VOLVO INDIA LIMITED Vs. CCE

JUDGEMENT

(1.) THE appellants manufacture motor vehicles in their factory near Bangalore. Those motor vehicles are liable to Central Excise duty on ad valorem basis. Under the impugned order, Commissioner of Central Excise, Bangalore confirmed differential duty demand of about Rs. 7.5 crores on the appellant with regard to vehicles cleared from July 1998 to August 2002. There is also demand of differential cess, interest and penalty. The reason for the duty demand is that the appellant did not determine the assessable value of the motor vehicles correctly by including amounts collected under service contracts also in the assessable value. The present appeal challenges that order.

(2.) THE contention of the appellant is that amounts collected under the service agreement with the buyers is not a consideration for the sale of the motor vehicles or, for that matter, they are amounts paid or liable to be paid "by reason of" "or in connection with" the sale of the motor vehicles. It is being pointed out that the services rendered in terms of the service agreement are for the maintenance of the vehicles, after their sales and they have nothing to do with the sale as such. It is also being pointed out that the service agreement is optional and many buyers do not exercise that option (35% of the buyers have not opted) and that service agreement can be entered into by a buyer at any time subsequent to the purchase.

(3.) DURING the hearing of the case, learned Counsel for the appellant has submitted that the issue relating to the includibility of service charge in the assessable value had come up for consideration before the Apex Court in the case of Kelvinator of India Ltd., Vs. Collector central Excise, Delhi - : 1988 (33) ELT 695 and the Apex Court had ruled that optional service charges, after removal of goods from the factory, are not includible in the assessable value. Learned Counsel, therefore, submitted that no demand can be raised till 1.7.2000 when the valuation provision was replaced by the current Section in the Central Excise Act. Learned Counsel has pointed out that even in terms of the Section which came into force from 1.7.2000, only "Servicing" which is "by reason of and or in connection with the sale would be liable to be included in the assessable value". In the present case, as the servicing is not in connection with the sale, there is no warrant for including the service charge even subsequent to 1.7.2000, Learned Counsel has in this connection referred to the decision of the Apex Court in the case of Eicher India Ltd. - 2004 (64) RLT 539 (SC) in support of his contention that the service charge is not to be included. reliance in particular has been made on para 78 of the judgment which is reproduced below: -