1991 (9) TMI 331 - HC - VAT and Sales Tax

Summary

Issues:
1. Disallowance of exemption on "engineering design fee" claimed by the assessee.
2. Inclusion of designing charges in the total manufacturing cost for tax purposes.
3. Whether the fee for designing special coils is a pre-sale expense and part of the sale price.
4. Comparison of the present case with relevant legal precedents.

Analysis:
1. The assessing officer disallowed the assessee's claim for exemption on a turnover of Rs. 46,042 as "engineering design fee." The Appellate Assistant Commissioner and the Tribunal upheld the assessment, considering the fee as part of the sale price of manufactured goods. The High Court noted that the fee for designing special coils was included in the total manufacturing cost and was deemed exigible to tax.

2. The assessing authority found that the designing charges were collected for designing special coils based on buyer specifications, and these charges were considered pre-sale charges included in the total manufacturing cost. The appellate authority and the Tribunal concurred that the fee for designing the special coils was part of the systematic activities of the assessee and not an isolated service, thus forming part of the sale price of the products.

3. The High Court observed that the fee for designing special coils was indeed a pre-sale expense and included in the manufacturing cost. The designs prepared as per customer specifications were retained by the assessee and used for manufacturing the coils sold to customers. The separate mention of "design and engineering fee" in the invoice did not exclude it from the cost of manufacture or sale price. The Court rejected the argument that the fee was for specialized technical services, emphasizing that it was part of the sale of the product to customers and liable to sales tax.

4. The High Court distinguished the present case from legal precedents cited by the assessee's counsel, emphasizing that those cases involved different factual contexts. The Court highlighted that the fee in question was not merely for the sale of designs but for the utilization of designs in manufacturing products sold to customers. The Tribunal's decision was deemed error-free, and the revision petition was dismissed with costs.

In conclusion, the High Court upheld the inclusion of the fee for designing special coils in the sale price of manufactured goods, rejecting the assessee's claim for exemption and emphasizing the fee's integration into the manufacturing cost. The judgment clarified the nature of the fee as a pre-sale expense and its tax liability, distinguishing the case from relevant legal precedents cited by the assessee's counsel.