches and service centres to the satisfaction of Mahindra.
(d) Dealers shall buy from Mahindra and maintain at their own expense for resale in their respective territories such stocks of the products as may by mutual consent be considered adequate.
(e) Dealers shall effectively extend after-sales services arrangements for servicing the products to purchasers thereof in accordance with the directions issued by Mahindra from time to time.
(f) Dealers shall advertise and display at their own expense the products and service facilities in their respective territories to such extent and in such manner as may be considered necessary by Mahindra and the nature and method of which shall be subject to Mahindra’s general approval and supervision.
(g) Dealers’ margin represents the sum total of:
(i) Cost of financing the purchase and stocking of the products,
(ii) Cost of selling the products,
(iii) The cost of meeting the service obligations to customers, and (iv) Profit to the dealers.
Revenue has no case that the dealers were related persons of Mahindra or that the transactions between them were not on principal to principal basis or were not at arms length. Dealers are interested in offering free service facilities to the customers with a view to earn goodwill and attract customers. Advertisement by dealers is a well-known method of attracting customers and increasing business. Even when these activities are performed by dealers as per terms of agreement with the manufacturer, they do so not as agents of the manufacturer but as a matter of trade practice and also in their own interest. Such activities promote the interest of both parties by maximising sales to the advantage of both. Undertaking of these activities by dealers is supported by their legitimate business consideration. The Supreme Court in Philips India Ltd. – 1997 (91) E.L.T. 540 (S.C.) declined to add to assessable value a part of trade discount allowed to dealers which could cover the expenses of free after-sales-services. Following this decision, we hold that no part of dealer’s margin which would cover the cost of free after-sales-services is liable to be added to assessable value.
17. The terms of the agreements between Maruti and dealers are more or less similar to the terms of Mahindra already referred to except that Maruti agreements do not specifically indicate that dealers’ margin ranging between Rs. 2000 to Rs. 2500 per vehicle covers the four components specified in Mahindra agreements. But there is no dispute that dealers’ margin covers the expenses incurred by dealers for free after-sales-services and PDI. Our finding that no part of dealers’ margin which would cover such expenses is liable to be added to assessable value must apply in the case of Maruti also.
18. If the additional facts pleaded by Mahindra in the affidavit filed in appeal are true, the case squarely attracts the decision in Philips India Ltd. – 1997 (91) E.L.T. 540 (S.C.). Mahindra claims to have spent amounts ranging from Rs. 19.85 lakhs to Rs. 25.57 lakhs for advertisement of the product as against amounts ranging from Rs. 0.55 lakhs to Rs. 2.03 lakhs spent by dealers for advertisement of the product and of their concerns. It is also claimed that the amounts spent by Mahindra include 50% of the amounts spent by dealers and reimbursed to the latter. If the facts pleaded are true, out of total cost of all advertisements, dealers spent about 8%, 2.5%, 7% and 8% in the respective years. On the principle laid down in Philips India Ltd. 1997 (91) E.L.T. 540 (S.C.), it must follow that no part of the cost incurred by dealers and no part of dealers’ margin covering such cost is liable to be added to assessable value where the manufacturer shares the cost. The adjudicating authority has to verify the correctness of the facts pleaded in the affidavit after giving an opportunity to Mahindra to establish the same. If Mahindra fails to establish one or more of the facts pleaded in the affidavit, the dispute has to be decided in the light of the decision of the Supreme Court referred to and on consideration of several aspects such as the quantum of products manufactured by Mahindra and purchased by dealers, the amounts spent by Mahindra and dealers for advertisement, the proportion thereof whether the transactions were on principal to principal basis and at arms length and other relevant aspects. The Collector has added Rs. 1500 per vehicle without explaining the basis on which quantification has been made. If addition was justified on merits, the Collector should have estimated the quantum of different components covering dealers’ margin and determined the quantum covering the components to be added to assessable value. Quantification made is not sustainable.
