Case: Voltas Limited Vs. Union of India

The facts giving rise to the filing of these two petitions are as follows :( 2 ) THE petitioner No. 1 is the Company registered under the provisions of the Companies Act, 1956 and is engaged in the manufacture ofwater coolers and refrigerators. The company manufactures various models ofwater coolers and domestic refrigerators at their factory at Thane and the manufactured goods are delivered to the customers. The manufactured goods of the Company are liable to payment of excise duty under Item No. 29a of the First Schedule to the Central Excises and Salt Act, 1944 and the rate of duty is ad valorem. Prior to the year 1980, the Company removed the goods manufactured on the basis of the prices which included thecosts and expenses. In view of the decisions recorded by this Court and the Supreme Court, the Company filed new price lists on May 15, 1980 and sought exclusion in respect ofexpenses. By show cause notice dated September 1, 1980, the Assistant Collector of Central Excise called upon the Company to explain why the assessable value of the articles should not be determined on the basis of manufacturing costs plus manufacturing profits and selling costs plus nnjhjselling profits and why the exclusion claimed on account ofexpenses should not be disallowed. The Company gave reply to the show case notice and filed fresh price lists with effect from october 7, 1980 and December 2, 1980 in which the assessable value of the goods excluding theexpenses was set out. The Assistant Collector gave a personal hearing in pursuance of the show cause notice and then approved the price lists without allowing any deduction on account ofexpenses. The Assistant Collector passed the order approving the price lists on February 3, 1981. The petitioners preferred Writ Petition No. 189 of 1981 to challenge the legality of order passed by the Assistant Collector declining to exclude the deduction on account ofexpenses from the assessable value.( 3 ) THE Company was served with show cause notice dated January 20, 1981 by Superintendent, central Excise demanding Rs. 26,97,937. 83 towards excise duty short levied on the clearances made during May 19, 1980 to January 2, 1981. The Company paid the amount of Rs. 6,05,800. 84 under protest upto January 31, 1981. The Company then filed Writ Petition No. 211 of 1981 in this Court for quashing show cause notice dated January 20, 1981 and for a declaration that theexpenses cannot be included while determining the assessable value of the manufactured goods. The Company also sought refund of Rs. 6,05,800. 84 paid in pursuance of the show cause notice. The petition was admitted on March 9, 1981 and certain interim order was4 ) BOTH the petitions being Writ Petition No. 189 of 1981 and Writ Petition No. 211 of 1981 came up for hearing before one of us (Pendse, J.) on December 9, 1983. Before the petitions came up for hearing, the decision of the Supreme Court in the case of Bombay Tyres international Limited was delivered and in view of the decision of the Supreme Court, the company sought permission to file fresh statement of the price lists claiming deduction in respect of price lists already filed for proper determination of excise duty liability. The Company was directed to file statements before January 9, 1984 along with documentary evidence in support of the claim. The Department was permitted to call upon the Company to produce documents which are required for determination of the liability. The Department was directed to finalise the assessment within a certain stipulated period and thereafter the Department was to file the adjudication orders in this Court. In terms of the order passed by this Court, the Company filed 12 revised price lists for the period commencing May 19, 1980 to February 17, 1981 in respect of which Writ Petition No. 211 of 1981 is filed and 18 revised price lists covering the period from February 18, 1981 to december 29, 1983 in respect of which Writ Petition No. 189 of 1981 is filed. Both the revised price lists were forwarded by letter dated January 7, 1984 and along with the revised price lists several statements pertaining to each of the price lists showing therein that the amount of excise duty provisionally paid was paid under protest and the duty liability payable in terms of revised price lists were filed. The Company claimed refund amounting to Rs. 33,69,859. 02 paid in excess in respect of period between May 19, 1980 and February 17, 1981 and sum of Rs. 1,00,08,511. 10 in respect of period commencing from February 18, 1981 to December 29, 1983. The figures were subsequently revised to Rs. 33,98,605. 30 and Rs. 1,01,22,016. 21. The revision was due to calculation error. In these revised price lists, the Company sought deduction under three heads : (a) additional tax on sales tax, (2) maintenance charges, and (c) site service charges. The Assistant Collector called upon the Company by letter dated January 23, 1984 to furnish certain clarifications in respect of deduction claim under three items and the clarification was furnished by letter dated February 6,5 ) THE Assistant Collector by order dated March 16, 1984 held that the Company is entitled to claim deduction in respect of amount covered under heading additional tax on sales tax but the deduction sought under the heads of maintenance charges and site service charges are not permissible. The Assistant Collector held that the Company initially did not claim deduction under these headings and the claims are made only after the High Court permitted to submit fresh statements of deductions. The Assistant Collector also held that the maintenance charges and the site charges cannot be excluded while determining the assessable value of the manufactured articles because these services amount to after sale services which ultimately promote the marketability of the article and, therefore, in accordance with the decision of the supreme Court in Bombay Tyres International Limited for the purpose of determining the value under Section 4 (1) (d) of the Act, these charges are required to be included. The Assistant collector also held that the items described under the heads maintenance charges and site service charges cannot be deducted as the Supreme Court has laid down that except trade discount, excise duty, average freight, no other expenses can be deducted while determining the value of excisable goods. On the strength of these findings, the Assistant Collector held that the company is entitled for deduction in respect of additional tax on sales tax only and the liability of the Company was assessed at Rs. 1,72,48,061. 28 in respect of period between February 18, 1981 and December 29, 1983 and a sum of Rs. 18,40,860. 74 in respect of period between May 19, 1980 and February 17, 1981. The total liability of the Company was fixed at Rs. 1,90,88,922. 02. The Assistant Collector approved the revised price lists filed by the Company after allowing deductions on account of additional tax on sales tax only. The Assistant Collector filed the papers and proceedings including the assessment order in this Court as per the directions given earlier and thereafter the Company carried amendments in both the petitions challenging the correctness of the order of the Assistant Collector in respect of deduction sought under the headings maintenance charges and site services charges. Both the petitions are thereafter set down for hearing.

