2008 (3) TMI 513 - SC - VAT / Sales Tax

Amortisation for buyer-paid moulds/toolings cannot be added to seller's sale price under Rule 6, Excise Valuation Rules 2000

SC held that amortisation for moulds/toolings manufactured and paid for by the buyer cannot be added to the sale price of the appellant's auto components ... Concept of amortisation - Seeking to restrain the AO from imposing any tax on moulds (toolings) supplied by its customer, Honda Siel Cars India Ltd., free of cost was sought to be taxed under Section 3 of U.P. Trade Tax Act, 1948 - Held that:- In the present case, moulds were manufactured by the buyer/customer so that the auto components could be manufactured by the appellant in terms of the specifications given by the buyer. Therefore, the cost of manufacture of these moulds was incurred by the buyer/customer and not by the appellant. In our judgment, we have termed the “amortisation cost” as notional in the sense that it is not the cost in the hands of the appellant. As stated above, Rule 6 of Excise Valuation Rules, 2000 refers to items of additional consideration. But for Rule 6 it was not possible for the Department under the 1944 Act to load such items to the transaction value of the final product. It is for above reasons, particularly because cost of manufacture is not incurred by the appellant but by the customer, such cost cannot be added to the price of the final product, particularly when there is no law to that effect. Accordingly, we hold that the High Court had erred in holding that the amortization cost calculated in terms of Rule 6 of the Excise Valuation Rules, 2000 is includible in the sale price of auto components sold by the appellant herein to its customer, M/s Honda Siel Cars India Ltd. Consequently, the impugned judgment is set aside and the civil appeal filed by the assessee is allowed with no order as to cost. Issues Involved:1. Whether amortisation cost of toolings was includible in the sale price of auto components under the U.P. Trade Tax Act, 1948.2. Whether the Department was right in equating sales tax to excise duty.Detailed Analysis:1. Amortisation Cost Inclusion in Sale Price:The central issue in this case was whether the amortisation cost of toolings (moulds) supplied free of cost by the customer (Honda Siel Cars India Ltd.) to the appellant (Moriroku UT India (P) Ltd.) should be included in the sale price of auto components for tax purposes under the U.P. Trade Tax Act, 1948. The appellant argued that the amortisation cost should not be included in the sale price, while the Department contended that it should be included, similar to the provisions under the Central Excise Act, 1944.The Supreme Court examined the concept of amortisation, which refers to the systematic allocation of the depreciable amount of an asset over its useful life. The Department sought to load the amortised cost of the moulds onto the sale price of the auto components, arguing that the price fixed should reflect the real assessable value, including the value of the moulds.2. Equating Sales Tax to Excise Duty:The Court addressed whether Section 4 of the Central Excise Act, 1944, read with Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, could be applied to Section 3 of the U.P. Trade Tax Act, 1948. The Court noted that valuation under excise law is based on the transaction value for each removal, whereas sales tax is levied on the aggregate amount for which goods are sold.The Court highlighted the fundamental differences between excise duty and sales tax. Excise duty is a tax on the event of manufacture and is calculated on the value of manufactured goods, independent of ownership or sale. In contrast, sales tax is levied on the consideration for the transfer of property in goods from the seller to the buyer.The Court emphasized that the concept of amortised cost under Rule 6 of the Excise Valuation Rules, 2000, which includes the value of tools, dies, and moulds supplied free of charge, could not be automatically applied to the U.P. Trade Tax Act, 1948. The Court noted that the U.P. Trade Tax Act is a self-contained code for the levy of tax on the sale or purchase of goods, and there is no provision in the Act to include notional additions like amortised cost in the sale price.Conclusion:The Supreme Court concluded that the High Court erred in holding that the amortisation cost calculated in terms of Rule 6 of the Excise Valuation Rules, 2000, is includible in the sale price of auto components sold by the appellant. The Court set aside the impugned judgment and allowed the civil appeal filed by the assessee, Moriroku UT India (P) Ltd., with no order as to costs.In a related appeal (TS Tech Sun (India) Ltd. v. State of Uttar Pradesh & Ors.), the Court, in light of the above judgment, also allowed the appeal with no order as to costs.