2017 (8) TMI 344 - HC - VAT and Sales Tax

Designing charges and tooling costs reimbursed are part of sale price under Bombay Sales Tax Act.

M/s. Tata Johnson Controls Automotive Limited, M/s. Tata Auto Plastic Systems Limited, Supreme Industries Ltd. Versus The State of Maharashtra

M/s. Tata Johnson Controls Automotive Limited, M/s. Tata Auto Plastic Systems Limited, Supreme Industries Ltd. Versus The State of Maharashtra - 2017 (7) ... Issues Involved:1. Whether designing charges and tooling cost reimbursed to the applicant by its customer form part of the sale price as defined under Section 2(29) of the Bombay Sales Tax Act, 1959.Issue-wise Detailed Analysis:1. Context and Background:The judgment addresses two groups of references concerning M/s. Tata Johnson Controls Automotive Ltd. and Supreme Industries Ltd., focusing on a common legal question. Both companies manufacture products requiring molds and designs, which remain with the manufacturers but are partially reimbursed by customers.2. Legal Question:The Tribunal referred the following question to the Court: “Whether on the facts and circumstances of the case, the Tribunal was justified in law in holding that designing charges and tooling cost reimbursed to the applicant by its customer forms part of sale price as defined u/s.2(29) of the Bombay Sales Tax Act, 1959Rs.”3. Applicant's Argument:The applicant argued that the costs for designing and tooling, partially reimbursed by customers, should not be considered part of the sale price. They contended that these costs are not part of the goods listed in Schedule “C”, part I, and there is no sale of design or tools to the customers. The amounts received are for partial reimbursement and do not constitute sale price. They cited several judgments, including Moriroku UT India (P) Ltd. Vs. State of Uttar Pradesh, to support their stance that such costs should not be included in the sale price.4. Respondent's Argument:The respondent argued that the designing and tooling costs are directly linked to the sale of goods and form part of the valuable consideration for the supply of seating systems. They contended that the sale price definition is broad and includes any sum charged for anything done by the dealer in respect of goods at the time of or before delivery. They emphasized that without these costs, the applicant would not deliver the seating systems, making these charges an integral part of the sale price.5. Court's Analysis:The Court examined the definitions of 'sale price' and 'purchase price' under the Bombay Sales Tax Act. It noted that the total consideration for the transfer of the product, including any sum charged for anything done by the dealer in respect of goods at the time of or before delivery, constitutes the sale price. The Court found that the designing and tooling costs are necessary for manufacturing the seating systems and are part of the same transaction. The applicant's attempt to segregate these costs from the sale price was seen as an artificial division to avoid sales tax.6. Conclusion:The Court concluded that the designing and tooling costs reimbursed by the customers are part of the sale price. It emphasized that without these costs, the applicant would not deliver the seating systems, making them an inseparable part of the sale price. The question referred was answered in favor of the Revenue, stating that the designing charges and tooling cost reimbursed to the applicant by its customers form part of the sale price as defined under Section 2(29) of the Bombay Sales Tax Act.Summary:The Bombay High Court ruled that the designing charges and tooling costs reimbursed to the applicant by its customers are part of the sale price under Section 2(29) of the Bombay Sales Tax Act, 1959. The Court found that these costs are integral to the manufacturing and delivery of the seating systems, and any attempt to segregate them from the sale price is artificial and aimed at avoiding sales tax. The judgment was delivered in favor of the Revenue.