19. As per trade practice and the terms of agreements, dealers of Maruti had to carry out inspection of vehicles purchased from Maruti before delivery to allotted customers. Such PDI is carried out to check whether there has been damage to vehicles during transit from the factory to the premises of dealers and whether any of the parts are missing. A part of dealer’s margin covers the cost of PDI. According to the adjudicating authority, this part of dealers’ margin should be included in the assessable value. In this connection, Shri Mondal relied on the decision in Enfield India Ltd. – 1994 (69) E.L.T. 702 (T) holding that PDI charges reimbursed to dealers out of dealers’ margin are liable to be included in the assessable value. The facts stated in the reported decision are not clear. It is seen that in Civil Appeal No. 9971 and 9972/95 filed against the said decision of the Tribunal the decision has been set aside by the Supreme Court and the case remanded to the Tribunal for fresh decision after examination of the facts afresh. Thus, the decision relied on by the Revenue does not hold the field. On the other hand, in Final Order No. 2038/97-A dated 28-11-1997 [1998 (98) E.L.T. 206 (Tribunal)] passed in Appeal No. E/1236/89-A, the Tribunal held against the Revenue as follows :-
“There is no dispute that the transactions between the appellant and the dealers are sales on principal to principal basis and at arms length and payment shall be made before delivery or despatch to the dealers. The customers must be assured about the quality and condition of the product. Pre-delivery inspection is conducted by the dealers, though at the instance of the appellant, to satisfy the customers about the quality and condition and for this purpose a small charge is collected from the customers. The price to be charged from the customer is fixed by the appellant. The PDI charge is included in the dealer’s margin. The inspection is an activity subsequent to the clearance at the factory gate and delivery to the dealers. It is no doubt true that the manufacturer is interested in ensuring satisfaction of the customers. But it cannot be said that inspection is carried out by dealers as agents of the manufacturer. It cannot be regarded as having direct nexus with manufacturer or marketability or warranty. In this view, we hold that PDI charges cannot be included in the assessable value”.
The circumstances of the present case are similar. Following the above decision, we hold that the part of dealers’ margin covering cost of PDI cannot be included in the assessable value of Maruti vehicles.
20. We will now deal with the other contentions raised by Mahindra. All the show cause notices were issued by the jurisdictional Superintendent. The proviso to Section 11A of the Act was amended to the effect that notice under the (sic) has to be issued by the Collector of Central Excise. The amendment was brought into force on 27-12-1985. The amended provision was in force when show cause notice dated 3-1-1986 was issued by the Superintendent. The notice was therefore illegal and cannot be foundation for a valid demand. Thus the demand based on this show cause notice fails.
21. The six show cause notices issued to Mahindra did not specify the amount of differential duty proposed to be demanded. For this reason it is contended that the notices are invalid and demands must fail. The Superintendent had issued six addendum notices specifying the exact amount of demand and indicating the basis of quantification. Assuming there was defect in the original show cause notices, the defect has been cured by the addendum notices. In this view there is no infirmity in the demands as alleged.
22. It is contended by Mahindra, that show cause notice dated 9-8-1987 for the period 1-12-1983 to 30-4-1985 was wholly barred by limitation and the show cause notice dated 8-10-1985 for the period 1-12-1983 to 30-4-1985 was partly barred by limitation inasmuch as the notices did not invoke the extended period of limitation under the proviso to Section 11A of the Act. It is true that the two notices did not invoke the extended period of limitation. The Superintendent issued addendum notices dated 1-11-1985 and 29-8-1986 respectively incorporating in the original notices the words “for contravention of the provisions of Section 4 ibid with intent to evade payment of duty”. The original notices alleged short payment of duty on account of incorrect computation of assessable value under Section 4 of the Act by not including therein expenses on account of after-sales-services and marketing and selling organisation expenses including advertisement expenses. If the case of the Revenue on merits is to be upheld, it follows that Mahindra did not declare the correct assessable value and the component elements of assessable value with intent to evade duty. This is a ground accepted in the proviso to Section 11A of the Act. This ground is sufficient to invoke the larger period of limitation, though there is no specific allegation of suppression of material facts. Hence the contention of two show cause notices being barred by limitation fails.
23. Maruti also has a contention that show cause notice dated 3-8-1988 for the period 1984 to 27-3-1986 was barred by limitation. The show cause notice referred to Rs. 350 out of dealers’ margin covering expenses incurred by dealers for after-sales-services and PDI being liable for inclusion in assessable value and failure to disclose these facts and wilful suppression of these facts with intent to evade duty. These allegations in the notice were not denied in the reply to the notice. It is contended that there was an audit objection raised in regard to the aspect disputed in the notice and the Assistant Collector on 30-4-1986 answered the audit objection stating that there was no flow of additional consideration from the dealers to the manufacturer and hence the action of Maruti was bona fide and hence the proviso to Section 11A could not have been invoked. This contention, in any form, was not raised before the Collector or in the present memorandum of appeal. This new contention which requires investigation into facts, cannot be permitted to be raised.
24. For the reasons indicated already, the order dated 23-9-1988 passed by the Collector of Central Excise, Bombay is set aside holding that part of dealers’ margin referable to cost of free after-sales-services cannot be included in the assessable value and that show cause notice dated 3-1-1986 is invalid and remanding the proceedings based on the remaining five show cause notices for fresh adjudication on the aspect of cost of advertisement, in accordance with law and the observations in this order by the jurisdictional adjudicating authority after giving Mahindra opportunity of producing documentary evidence and of personal hearing. The order dated 23-10-1989 passed by the Collector of Central Excise, New Delhi against Maruti is set aside.
The appeals are accordingly allowed.