COMMISSIONER OF CENTRAL EXCISE, MYSOREversusM/S. TVS MOTORS COMPANY LTD.

                       [2015] 15 S.C.R. 22


A      COMMISSIONER OF CENTRAL EXCISE, MYSORE
                                 v.
                M/S. TVS MOTORS COMPANY LTD.
              (Civil Appeal Nos. 5155-5156 of 2007)
B
                      DECEMBER 15, 2015
             [A. K. SIKRI AND R. F. NARIMAN, JJ.]

        Central Excise Act, 1944-s.4 (as amended by Finance
c Act, 2000) - Assessment under - Assessable value -
  Whether would include 'Pre-delivery Inspection Charges'
  (PD/) and 'After Sale Service charges' (ASS) - Held: The
  expenses incurred towards such services are solely borne
  by the dealer and such services are not provided on behalf
D of the manufacturer- The amount which was reimbursed by
  the assessee-manufacturer to their dealers pertaining to free
  services was being claimed as abatement in relation to the
  normal transaction value - Therefore, PD/ charges and free
  ASS charges would not be included in the assessable value
E u/s.4 for the purpose of paying excise duty- Centra/Excise
  Valuation (Determination of price of Excisable Goods) Rules,
  2000.

         Maruti Suzuki India Ltd. v. CCE, New Delhi 2010
F        (257) ELT 226 - overruled.
         Tata Motors Ltd. v. Union of India 2012 (286) ELT
         161 (Born.) - approved.
         Union of India vs. Ingersoll Rand (India) Ltd. 2000
         (120) ELT 290 (S.C.); Maruti Udyog Limited v.
G
         CCE, Delhi-1112004 (170) ELT 245 (Tri-Del); Ford
         Motor India Ltd. v. Secretary of State AIR 1938 PC
            =
         15 1978 (2) ELT (J 265) (PC); A.K. Roy v. Valtas
         Ltd. 1973 (2) SCR 1089: (1973) 3 sec 503; Ml
H
                                 22
  COMMISSIONER OF CENTRAL EXCISE, MYSORE v.              23
        M/S. TVS MOTORS COMPANY LTD.

     s. Philips India Ltd. v. CCE, Pune 1997 (91) ELT    A
     540; Commissionerv. Te/co Ltd. 2001 (130) ELT
     A260 (S.C.); Union of India v. Bombay Tyre
     International 1984 (1) SCR 347 : (1984) 1 SCC
     467; Government of India and Ors. v. MRF Ltd.
     and Ors.1995 (3) SCR 1143: (1995) 4 sec 349;        B
     Mahindra and Mahindra Ltd. v. Collector of
     Central Excise 1998 (103) ELT 606; Mis.
     Hindustan Motors Ltd. 1998 (101) ELT 198 (T);
     Mis. Escorts Tractors Ltd. 1999 (078) ECR 342
     (T) - referred to.                                  c
                   Case Law Reference
2004 (170) ELT 245 (Tri-Del)   referred to     Para 2
2010 (257) ELT 226             overruled       Para 3    D
AIR 1938 PC 15   =
1978 (2) ELT (J 265) (PC)      referred to     Para 5
1973 (2) SCR 1089              referred to     Para 5
                                                         E
1997 (91) ELT 540              referred to     Para6
2001 (130) ELT A260 (S.C.)     referred to     Para 7
1984 (1) SCR 347               referred to     Para 9
1995 (3) SCR 1143              referred to     Para9     F
1998 (103) ELT 606             referred to     Para 9
1999 (111) ELT A126            referred to     Para 9
1998 (101) ELT 198 (T)         referred to     Para 13
                                                         G
1999 (078) ECR 342 (T)         referred to     Para 13
2000 (120) ELT 290 (S.C.)      referred to     Para 13
2012 (286) ELT 161 (Bom.)      referred to     Para 15

                                                         H
24        SUPREME COURT REPORTS                [2015] 15 S.C.R.


