2003 JTR(SC) 348
2003 10 ELT 88 ; 2003 154 ELT 10 ; 2003 9 SCC 185 ; 2003 4 Supreme 433
2003(4) Supreme 433
SUPREME COURT OF INDIA
S.N. Variava and H.K. Sema, JJ.
Bharat Heavy Electricals Ltd. -Appellant
versus
Commissioner of Customs & Central Excise, Indore -Respondent
Civil Appeal Nos. 3643-3644 of 1999
Decided on 25-3-2003
(A) The relevant statutory provisions governing excise duty on manufactured goods dictate that the tax is levied on the value of goods at the time of removal from the manufacturing process. In this matter, the provisions apply to assess the taxability of replacement parts provided under a warranty, where the initial sale price includes a composite element for such future obligations. The framework does not permit the value of an excisable good to be reduced to merely its incremental replacement cost when the good itself remains subject to duty; the inclusion of a warranty incentive does not nullify the taxable status of the component.
(B) Key legal principles include: excise duty is payable on the total sale price inclusive of any warranty reserve; a part replaced under warranty is not exempt merely because its value is conceptually embedded in the original price; the incentive of a free replacement does not render the good valueless for tax purposes; and the levy of duty is not tantamount to double taxation when the component was not separately identified at the time of original sale.
Facts of the case:
The appellants manufacture heavy electrical equipment and machinery sold under a warranty that covers free replacement of defective parts within 12 to 18 months. The sale price incorporates a 2.5% complaint reserve, on which excise duty is paid. During the warranty period, certain parts are replaced, leading to a dispute on whether excise duty is payable on those parts. Both the Collector and the Tribunal held that duty was payable, prompting these appeals.
Findings of Court:
The Tribunal found that the price of the machinery includes the complaint reserve, which is not returned to the customer if the part is not replaced, making the total payment the price for the machinery. The court rejected the submission that the value of the replaced part is zero, holding that offering a warranty incentive does not convert an excisable good into a non-taxable item, as the manufacturer absorbs the cost and the revenue retains the right to tax the good.
Issues:
Whether excise duty is payable on replacement parts supplied under a warranty included in the original sale price, and whether the value of such parts can be treated as zero.
Ratio Decidendi:
The value of an excisable good does not become zero merely because it is replaced under a warranty; the original sale price encompasses the element for the warranty obligation, and the incentive of a free replacement does not exempt the part from excise duty, as the good remains excisable and the tax is not doubly levied.
Result:
The appeals are dismissed with no order as to costs.
(A) The relevant statutory provisions governing excise duty on manufactured goods dictate that the tax is levied on the value of goods at the time of removal from the manufacturing process. In this matter, the provisions apply to assess the taxability of replacement parts provided under a warranty, where the initial sale price includes a composite element for such future obligations. The framework does not permit the value of an excisable good to be reduced to merely its incremental replacement cost when the good itself remains subject to duty; the inclusion of a warranty incentive does not nullify the taxable status of the component.
(B) Key legal principles include: excise duty is payable on the total sale price inclusive of any warranty reserve; a part replaced under warranty is not exempt merely because its value is conceptually embedded in the original price; the incentive of a free replacement does not render the good valueless for tax purposes; and the levy of duty is not tantamount to double taxation when the component was not separately identified at the time of original sale.
Facts of the case:
The appellants manufacture heavy electrical equipment and machinery sold under a warranty that covers free replacement of defective parts within 12 to 18 months. The sale price incorporates a 2.5% complaint reserve, on which excise duty is paid. During the warranty period, certain parts are replaced, leading to a dispute on whether excise duty is payable on those parts. Both the Collector and the Tribunal held that duty was payable, prompting these appeals.
Findings of Court:
The Tribunal found that the price of the machinery includes the complaint reserve, which is not returned to the customer if the part is not replaced, making the total payment the price for the machinery. The court rejected the submission that the value of the replaced part is zero, holding that offering a warranty incentive does not convert an excisable good into a non-taxable item, as the manufacturer absorbs the cost and the revenue retains the right to tax the good.
Issues:
Whether excise duty is payable on replacement parts supplied under a warranty included in the original sale price, and whether the value of such parts can be treated as zero.
Ratio Decidendi:
The value of an excisable good does not become zero merely because it is replaced under a warranty; the original sale price encompasses the element for the warranty obligation, and the incentive of a free replacement does not exempt the part from excise duty, as the good remains excisable and the tax is not doubly levied.
Result:
The appeals are dismissed with no order as to costs.
ORDER
These appeals are against the judgment of the Customs, Excise and Gold (Control) Appellate Tribunal dated 23rd February, 1999.
2. Briefly stated the facts are:-
The appellants are manufacturers of heavy electrical equipment and machinery which they make as per the specific requirements of customers. The Terms and Conditions of sale to the customer contains a warranty clause which provides for free replacement of defective parts within a period of 12 months to 18 months. At the time of sale the appellants charge 2.5%, of the factory cost, as a "complaint reserve". This element is added to the price. It is not disputed that the excise duty is paid on the total amount charged to the customer including this element of 2.5% complaint reserve. At a subsequent stage, on some occasions, parts have to be replaced by the appellants during the warranty period. The question for consideration is whether excise duty is payable on the parts which are replaced during the warranty period. Both the Collector and the Tribunal have held that excise duty was payable. Hence these appeals.
3. It has been submitted that the part has to be replaced free of cost during the warranty period. It is submitted that the sale price of the machinery includes the price of the part which is subsequently being replaced. It is submitted that there cannot be double levy of excise on the same part. We see no substance in this submission. The price charged for the machinery may include the element of complaint reserve . However, at that time it is not known whether there will be any requirement to replace any part. In many cases, parts are not required to be replaced. When parts are not replaced the component of complaint reserve is not returned to the customer. This shows that so far as the customer is concerned the total amount paid, including the component towards complaint reserve is price for the machinery.
4. It is next submitted that the value of an assessable goods can be zero. It is submitted that when a part is replaced under a warranty to the assessee the value is zero. It is submitted that as the value is zero, no excise duty should be payable on that part. We are unable to accept this submission also. In order to promote sales manufacturers and dealers very often offer incentives e.g. supply of free T.V. or some other equipment or goods. One of the incentives offered, is a warranty to replace a part within a particular period. Merely because manufacturers and dealers choose to offer such incentives does not mean that a good which is otherwise excisable, should be exempted from paying excise duty. When offering the incentive, the manufacturer or dealer is choosing to take upon himself the cost of that good. So far as the Revenue is concerned, that good remains excisable.
5. In this view of the matter, we see no infirmity in the judgment of the Tribunal. We, therefore, see no reason to interfere. The appeals stand dismissed. There will be no order as to costs.
Appeal dismissed.
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