COST EFFECT After-sales service on goods may no longer come free

Deepshikha Sikarwar NEW DELHI

THE freebies such as extended warranty and free maintenance and service thrown in with cars and consumer durables will now be included in the costs of goods and taxed appropriately,pushing their prices higher. The Central Board for Excise and Customs (CBEC),the apex body on indirect taxes,has said that after-sales service and pre-delivery inspection charges are to be included in the assessable value,the value on excise duty is levied.This could push costs of products if companies do not absorb it themselves, said R Muralidharan,executive director,PwC,adding that the move unsettles the principles of taxation in excise duty and is bound to increase litigation. Dealers of most automobile and durable manufacturers offer many services or benefits to customers on behalf of the producers,the cost of which is usually included in the dealer margin.But the excise department says these activities are manufacturers prerogative and their costs should be added to the price on which excise duty ought to be paid. The indirect taxes body had been discussing the move for a while,but had put it on hold due to pending cases involving Maruti Udyog in Customs Excise & Service Tax Appellate Tribunal (Cestat).The tribunal recently decided the case in favour of the department and upheld that aftersales service and pre-delivery inspection should be included in the value of the car and excise duty be levied on it. With the Cestat backing,the CBEC has asked its field formations to get cracking,implying that manufacturers are bound to face heat on this count.When contacted,a Maruti spokesperson declined to comment,saying it would not be appropriate to comment as the matter is sub-judice. However,Mr Muralidharan said the move punctures the transaction value principle-based excise duty regime prevalent in the country and is bound to be challenged in the apex court.He said that taking the logic forward,the excise duty department can then include even the expense of advertising carried out by a dealer on behalf of the manufacturer.Many companies offer extended warranty on their products at a fraction of what would cost if priced at arms-length principle.These are usually offered through dealers. Same is the case with free services.While some companies offer up to four free services,others do not offer even one.