COMMISSIONER OF CENTRAL EXCISE, MYSORE versus M/S. TVS MOTORS COMPANY LTD.
[2015] 15 S.C.R. 22, Supreme Court of India, 2015
Outcome: Disposed off
Segment: Ratio
[2015] 15 S.C.R. 22 
A 
COMMISSIONER OF CENTRAL EXCISE, MYSORE 
B 
v. 
M/S. TVS MOTORS COMPANY LTD. 
(Civil Appeal Nos. 5155-5156 of 2007) 
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. 
G 
H 
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. 
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 
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 
c 
(T) - referred to. 
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 
1997 (91) ELT 540 
referred to 
Para6 
E 
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 
1999 (078) ECR 342 (T) 
referred to 
Para 13 
G 
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 
0 
wherein the Court took note of and discussed earlier judgment 
of the Privy Council. We would, therefore, like to reproduce 
this para in its entirety: 
E 
F 
G 
H 
"12. In Ford Motor Company of India Limited, v. 
Secretary of State for India in Council (AIR 1938 PC 
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 
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 
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 
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. 
F 
G 
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 
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. 
· 
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 
Ltd.6 , 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 
Excise9 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: 
10 1998 (101) ELT 198 (T) 
11 1999 (078) ECR 342 (T) 
G 
H
36 
A 
B 
c 
D 
SUPREME COURT REPORTS 
[2015] 15 S.C.R. 
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 
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 
grounds 
as 
indicated 
in 
respect of Advertisement and 
Publicity charges. 
That is, in 
such cases the after sales 
service 
charges 
and 
PDI 
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 
G 
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 
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 
A 
. 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2015] 15 S.C.R. 
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 
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 
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 
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 
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 
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 
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 
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 
B 
c 
D 
E 
F 
G 
H 
of retailing profit. The contention of the respondents that 
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 
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 
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 
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 
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 
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 
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 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2015] 15 S.C.R. 
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, 
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 
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 · 
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. 
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 
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 
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 
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: 
G 
H 
"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 
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 
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.