A        CIVILAPPELLATE JURISDICTION: Civil Appeal Nos.
     5155-5156 of 2007 etc.
          From the Judgment and Order dated 03.11.2006 of the
     Customs, Excise and Service Tax Appellate Tribunal,
B    Bangalore in Final Order No. 1860 & 1861 of 2006 in Appeal
     No. E/63 & 65 of 2006.
                                WITH
          C.A. Nos.1763-1764of2009, 7007, 7550&3768-3769
C    of 2011,
          2204 & 2205 of 2013, 957-959 & 7854-7865 of 2014
       K. Radhakrishnan, Subramonium Prasad, Sr.Advs., Ms.
  Nisha Bagchi, Ms. B. Sunita Rao, T. C. Sharma, Ms. Pooja
  Sharma, B. Krishna Prasad, V. Lakshmikumaran, M. P.
D Devanath, Ms. L. Charanaya, HemantBajaj,Anandh K.,Aditya
  Bhattacharya, T. D. Satish, Shreekant N. Terdal, Vineet Sinha,
  Jay Kishor Singh, Utkarsh Srivastava, Arvind Kumar Sharma,
  Ms. Nandini Gore, Abhishek Roy, Ms. Khushboo Bari, Ms.
E Trishala Kulkarni, Ms. Neha Khandelwal, Ms. Manik
  Karanjawala, Ms. Devina Sehgal, M/s. Karanjawala & Co.,
  Advs., for the appearing parties.
          The Judgment of the Court was delivered by

F          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
G 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 Mis. TVS Motors Company Ltd. (hereinafter
H referred to as the 'assessee') is the respondent. The assessee
  COMMISSIONEROFCENTRALEXCISE, MYSORE v.                               25
   M/S. TVS MOTORS COMPANY LTD. [A. K. SIKRI, J.]

is holding central excise registration for the manufacturing and A
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 B
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 was finalized for the period from 01.07.2001 to
31.03.2002 and 01.04.2002 to 31.03.2003 vide Order-in- C
Original No. 47 of 2004 dated 19.07.2004 and 44/2005 dated
04.05.2005. The above said Order-in-Original's included POI
charges and free ASS charges in the assessable value. The
 re§lson for doing so by the Adjudicating Authority was Circular
                                                                 0
 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,                 E
disallowed inclusion of POI charges and free ASS charges in
the assessable value by relying on the Custom Excise and
Service TaxAppellate Tribunal (CESTAT) decision in the case
of Maruti Udyog Limited v. CCE, De/hi-1/11 and remanded
the case to the Adjudicating Authority to re-examine the               F
disputed issues in the light of settled legal positions and finalise
the provisional assessments accordingly.

     Aggrieved by the above Order-in-Appeal, the
Department filed an appeal before the CESTAT, Bangalore.               G
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
'2004 (170) ELT 245 (Tri-Del)
                                                                       H
26           SUPREME COURT REPORTS                  [2015] 15 S.C.R.


A abatement in respect of POI 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
B 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.

C          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
     DelhP. It has held that the definition of 'transaction value' would
D    cover the free POI 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 the Bench taking the
     aforesaid· view.

E         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,
F it is the amended provision of Section 4 which, inter a/ia, 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
G 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.
H    2
         2010 (257) ELT 226
  COMMISSIONER OF CENTRAL EXCISE, MYSORE v.                       27
   M/S. TVS MOTORS COMPANY LTD. [A. K. SIKRI, J.]

       5. The counsel for the parties on either side were ad idem A
that POI 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 B
these activities does not affect this 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 C
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
                                                                   0
this very context, though pertaining prior to 01.07 .2000 in A.K.
Royv. Valtas 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 E
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 dffices it effected direct sales to
consumers at list prices and the sales so effected came to F
about 90 to 95% of its production. Apart from these sales, it
also sold the articles towholesale dealers from different 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 sellthem G
 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
3
  AIR 1938 PC 15=1978 (2) ELT (J 265) (PC)
• (1973) 3 sec 503                                                H
28         SUPREME COURT REPORTS                     [2015] 15 S.C.R.


A    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,
B    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
C    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
0
     of the Privy Council. We would, therefore, like to reproduce
     this para in its entirety:

            "12. In Ford Motor Company of India Limited, v.
            Secretary of State for India in Council (AIR 1938 PC
E           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, ·~old them only to authorised
            dealers or distributors, each of whom was sole agent
F
            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
G
            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
H           distributors had to P?Y that price before obtaining
COMMISSIONER OF CENTRAL EXCISE, MYSORE v.                          29
M/S. TVS MOTORS COMPANY LTD. [A. K. SIKRI, J.]

   delivery, which was given "free on rail". On arrival in India   A
   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, forthe purpose of finding           B
   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         C
   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
                                                                   0
   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 words, even if the articles in       E
   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'            F
    under clause (a) of Section 30 of the Sea Customs Act,
    1878, was the price of goods of a like kind and quality
   was negativec 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          G
   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."
                                                                   H
30           SUPREME COURT REPORTS                  [2015] 15 S.C.R.


