42-09-STR-Judgment=.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SALES TAX REFERENCE NO. 42 OF 2009
ALONG WITH
SALES TAX REFERENCE NOS. 43 OF 2009
M/s. Tata Johnson Controls Automotive Limited ... Applicant
v/s.
The State of Maharashtra ... Respondent
ALONG WITH SALES TAX REFERENCE NOS. 46 OF 2009 M/s. Tata Auto Plastic Systems Limited ... Applicant v/s.
The State of Maharashtra ... Respondent
ALONG WITH
SALES TAX REFERENCE (L) NOS. 58 OF 2008
WITH
SALES TAX REFERENCE (L) NOS. 74 OF 2010
WITH
SALES TAX REFERENCE (L) NOS. 75 OF 2010
WITH
SALES TAX REFERENCE (L) NOS. 54 OF 2011
Supreme Industries Ltd. ... Applicant
v/s.
The State of Maharashtra ... Respondent
• Mr.Pradeep S. Jetly for the applicant in STR Nos.42/2009,
43/2009 and 46/2009.
• Mr.B.B. Sharma, Spl. Counsel a/w. Mr.Dushyant Kumar and
Ms.Jyoti Chavan for the Respondent in STR No.42/2009. • Mr.V.A. Sonpal, Spl. Counsel for the Respondent in STR No.43/2009 and STR No.46/2009.
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• Mrs. Nikita Badheka for the applicant in STR(L) No.58/08, 74/10, 75/10 and 54/11 • Mr. B.B. Sharma, Spl. Counsel a/w Mr. Dushyant Kumar and Ms. Jyoti Chavan, AGP for the respondent State CORAM : S.V. GANGAPURWALA & G.S. KULKARNI, J.J.
Reserved on : 13th June, 2017.
Pronounced on : 3rd August, 2017 Judgment :- (per S.V. Gangapurwala, J.)
1. These are two group of References, one in respect of M/s. Tata Johnson Controls Automotive Ltd. and another of Supreme Industries Ltd. In both the References, common question of law is referred for adjudication to this Court. To avoid rigmarole all the References are decided by a common judgment. In case of Supreme Industries Ltd., the applicant i.e. Supreme Industries Ltd. manufactures items such as injections and extrusions films, radio accessories, fan accessories etc. For manufacture of these products, the applicant develops moulds / rectifies moulds, which are exclusively used to manufacture the products of the applicant. The said moulds remain with the applicant and are not delivered to the customers. However, the applicant raises debit notes to the Uday S. Jagtap 2 of 15 ::: Uploaded on - 05/08/2017 ::: Downloaded on - 06/08/2017 00:43:12 ::: 42-09-STR-Judgment=.doc customers for making / rectifying the moulds used for making the components as development charges. In the matter of Tata Johnson Control Automotive Ltd., the assessee manufactures seating systems.
2. Save and except the difference in the product manufactured by Tata Johnson Controls Automotive Ltd. and Supreme Industries Ltd., rest of the facts are similar. For reference purpose, the facts are taken from the group of M/s. Tata Johnson Controls Automotive Ltd.
3. The applicants have filed Reference Application under Section 61 (1) of the Bombay Sales Tax Act,1959 with a request to refer certain questions of law to this Court for its decision.
4. The facts in nutshell are as under.
5. The applicant is a manufacturer and trader in automotive seating systems and components thereof. The applicant was assessed for a period from 01.04.1998 to 31.03.1999. While assessing the applicant, the assessing authority has taxed the cost of designing and tooling received by the applicant from his purchasers, which is stated Uday S. Jagtap 3 of 15 ::: Uploaded on - 05/08/2017 ::: Downloaded on - 06/08/2017 00:43:12 ::: 42-09-STR-Judgment=.doc to be on account of designing and for the purpose of getting the moulds manufactured from his suppliers. This amount was held by the assessing authority as an amount of sale price and tax was levied on it. The Commissioner of Sales Tax (Appeals) confirmed the said order of the Assessing Officer. The applicant was also assessed for the period from 01.04.1997 to 31.03.1998. For the said year also, the designing and tooling cost shown by the assessee was considered as sale price. The said order was confirmed upto the Tribunal.
6. The following question has been referred to this Court for its decision by the Tribunal.
"(i) 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, 1959?"
7. Mr. Jetly, and Mrs. Nikita Badheka, learned Counsel for the assessee in erudite manner canvassed the submissions of the assessee. Their arguments are on legal issues and factual matrix is also similar.
