Central Excise Valuation - PDI charges and free After Sale Services charges not to be included in assessable value - Landmark Decision by Supreme Court
CBEC in its circular No. dated 1-7-2002 had clarified that After Sale Service (ASS) and Pre Delivery Inspection (PDI) charges were liable to be included in the assessable value under Section 4 of the Central Excise Act 1944.
This was the clarification:
What about the cost of after sales service charges and pre delivery inspection (PDI) charges, incurred by the dealer during the warranty period?
Since these services are provided free by the dealer on behalf of the assessee, the cost towards this is included in the dealer's margin (or reimbursed to him). This is one of the considerations for sale of the goods (motor 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.
In Circular No. dated 11.12.2009, Board directed to transfer all the show cause notices issued on the above subject to call book pending the decision of the larger bench of CESTAT in the case of Maruti Udyog Ltd.
The Larger Bench of CESTAT vide its order dated 13.8.2010 - 2010-TIOL-1127-CESTAT-DEL-LB has held that Pre-delivery Inspection charges and After-sale Service charges collected by the dealers are to be included in the assessable value under Section 4 of the Central Excise Act, 1944.
So the Board in Circular No. , Dated: October 27, 2010 directed the cases pending in the call book to be decided keeping in view the law laid down by the larger bench of CESTAT.
In Tata Motors Ltd. v. Union of India - , the Bombay High Court struck down the Board clarification in Circular No. 643/2002 as illegal and void and contrary to the provisions of Section 4(1)(a) r/w Section 4(3)(d) of the Act.
The Supreme Court yesterday finally settled the issue by holding that Pre Delivery Inspection( PDI) charges and free After Sale Service (ASS) charges would not be included in the assessable value under Section 4 of the Act for the purposes of paying excise duty.
We bring you the judgement today. Please see Breaking News