A       6. Another decision which may be relevant for our
  purposes is the case of Mis. 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
B 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
C the aforesaid expenditure which was held by the Adjudicating
  Authority as inadmissible. The decision was 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
D
  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
E 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
F             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.      ·

G             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 uf

H    5
         1997 (91) ELT 540
   COMMISSIONER OF CENTRAL EXCISE, MYSORE v.                      31
    MIS. TVS MOTORS COMPANY LTD. [A. K. SIKRI, J.]

        value enured not only for the benefit of the appellant; it A
        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 B
        anywhere in the country. 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 repc.rable throughout the country. The
        provision as to after sales service, therefore, benefited C
        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. Te/co
    6
Ltd. , by brief order, this Court affirm the view of the Tribunal D
holding that when sale to independent dealers is at an arm's
length, payment directly made by the a.;;sessee 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 E
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 F
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 G
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 sold to him by the manufacturer.
' 2001 (130) ELT A260 (S.C.)
                                                                  H
32         SUPREME COURT REPORTS                 [2015] 15 S.C.R.


A    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
s in Union of India v. Bombay Tyre International 7 and in the
  case of Government oflndia 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
  Excise 9 wherein the Tribunal was considering the issue as to
C 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
D 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 A 126.
E
         10. The position in respect of unamended provision, thus,
  is very 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
F 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:

G           "(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
     1
       (1984) 1 sec 467
     • (1995) 4 sec 349.
H    9
       1998 (103) ELT 606
  COMMISSIONER OF CENTRAL EXCISE, MYSORE v.                    33
   M/S. TVS MOTORS COMPANY LTD. [A. K. SIKRI, J.]

      that the buyer is liable to pay to, or on behalf of, the A
      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, B
      outward handling, servicing, warranty, commi'ssion 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."
                                                               c
      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 D
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' 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 E
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. 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 G
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
                                                               H
34         SUPREMECOURTREPORTS                     [2015] 15 S.C.R.


A    in Mis. 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
B    Tribunal by referring to the Board's circular dated 19.11.1997
     and submitted that the said circular was issued by the Board
     after settling the law on the issue of inclusion of ASS, expenses
     in the assessable v.alue in the case of Bombay Tyre
     International. The circular accepts the position that though
C    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 POI 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
D    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
E    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 indudible in the
     assessable value. The Circular also clarified that subsequent
F    judgment of this Court in Mis. 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 repaired during the guarantee
G    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.
H
     COMMISSIONER OF CENTRAL EXCISE, MYSORE v.                       35
      M/S. TVS MOTORS COMPANY LTD. [A. K. SIKRI, J.]

      13. We may mention that the aforesaid circular was             A
withdrawn vide another Circular dated 12.12.2002 issued by
the Board taking note of the fact that the CE STAT had decided
otherwise in the case of Mis. Mahindra & Mahindra Ltd.
(supra), Mis. Hindustan Motors Ltd. 10 , and Mis. Escorts
Tractors Ltd. 11 and the appeals of the Department against           B
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, POI and free             C
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 the aforesaid cases       D
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.           E
       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           F
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:
                                                                     G


10
     1998 (101) ELT 198 (T)
11
     1999 (078) ECR 342 (T)

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36             SUPREME COURT REPORTS                  [2015] 15 S.C.R.


A          7    What about the Since these services are
                cost of after sales provided free by the dealer on
                service    charges behalf of the assessee, the
                and    pre-delivery cost towards this is included in
                instpection (POI) the      dealier's   margin     (or
                charges, incurred reimbursed to him). This is
B               by    the    dealer one of the considerations for
                during the warranty sale of the goods (motor
                period?             vehicles, consumer items etc.)
                                    to the dealer and will therefore
                                    be governed by Rule 6 of the
                                    Valuation Rules on the same
c                                   grounds as       indicated     in
                                    respect of Advertisement and
                                    Publicity charges. That is, in
                                    such cases the after sales
                                    service charges and PDI
D                                   charges will be included in the
                                    assessable value.

        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
E 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 lndia 12 , the same was struck
  down by making following pertinent observations:

F              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
G              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).
H    12
          2012 (286) ELT 161 (Born.)
COMMISSIONER OF. CENTRAL EXCISE, MYSORE v.                     37
 M/S. TVS MOTORS COMPANY LTD. [A. K. SIKRI, J.]