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8. It is strenuously contended by the learned Counsel for the applicant - assessee that the applicant is a manufacturer and trader in automotive seating systems and components thereof. For this purpose, the applicant incurs costs towards designing and tooling. Part of these costs are reimbursed by the purchasers. A portion of these amounts are used in making / getting moulds, the design and the moulds always remained with the applicant. The learned Counsel submits that the designing cost and the tooling cost do not form part of goods mentioned in Schedule "C", part-I, during the relevant period. It is submitted that the sale of design may be held to be covered by Entry No.89 of Group "A" of Notification issued under Section 41 of the Bombay Sales Tax Act, 1959. It is further submitted that the designing is done by the applicant for various customers on which costs are incurred. Designing is highly skilled and creative work. The work of designing is done by the applicant for M/s.TELCO. Certain portion of designing work is done by Johnson Control Automotive UK Ltd. The purchasers partly reimbursed the cost incurred for designing and tooling. There is no sale of design of tools (moulds) . As such, the amounts received from the purchasers Uday S. Jagtap 5 of 15 ::: Uploaded on - 05/08/2017 ::: Downloaded on - 06/08/2017 00:43:12 ::: 42-09-STR-Judgment=.doc do not form part of the sale price neither the business, nor the tools are transferred to the purchasers. That part of the amount which is not reimbursed by the purchasers towards designing and tooling cost is written off by the applicant in the profit and loss account. The designing cost and tooling cost will not capitalized by the applicant nor is any depreciation claimed thereof. According to the learned Counsel, the designing and tooling are not sold or transferred to the purchasers. Hence, levy of tax on amounts received from the purchasers by way of partial reimbursement of designing and tooling cost cannot be treated as a sale price.
9. The learned Counsel further submits that there are no provision in the Sales Tax Act regarding marketing price. As such, sale price can be the amount received by the applicant on sale of seating systems. The provisions of the Central Excise Act are different from the Sales Tax Act. Under the Central Excise Act, there is a specific provision for inclusion of amortized cost while arriving at the assessable value. But there are no such provisions in the Sale Tax Act. The designing and moulds are used over several years. The consideration amounts received by way of partial reimbursement Uday S. Jagtap 6 of 15 ::: Uploaded on - 05/08/2017 ::: Downloaded on - 06/08/2017 00:43:12 ::: 42-09-STR-Judgment=.doc from the buyers can in no way form part of the sale price. The learned Counsel to substantiate his contention relies upon the decision of the Apex Court in a case of Moriroku UT India (P) Ltd. Vs. State of Uttar Pradesh, (2008) 224 ELT 365 so also, on the another judgment of the Apex Court in a case of Ts Tech Sun (India) Ltd. Vs. State of Uttar Pradesh & Ors., (2008) 15 VST 559. The learned Counsel also relies on the judgment of this Court in a case of Additional Commissioner of Sales Tax, VAT III, Mumbai Vs. Sehgal Autoriders Pvt. Ltd., (2011) 43 VST 398. The learned Counsel further places his reliance on the judgment of this Court in a case of Commissioner of Sales Tax, Maharashtra State, Mumbai Vs. Kolsite Industries, (2013) 61 VST 23 and in a case of Commissioner of Sales Tax Vs. M/s.Page Point Service (P) Ltd., Sales Tax Reference No.3 of 2005, dated 9th September, 2014.
