Ford India Private Ltd. Vs. Commissioner of Central Excise - Court Judgment

Excerpt:
1. the appellants are engaged in the manufacture of motor vehicles (cars). they sell their cars, on a principal-to-principal basis, to their dealers against payment of full sale consideration which includes mandatory warranty charges for one year. the applicable duty on the transaction value (including mandatory warranty charges) is levied at the time of removal of cars from the factory to the dealers. there is no direct sale from the factory to the customers, who purchase the cars from the dealers. when the dealers sell the cars to the customers, an option is given to the latter to obtain warranty for a further period of 2 years against payment of separate charges. this extended warranty is optional and not mandatory. usually, only about 15% of the customers opt for it. these facts are.....

Judgment:
1. The appellants are engaged in the manufacture of motor vehicles (cars). They sell their cars, on a principal-to-principal basis, to their dealers against payment of full sale consideration which includes mandatory warranty charges for one year. The applicable duty on the transaction value (including mandatory warranty charges) is levied at the time of removal of cars from the factory to the dealers. There is no direct sale from the factory to the customers, who purchase the cars from the dealers. When the dealers sell the cars to the customers, an option is given to the latter to obtain warranty for a further period of 2 years against payment of separate charges. This extended warranty is optional and not mandatory. Usually, only about 15% of the customers opt for it. These facts are not in dispute.

2. The department, upon scrutiny of records of the assessee, found that the optional warranty charges collected from their customers had not been included in the assessable value of the cars, and issued show-cause notices to the assessee for levy of differential duty on the cars sold to such customers from July 2000 to September 2001 and from April to December 2003. These notices also proposed penalties on the party. These proposals were contested. In adjudication of the dispute, the jurisdictional Commissioner passed two orders covering the above two periods and these orders are under challenge in appeal Nos.

E/1132/2003 and E/49/2005.

3. Ld. counsel for the assessee submitted that the question whether optional warranty charges were to be included in the assessable value of the vehicles had already been decided, on a similar set of facts, by this Tribunal in the case of Maruti Udyog Ltd. v. CCE, Delhi 2006-TIOL-719-CESTAT-DEL, wherein the said charges were held to be not includible in the assessable value. Ld.SDR reiterated the findings of the Commissioner.

4. After considering the submissions, we find that an identical issue had arisen before the Tribunal in the case of Maruti Udyog (supra) and it was held that the optional warranty charges paid by customers were not to be included in the assessable value of the motor vehicles sold to them by the manufacturer through dealer. This view was taken after examining the nature of the transaction as under: We have already noted that the first sale of the car is to dealers.

Central Excise duty is being levied on manufacture. It is well settled that the first sale transaction is the relevant price for the purpose of valuation of manufactured goods. In the present case, in the first sale price of the manufacturer, the cost of normal warranty for 2 years remains included and duty is being discharged based on that transaction value. The extended warranty is an agreement between the buyers of the cars and Maruti udyog Ltd. The dealers figure in this only as commission agent for sale of the car.

The purchase of such a warranty bear no condition for sale of the cars by the appellant manufacturer or the dealers. Thus the dealer who purchase the cars in wholesale or individual buyers of the cars are under no obligation to obtain the extended warranty. There is no direct or proximate connection between the sale of the car to the dealer and the purchase of extended warranty inasmuch as its purchase is not obligatory. It can also be purchased from any time and from any dealer. The sale of extended warranty is also under a separate agreement. It has also no connection between the sale agreement with the dealer. The definition of transaction value in Section 4 of the Central Excise Act makes it clear that the payment must be by the buyer of the goods. In the present case, first buyer of the goods is not in the picture and makes no payment to the manufacturer or anybody else towards extended warranty. Thus the manufacturer's sale of car, and sale of extended warranty are two different business carried out by the appellant and consideration of one cannot be included in the consideration of other.

5. The nature of the transaction between the appellants and the customers is. identical and, therefore, we follow, with approval, the view taken by learned brothers in Maruti Udyog (supra) and, accordingly, it is held that the optional warranty charges collected by the assessee during the period of dispute are not includible in the assessable value of the cars. In the result, the impugned orders are set aside and these appeals are allowed.