Court's reasoning:
There is considerable merit in the submission of the learnedis not possible to accede to the submission of the learned counsel. As mentioned hereinabove, there is clear line of distinction between the obligations under the warranty and the obligations under the maintenanceis also clear from the perusal of the brochure that the warranty does not assure the customer of service machine during the period of repair and also requires the customer to produce the machine at the service station, while the facility of availability of service machine is available in terms of contract of maintenance of service. It is, therefore, futile for Shri Desai to urge that the services rendered under the warranty and under maintenance service contract are similar. The services are different and distinct and though the Company is bound to furnish warranty and the customer is liable to pay for the warranty charges, the maintenance service is purely optional. Shri Desai submitted with reference to decision of the Supreme Court in Bombay Tyres international Limited (A. I. R. 1984 Supreme Court 420) that the charges for other services after delivery to the buyer cannot be deducted and in support of the submission placed strong reliance upon the observation made by the Supreme Court in paragraph 51 of theis not possible to accede to the submission of Shri Desai that maintenance service offered by the company promote the marketability of the article and, therefore, should enter into its value. It was also not possible to appreciate the observation made by the Assistant Collector that the maintenance service charges are not deductible because the Supreme Court has expressly laid down that no other expenses except trade discount, excise duty and average freight will be deductible for the purpose of determining the value of the excisable goods. On the other hand in paragraph 57 of the judgment in the case of Bombay Tyres International Limited, it was specifically observed that the Supreme Court had considered only those claims of deduction as sought by the assessee in that case and the judgment is confined only to those items and no other head of expenses had been examined by the Supreme Court. In these circumstances, it was wrong on the part of the Assistant Collector to refuse to grant relief of deduction in respect of maintenance service charges and the order on this count cannot be sustained. Shri Desai in support of his submission that whatever charges are recovered by the Company during the warranty period shall be included in the price to be determined as assessable value, referred to the decision in the case of Collector of Central Excise v. Kelvinator of India Ltd. reported in 1988 (36) Excise Law Times 517 . We are unable to appreciate how the judgment supports the claim of the learned counsel. In the case before the Supreme Court after the free warranty of one year is over, the manufacturer offered a four year service contract only for the sealed system or parts of the refrigerators. The service offered was not free but on payment and the contract was not compulsory but optional. The Supreme Court held that since four year warranty service is optional and this is entered into after the date of sale, that was clearlyfacility and the charges cannot be included in the assessable value of the refrigerator. In our judgment, the decision of the Supreme Court instead of supporting Shri Desai goes against his submission that every item in respect ofservice is required to be included in the assessable value of thesubmission is notis, therefore, futile for Shri Desai to suggest that reliance on the certificate issued by the Chartered Accountant was not justified and the certificate itself is not suffice to establish the claim. It also cannot be overlooked that the Assistant Collector had not declined relief on the ground of insufficiency of the material. The Assistant Collector turned down the claim on the basis that the maintenance service charges amount toservice for promoting the article and, therefore, should be included while assessing the value of the article for the purpose of excise duty. The Assistant Collector never doubted or disputed the correctness of the statement made in the price list or in the certificate issued by the Chartered Accountant. In our judgment, the Assistant Collector was clearly in error in not granting deduction in respect of maintenance service charges recovered by the Company in respect of manufactured articles and the order of the Assistant Collector on this count cannot besubmission is correct and deservesare unable to find any merit in the submission. The warranty obligation does not require the Company to provide design assistance to the dealer for special type of installation or to inspect the actual installation. In our judgment, the site service charges are recovered by the Company for rendering special service for giving advice in regard to the manner of installation and the charges recovered for rendering such service cannot be included while determining the assessable value of the Unit. The customer is not bound to purchase theor water cooler from the company even though the design assistance for special type of installation is secured from the Company by payment of site service charges. In our judgment, the site service charges are required to be excluded while determining the assessable value of the article. The Assistant Collector was, therefore, in error in not excluding the maintenance service charges and site service charges while approving the revised price lists for the period commencing from May 19, 1980 and ending with December 29, 1983. Shri Desai made a brave attempt to submit the matter should be remitted back to the Assistant collector forbut we fail to appreciate why such course should be adopted, nor shri Desai could give a convincing answer. The matters are not remitted back to the Assistant collector for fresh consideration only because the Department so desires. In our judgment, there is no occasion whatsoever to grant such request.