Judgment:
1. By Order-in-Original No. 5/DC/86, dated 8-1-1996 the Additional Collector of Central Excise confirmed the demand of differential duty of Rs. 52,737.30 for the year 1983-84 and Rs. 22,031.62 for the year 1984-85 being the service charges collected by M/s. Parikh Associates in regard to air conditioners manufactured and sold by the appellant and imposed penalty of Rs. 80,000/- on the appellant. This order is now challenged.
2. Appellant and M/s. Parikh Associates and proprietary concerns, the proprietors being the husband and wife respectively. M/s. Parikh Associates was set up in 1974 as a trading concern. During some period the concern was also engaged in assembling window air conditioning units. Appellant concern was set up in 1982 for manufacture of window air conditioning units. During the two years in question appellant cleared 62 & 15 units respectively on payment of excise duty on the value declared without disclosing that service of most of units were being attended to by M/s. Parikh Associates on receipt of service charges without payment of duty on such service charges. Investigation was carried out by recording the statements of spouses and certain others. Notice was issued to the appellant to show cause why differential duty should not be demanded on such service charges and penalty should not be levied. The notice was resisted by contending that the appellant had nothing to do with the business of M/s. Parikh Associates which was being managed exclusively by his wife in a premises different from the premises where the appellant's concern was situated, that the appellant was not offering service to the customers who purchased A.C. Units but was informing M/s. Parikh Associates about the sale of A.C. Units and the latter was approaching the customers offering service on payment of service charges and during the two years, 55 and 13 customers respectively accepted service from M/s.
Parikh Associates on payment of charges. In the circumstances, duty was not liable to be charged on the service charges.
3. Additional Collector overruled the contentions raised by the appellant and confirmed the demand and penalty as aforesaid. Hence the present appeal.
4. The law on the aspect in question is clear and well settled. After sale services given after the delivery of the excisable goods enhances the marketability of the goods and adds to the value of the same and therefore, should be part of assessable value, as long as it is obligatory and not optional.UOI v. Bombay Tyre International case - 1983 (14) E.L.T. 1896 (S.C.) and Collector of Customs v. Kelvinator India Ltd. - 1988 (36) E.L.T. 517.
5. The conclusion of the Additional Collector is based on his finding that husband and wife are related persons and the two concerns are managed by related persons. Husband and wife naturally are related in the general sense of the expression, by marriage. That does not mean that they are "related persons" within the ambit of definition in Section 4(4)(c) of the Central Excise Act, 1944. In order that the two concerns should attract the definition it must be shown that M/s.
Parikh Associates was so associated with the assessee that they had interest directly or indirectly in the business of each other. The element of personal, marital or blood relationship by itself is not sufficient to make the two persons or two concerns related. Element of personal relationship is introduced only in the case of distributor and the assessee in the words "relative and the distributor of the assessee". The show cause notice did not contain any allegation and the impugned order does not contain any material to show that the spouses had any direct or indirect interest in the business of each other or the two concerns had such mutual interest in the business of each other. The premises of two concerns are different as can be seen from the addresses. There is no case that both the spouses in the statements given to the proper officer asserted that M/s. Parikh Associates was a partnership concern and after the withdrawal of one of the partners the surviving partner, namely wife of the appellant has exclusive control over the activities of the concern. There is no allegation that the two concerns have anything common such as staff, office or equipment or the like. It is, therefore/clear that the two concerns are independent concerns though owned by the husband and wife respectively. Thus the Additional Collector was in error in introducing the concept of "related persons" in this case without the necessary factual foundation.
6. There is no dispute that in the two years, the appellant sold 62 and 15 A.C. Units respectively and of these units M/s. Parikh Associates rendered service to 55 and 13 units respectively. There is neither an allegation nor any material to show that this was the consequence of the obligatory service undertaken by the appellant or obligatory service imposed on the customers. On the basis of the material before us and without anything more it is not possible to hold that the service rendered by M/s. Parikh Associates was compulsory and not optional. Going by the statistics it appears to be optional and not compulsory.
7. It is contended on behalf of the Department that it is normal trade practice for the manufacturers of the A.C. Units to offer service or guarantee to the customers and is unlikely that the customers should buy A.C. Units without assuring themselves of service or guarantee. Our attention has been invited to the statement of the husband to the effect that "the normal practice of trading in this commodity is that the manufacturers generally and normally providing gurantee/warranty of the article supplied for a stipulated period of time. They also undertake to provide after sales services on recovery of certain charges". While the normal trade practice may provide a backdrop for consideration of facts in a given case, every case has to be decided on the basis of the materials available in that case. It may be that while the concern of the husband is manufacturing and selling A.C. Units, the concern of the wife is offering services but the materials show that the concern which now belongs to. the wife exclusively was started much earlier than the manufacturing concern of the husband and is engaged in trading activity also. It cannot, therefore, be said that this concern is a paper concern or dummy. It is a concern which is independent and has actual existence. It is suggested by the learned Counsel that the appellant has been selling A.C. Units at lesser price since no service was being offered. Even assuming that this is a result of arrangement between the husband and the wife, as long as statutory relationship is not shown and as long as it is not shown that the service available with M/s. Parikh Associates is compulsory and not optional, the service charges cannot form part of the assessable value of the A.C. Units manufactured and cleared by the appellant.
8. For the reasons aforesaid, we set aside the impugned order and allow the appeal.