Full Judgment
No sales were effected at the factory gate. Sales were effected from 26 depots situated all over the country. The Appellants filed a price list dated 21.3.1994. They had certain difficulty in giving certain figures and therefore they requested that the assessments be kept provisional.
They filed a provisional assessment bond and submitted details of agreements with 3 classes of buyers viz. Whole Sale Dealers, Sale and Service Dealers; and Only Sales Dealers. Subsequently, from time to time price declarations were filed. The prices at which the refrigerators were sold to these 3 varieties of buyers were different.
The prices charged from the only sales dealers (OSD) were the highest.
Show Cause Notice dated 7.1.99 was issued proposing to adopt the price charged to OSD as the price for assessment for all clearances. Before the Assistant Commissioner the Assessee claimed that the 3 varieties of dealers were classes of buyers and that separate prices charged to classes of buyers were permissible in terms of Section 4 of the Central Excise Act 1944. It was claimed that irrespective of the prices charged by the Assessee to several classes of buyers, customers' price remained the same. The Assistant Commissioner observed that the wholesale dealer (WSD) and the sales and service dealer (SSD) were rendering after sale service, whereas the only sales dealers (OSD) were not required to provide such services. It was held that after sale service would enrich the value of the goods in the eye of the customers and therefore that part should be added to the assessable value. When so done, the price charged from the OSD would be the correct price.
2. An order passed by the Commissioner of Central Excise (Appeals), Hyderabad accepting various prices were referred to him but he declined to rely upon the same. Instead he relied upon the following judgements in which it was held that after sale service during warranty period was includible in the assessable value: 3. On his adopting the price charged to OSD for finalisation of assessment the Assessee filed an appeal. The Commissioner of Central Excise (Appeals) upheld the Order in toto without any discussions and without taking into account the judgements cited by the assessee before him. As regards the other appellate order he observed that it was not binding upon him. The present appeal arises out of this order.
4. Shri D.B. Shroff referred to several judgements holding that different sale prices to different classes of buyers were permissible.
He claimed that the quantum of sale was different in each class of buyers. The sales to WSD accounted for nearly 65% the total sale. Such dealers had to maintain a show room and were also rendering after sale services both during and after the warranty period. Even where the refrigerators were purchased from OSD the services were to be rendered by them. He claimed that the sales to SSD accounted for about 30% of the total. The services rendered by them were similar to that of WSD except that they looked after their own customers. He claimed that the OSD got the smallest number. There was no obligation towards the customers. They would not render any services to their customers and therefore their margin was lower.
5. It was his claim that the contracts would show that these transactions were at arms length. There was no flow back from the dealers to the company, even where there were different margin to different classes of buyers. He cited case law to the effect that merely because the dealers/distributors rendered after sale services there was no case for addition of that quantum to the assessable value for calculation of duty.
6. Shri Jain contested his statement. He claimed that where the assessee himself rendered after sale services that quantum was audible in the assessable value. It was a clear attempt to evade the correctly calculable portion of duty. He claimed, in effect, this was a flow back from the dealer to the manufacture even if there was no physical transfer of money. He maintained that the conditions of sale could not be considered as at arm's length.
7. We have considered the rival claims and have seen the cited judgements.
8. We have seen the contracts between the Appellants and the various dealers. The agreements are on the principal to principal basis and do not suggest any relationship between the assessee and the buyers. In this situation the following observations of the Tribunal in the case of Mahindra and Mahindra Ltd. V/s. CCE reported in 1988 (103) ELT 606 (T) would apply completely. [This order was upheld by the Supreme Court as reported in 1999 (111) ELT A 126].
"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 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) ELT 540 (SC) 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." 9. In the case of Bajaj Auto V/s. CCE reported in 2000 (037) RTL 208 the CEGAT held that after sale services provided by the dealers, where the cost of services was borne by the manufacturer was not addable to the assessable value. In doing so the tribunal had placed reliance on Supreme Court Judgement in the case of Philips (India) Ltd. reported in 1997 (91) ELT 540. In the said judgement the Supreme Court had held that the advertisement and free after-sale services rendered by the dealers benefited both the manufacturer and the dealer. No addition was called for in the assessable value on that ground.
10. The Philips India Judgement was followed in the case of Pond's India Ltd. (2001 (127) ELT 460 (T).
11. We find the agreements between the dealers and the assessees to be on Principal to Principal basis and at arms length. The additional discount given to WSD and SSD for undertaking free services did not amount to additional consideration and therefore is not required to be added to the assessable value.
12. We further find that the assessees have made out a case for variation of price on the ground of quantity discount. Grading of buyers into different classes as per the quantities purchased is approved by the Supreme Court in the case of Metal Box India Ltd. 1995 (75) ELT 449 (S.C.). The same view was held by the Tribunal in the case Microtronics (India) Ltd. 2000 (122) ELT 579 (T).
13. We thus find that the Appellants were right in charging different prices to 3 varieties of distributors and dealers each forming a class of buyer. Therefore there was no justification for adopting the highest price for all the 3 categories.
14. The Appeal is allowed. The price list should be finalised in terms of this Order.