   Similarly, in our view, it is not necessary to express any A
   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 B
   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 c
   July, 2000. By the amendment, a new term has been
   introduced by name "transaction value" and the said term
   transaction value has been 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 o
   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 E
   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 F
   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 POI
   and free said services by resorting to Clause 7 of
   Circular dated 1st July, 2002 and Circular dated 12th G
   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     H
38       SUPREME COURT REPORTS                   [2015] 15 S.C.R.


A    .   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
B        addi~ional 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
c        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
D
         dealer on the terms and conditions entered into
         mentioned in. the dealer's agreement, a dealer is
          required to 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
E
          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
F        and the price paid by the dealer constitutes what is
          called as dealer's margin. A dealer has to spend money
         to conduct POI as well as render said services. We are
          inclined to accept the stand of the petitioners that the
          dealer is required to perform POI as well as said
G         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
          POI and said services is required to be accepted. From
H         the record it is clear that the case of the petitioners so
COMMISSIONER OF CENTRAL EXCISE, MYSORE v.                         39
 M/S. TVS MOTORS COMPANYLTO. [A. K. SIKRI, J.]

   far as the amount incurred by the dealer towards POI           A
   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            B
   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 POI
   and free after sales services/after sales services. It is
   clear that when the petitioners are selling the car to a       C
   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
                                                                  0
   will have to be treated as the one which will be the
   transaction value. The transaction yalue 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          E
   apart from the price which is paid by the dealer to the
   petitioners, no amount is recovered by the petitioners
   from the dealer or the customer. As such, the stand of
   the respondents that the expenses incurred towards POI
   as well as said services have to be included in the            F
   assessable value cannot be accepted. This is being
   observed on the ground that there is no material to show
   that the expenses forthe pre-delivery inspection as well
   as after sales services are paid by the dealer to the
   petitioners. The dealer renders POI and said services          G
   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 POI as well as said
   services on account of dealership. It is pertinent to note     H
40   SUPREME COURT REPORTS                  [2015] 15 S.C.R.


A    that the respondents have in affidavit in reply dated 29th
     June, 2012 admitted that the dealer carries out free POI
     and after sales services at their end. It is admitted that
     labour cost towards POI and said services is borne out
     of retailing profit. The contention of the respondents that
B    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
c    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
D    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
E    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 Manual
     specifically indicates that if the PDI and said services
F
     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
G
     bearing on the assessable value as it is abundantly clear
     that to perform POI 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
H    that the POI and said services are not provided by the
COMMISSIONER OF CENTRAL EXCISE, MYSORE v.                         41
 M/S. TVS MOTORS COMPANY LTD. [A. K. SIKRI, J.]

   .dealer on behalf of the petitioners, it cannot be treated     A
    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 to·r PDI and said services with             B
    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     C
    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      D
    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         E
    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        F
    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
    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        G
    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 a;e giving trade discount to    H
42   SUPREME COURT REPORTS                 [2015] 15 S.C.R.


A    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,
B    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
c     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 ·
D
      by the dealer for POI 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.
E    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
F    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
G
     nothing to do with the said expenses then adding those
     expenses in the assessable value w~llld 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
H    this case, the respondents have not been able to place
   COMMISSIONER OF CENTRAL EXCISE, MYSORE v.                       43
    M/S. TVS MOTORS COMPANY LTD. [A. K. SIKRI, J.]

       on record any material to show that the amount incurred     A
       towards POI 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.                                                B

        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 C
 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 o
 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 all post sale activities E
 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      F
  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 G
        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 H
44         SUPREME COURT REPORTS                  [2015] 15 S.C.R.


A         ·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
·B         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
C          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,
D          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 other time is included in the transaction
           value.

 E                                         ... (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.
 F   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
 G
           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
 H         part of the transaction value for valuation and
   COMMISSIONER OF CENTRAL EXCISE, MYSORE v.                           45
   M/S. TVS MOTORS COMPANY LTD. [A. K. SIKRI, J.]

        assessment purposes. Thus if assessee splits up his            A
        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 . . .                           B

        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 C
        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 D
        includable in the transaction value. The law recognizes
        such payment to be part of the transaction value that is
        assessable value for those particular transactions."

        19. The sequitur of the aforesaid discussion '('OUld be · E
  to hold that POI 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- F
  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 assesses, i.e. C.A. Nos. 7007/2011, G
  7550/2011and3768-3769/2011 are allowed.

 Kalpana K. Tripathy                           Appeals disposed o.f.