Giving impetus to an already buoyant automobile industry, the latest Central Excise and Service Tax Appellate Tribunal order has indeed paved the way for setting aside demand notices issued to several major players of the auto sector.

The tribunal has ruled that the costs of the pre-delivery inspection and after sales service are not to form part of the assessable value of the automobiles while discharging central excise duty.

It was further ruled that CBEC circular dated July 1, 2002 is not sustainable. Since the PDI and service charges remain included in the commission of the dealer and commission payable to him by the buyer, is not payable to the manufacturer, therefore, the collection of commission and rendering of services are entirely outside the scope of the sale of the automobiles by the manufacture to the dealers.

Cestat observed that "the dispute has been reopened by the Revenue in view of the purported enhanced scope of Section 4 and Valuation Rules (Rule 6 as referred to in the clarification dated 1.7.2002) introduced from July 1, 2002. The reliance placed is on the definition of transaction value contained in sub-section 4(3)(d). The relevant words of that sub-section are "and includes in addition to the amount charges as price, any amount that the buyer is liable to pay to or on behalf of the assessee, by reasons of or in connection with the sale, including any amount charged for or to make provision of servicing warranty".

The reference is to "amount liable to be paid to the assessee or on behalf of the assessee." The words in the definition do not relate to amounts payable to or on behalf of and party other than the manufacturer assessee. In the present case, no amount is payable to or on behalf of MUL towards the two costs, namely PDI and free after sale service.

Therefore, the demand is clearly outside the terms of the Section. The circular dated 1.7.2002 draws upon Rule 6 of the Valuation Rules to support the clarification. We may read that rule to see whether the clarification flows from the words of that Rule either.

"Rule 6. Where the excisable good are sold in the circumstances specified in clause (a) of sub section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such gods hall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee."

The reading of the above rule makes it clear that "money value of any additional consideration flowing directly or indirectly from the buyer to the assessee" is required to be added. In other words, the criterion is the same under Rule 6 also i.e. amount of "money value of any additional consideration flowing directly or indirectly from the buyer to the assessee's should be added to the transaction value to find out the aggregate value of the goods. Again, additional consideration should be flowing "directly or indirectly from the buyer to the assessee".

Thus, the definition and Rule 6 will have no application to considerations not flowing to the assessee. In the present case, admittedly, nothing flows to the assessee, Maruti Udyog Ltd from the consideration towards PDI and after sale service. For the reasons, cost of these charges cannot form part of the assessable value of the automobiles in question. While on this issue, it would be appropriate to recall that valuation provisions under Section 4 constitute the machinery provision for levy and collection of duty and a machinery provision cannot be interpreted to grossly exceed the scope of the levy."

The appellant MUL is a manufacture of automobiles. They sell the automobiles produced by them to dealers at ex-factory prices. They also fix maximum selling price for re-sale of the products in retail to customers. The dealers cannot exceed those maximum selling prices while selling the automobiles to retail buyers.

The dealership agreement also specified the commission which the dealer shall receive from customers. The dealership agreement also stipulate the services which a dealer shall render to the buyer. Clause 39 under Article 9 (Servicing) of the dealership agreement stated as under: -

"39. PDI and after sales services:

The dealer shall ensure that the pre-delivery inspection and after-sales service for vehicle are carried out fully and efficiently in accordance with the requirements and policies of the company established from time to time. In particular the dealer shall at all times make complete and accurate reports in the form and at the times required by the company in respect of all work carried out by it in pursuance of the company's service requirements and policies. The dealer shall also maintain a

service history of each vehicle serviced by it in a form required by the company."

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