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PETITIONER:

COLLECTOR OF CENTRAL EXCISE, DELHI

Vs.

RESPONDENT:

KELVINATOR OF INDIA LTD.

DATE OF JUDGMENT20/04/1988

BENCH:

MUKHARJI, SABYASACHI (J)

BENCH:

MUKHARJI, SABYASACHI (J)

RANGNATHAN, S.

CITATION:

1988 SCR (3) 656 1988 SCC (3) 12

JT 1988 (2) 263 1988 SCALE (1)1047

ACT:

Central Excises and Salt Act, 1944: Section 4-

Refrigerator-After-sale service facility-optional four-year

warranty service contract on payment-Such charges not

includible in ’assessable value’ of refrigerator.

HEADNOTE:

The Respondents, manufacturers of refrigerators, give

one year warranty for the complete refrigerator and all

parts thereof. During this warranty period, they provide

free repair and replacement for defects in material and

workmanship under normal use and service. They include the

cost of this one year warranty in the sale price as well as

assessable value of the refrigerator.

After the free warranty period of one year, the

respondents offer a four year service contract only for the

sealed system or parts thereof. This contract is on payment

which may vary from Rs.300 and Rs.400 per refrigerator. The

dealers enter into contract with the Respondents, and the

consumer in turn enters into contract with the dealer from

whom he buys his refrigerator. The service is rendered by

the Respondents and the entire contract money accrues to

them. Though the contract is optional, 91% of Customers did

enter into this contract, and only 9% did not.

The Assistant Collector held that the four year service

charge is includible in the value of the refrigerator for

the purpose of Central Excise dub under section 4 of the

Act. The Appellate Collector upheld the said decision. On

appeal the Tribunal held that the said optional service

charge was not includible in the assessable value.

These appeals by Revenue under Section 35L(b) of the

Act are against the Tribunal’s decision.

Dismissing the appeals, this Court,

^

HELD: 1. The contract for four years warranty service

was optional which was entered into later on. This is

clearly after-sale

657

facility and cannot be includible in the assessable value of

the refrigerator. [661G]

1.2 The Tribunal was right in the view it took that the

optional service charge after the expiry of the first year

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warranty period was not includible in the assessable value.

It rightly observed that if any consumer did not like to

have the service, there was no compulsion on him to go in

for it and once the conclusion is reached that post-warranty

service activity could not be subjected to excise, it ceases

to be material that 91% of the customers had opted for the

service contract. The Tribunal also observed that the

respondents offered the four year service by a stamped

endorsement on their sale invoice itself, but it did not

mean that the subsequent exercise of option by the buyer

related back to the date of purchase itself and that there

was no evidence to conclude that the service contract was a

facade to split the true value of refrigerators into taxable

and non-taxable components. [658H;661D-F]

Union of India and Others etc. v. Bombay Tyre Interna-

tional Ltd., [1984] 1 SCR 347 and Assistant Collector of

Central Excise and others v. Madras Rubber Factory Ltd. and

others, [1987] 27 E.L.T. 553, referred to.

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 727 and

962-74 of 1988

Appeal Under Section 35L(b) of the Central Excise and

Salt Act, 1944 from the order dated 30.11.87 and 20.11.87 of

the Customs Excise and Gold (Control) Appellate Tribunal,

New Delhi in Appeal No. 2856, 1856, 1920- 1931/87-A in order

Nos. 775, 749 to 761/87.

Kuldeep Singh, Additional Solicitor General. A.K.

Ga