2008 (3) TMI 468 - SC - VAT and Sales Tax

Whether amortisation cost of toolings was includible in the sale price of auto components as in the case of excise duty under the Central Excise Act, 1944? Whether the department was right in equating sales tax to excise duty? Held that - Appeal allowed. 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. The High Court had 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 herein to its customer, M/s. Honda Siel Cars India Ltd.

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.

Issue-wise Detailed Analysis:

1. Amortisation Cost of Toolings:
The primary issue in this case was whether the amortisation cost of toolings supplied by the customer, Honda Siel Cars India Ltd., free of cost to the appellant, M/s. Moriroku UT India (P) Ltd., should be included in the sale price of the auto components for the purpose of taxation under section 3 of the U.P. Trade Tax Act, 1948. The appellant argued against the inclusion of the amortisation cost, while the department sought to tax it based on the reassessment order dated September 30, 2003.

The court explained that the concept of amortisation, in accountancy parlance, means the systematic allocation of the depreciable amount of an asset over its useful life. The department's stance was that the sale price of auto components should reflect the amortised cost of the moulds since they contributed to the value of the final product. The department argued that without including the cost of the moulds, the price of the finished product would not reflect its real assessable value.

2. Equating Sales Tax to Excise Duty:
The court examined whether the principles of excise duty valuation under section 4 of the Central Excise Act, 1944, and rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, could be applied to the U.P. Trade Tax Act, 1948. The department had borrowed the concept of "amortised goods" from rule 6 of the Excise Valuation Rules, 2000, which includes the value of tools, dies, moulds, etc., supplied by the buyer free of charge, in the transaction value for excise purposes.

The court clarified that excise duty is a tax on the value of manufactured goods, independent of ownership or sale, whereas sales tax is levied on the consideration for the transfer of property in goods from the seller to the buyer. The court emphasized that excise duty is event-based (manufacture) and is calculated on the value of manufactured goods, while sales tax is based on the agreed consideration for the sale of goods.

The court concluded that the principles of excise duty valuation, including the concept of amortised cost, cannot 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 in Uttar Pradesh, and there is no provision in the Act to include notional concepts like amortised cost in the sale price.

Judgment:
The Supreme Court held that the High Court erred in including the amortisation cost in the sale price of auto components under the U.P. Trade Tax Act, 1948. The court set aside the impugned judgment and allowed the civil appeal filed by the assessee, M/s. Moriroku UT India (P) Ltd., with no order as to costs. In light of this judgment, the related appeal by TS Tech Sun (India) Ltd. was also allowed with no order as to costs.

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