- (1.) These appeals arise under S. 35-L (b) of the central Excises and Salt Act, 1944 (hereinafter called 'the Act'). The respondents herein M/s Kelvinator of India Ltd. in these appeals manufacture refrigerators. They market these through their four exclusive wholesale dealers, namely, M/s Gem, M/s Leonard. M/s Expo Machinery and M/s Tropicana. The respondents give one year warranty for the complete refrigerator and all parts thereof (except the light bulb and the crisper glass). During this warranty period, they provide free repair and replacement for defects in material and workmanship under normal use and service. This free service is available only within the municipal limits of the area served by an office of the wholesale dealer or the authorised dealer from whom the refrigerator is originally purchased. The respondents 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 is over, the respondents offer a four year service contract only for the sealed system or parts thereof. This contract is not free. It is on payment basis. Charges for it during the material period (10/04/198 1/06/1986, in Civil Appeals Nos. 962-75 of 1988, varied from Rs. 300. 00 to Rs. 450. 00 per refrigerator. It is a fact that these four dealers enter into this contract with the respondents. The final consumer in turn enters into the service 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. It is on evidence that during the material period the four dealers referred to hereinbefore entered into service contract in respect of a total of 91 per cent of their purchases. The remaining 9 per cent did not enter into such contract This is optional.
(2.) The Assistant Collector by his order dated 18/08/1986 held that four year service charge is includible in the value of the refrigerator for the purpose of assessment of central excise duty under S. 4 of the Act. The Assistant Collector further held that for all intents and purposes this charge was not optional as it was not exercised only in respect of 9 per cent of the sales. The Assistant Collector relied on the decision of this court in Union of India v. Bombay Tyre International Ltd. where it was held that after sale service charges could not be deducted from the assessable value. The Assistant Collector confirmed the demands totaling Rs. 17,40,68,326-32 against the respondents (in Civil Appeals Nos. 962-74 of 1988 and Rs. 7,07,535 (in Civil No. 727 of 1988. The respondents herein filed an appeal before the Appellate Collector. The Appellate Collector upheld the decision of the Assistant Collector. There was an appeal to the tribunal and the tribunal held that the optional service charge during the second and third year after the expiry of the first year warranty period was not includible in the assessable value. The tribunal allowed the appeals of the assessee with consequential relief. Hence these appeals come to this court.
(3.) The point, involved in these appeals is whether the four vear service contract charge is indudible in the value of the refrigerators for the purpose of assessment of central exise duty under S. 4 of the Act. It was found as a fact by the tribunal that after the free warranty period of one year is over, the respondents herein offer a four year service contract only for the sealed system or parts thereof. This contract is not free. It is on payment basis. The contract is not compulsory and the four dealers entered into service contract in respect of 91 per cent of their purchase. They did not make the contract for the remaining 9 per cent. It is also not necessary that the contract should be made right at the time of purchase of the refrigerator from the respondents. In fact, it was found as a fact that sometimes contract was made only in less than 10 per cent of the sales. For the remaining 81 per cent of the purchases, the dealers took time from one week to over six months from the date of purchase. It was explained by the respondents that depending upon the demand pattern in a particular area, the dealer purchased about 10 per cent of the refrigerators straightway with the service contract; for the remaining purchases, he exercised the option later, as and when the dealer anticipated further demand from his customers.;