10. Mr. Sharma, Mr. Sonpal and Ms. Jyoti Chavan, the learned Counsel for the respondent in a lucid manner submitted that the applicant manufactures automotive seating systems and components thereof and the moulds and design is prepared as per the requirement of his customers. The said moulds are required for Uday S. Jagtap 7 of 15 ::: Uploaded on - 05/08/2017 ::: Downloaded on - 06/08/2017 00:43:12 ::: 42-09-STR-Judgment=.doc manufacture of seating systems and components. Without designing and moulds, the seating system cannot be manufactured. The cost of other moulds and designing is incurred by the customer / buyer. The purchase orders placed itself shows the cost of designing and tooling so also seatings. The same is one invoice only. The definition of "sale price" is very wide. The sale price is the amount of valuable consideration paid / payable by the purchaser for the purchase of goods. The amount received by the applicant towards development charges for making designs and tooling are directly linked and has necessary nexus to the sale of goods / components of the applicant and is nothing but the valuable consideration for the supply of the seating system. The learned Counsel submitted that the applicant has artificially divided the amount of valuable consideration paid by its customers / buyers into sale price and development charges. This is a modus adopted to avoid payment of sales tax. The said amount also forms part of the sale invoice. The learned Counsel further submitted that designing and rectification or manufacture of moulds are necessary parts and have direct nexus with the manufacture of goods / components. The said charges would fall within the definition of anything done by the supplier in Uday S. Jagtap 8 of 15 ::: Uploaded on - 05/08/2017 ::: Downloaded on - 06/08/2017 00:43:12 ::: 42-09-STR-Judgment=.doc respect of the goods at the time of or before the delivery thereof. The said charges are mandatory payment by the purchaser as part of the sale price for the same transaction. According to the learned Counsel, if the purchaser had agreed to pay merely the price of the goods but not development charges for design and or tooling, the purchaser would not get the delivery of goods. The learned Counsel further submits that the definition of "purchase price" also is relevant. It would be seen that the sale and purchase are two sides of the same coin. The purchaser has paid the whole consideration for the purchase of component that he gets including all the charges for anything done by the supplier in respect of the goods at the time of or before the delivery of the goods to the buyer. Therefore, whatever the purchaser paid by way of debit note or invoice, it will be the consideration towards sale / purchase of goods / components and, therefore, liable to sales tax. The learned Counsel submits that in case of Moriroku UT India (P) Ltd., referred to supra, the Apex Court was considering the question whether amortization, cost of tooling was includable in the sale price as in the Excise duty. The Apex Court held that the scheme of the Excise Act is different. In the said case before the Apex Court, the moulds in question were owned Uday S. Jagtap 9 of 15 ::: Uploaded on - 05/08/2017 ::: Downloaded on - 06/08/2017 00:43:12 ::: 42-09-STR-Judgment=.doc by the buyer / customers so that he could get the auto components made from the moulds. In the present case, the applicant is the owner of the moulds and makes them / rectifies them for specific purpose and charges the same to the purchasers of making seating systems. Thus, the aforesaid case does not help the applicant. The learned Counsel relies on the judgment of this Court in a case of Sun-N-Sand Hospital Pvt. Ltd. Vs. State of Maharashtra, (1969) 23 STC 507. Another judgment of the Apex Court in a case of EID Parry India Ltd. Vs. Asst. Commissioner of Commercial Taxes, (2000) Vol.II, SCC 521 and the judgment of the Maharashtra Sales Tax Tribunal in case of M/s. Guest Keen Williams Vs. State, dated 12.04.1983 in Revision Application No.18 of 1980.
11. We have considered the submissions canvassed by the learned Counsel for the respective parties. Before adverting to the said submissions, it will be relevant to refer to the relevant definitions.
"Sale Price" :- "Sale Price" means the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for any thing done by the dealer in respect of goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged.
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"Purchase Price" :- "Purchase price" means the amount of valuable consideration paid or payable by a person for any purchase made including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged."
12. The aggregation of consideration for the transfer of the product would in normal parlance constitutes sale price. All the payments should be made pursuant to the contract of sale. The total amount of consideration for purchase of goods would include the price strictly so called and also other amounts which are payable by the purchaser or which represent the expenses required for completing the sale as the supplier would ordinarily include all of them in the price at which he would sale his goods. It is clear that in the present case, the sale price is not statutorily fixed but it is a part of contract between the parties. The prima dona consideration would be the total price paid by the purchaser for acquisition of the product under sale. The contract will have to be examined. The payment of designing and tool cost is necessary concomitant of the final sale price of the seating system. The amount of money which goes from the pocket of the vendee to the pocket of the vendor as a Uday S. Jagtap 11 of 15 ::: Uploaded on - 05/08/2017 ::: Downloaded on - 06/08/2017 00:43:12 ::: 42-09-STR-Judgment=.doc consideration for passing of the property in the goods is the "sale price". It is the amount but for the payment of which the vendor would not transmit his title of the goods in favour of the vendee. The applicant / seller would not deliver / sale the seating system without recovering the cost of designing and moulds required for manufacture of seating system. The cost paid towards designing and tooling is a part of the same series of transaction of sale of seating system. The sale cannot be segregated. It is also not the case that the said tools are provided by the customer / buyer. The design and tools are prepared by the applicant to enable the applicant / vendor to manufacture seating systems. The development charges for design and tooling and price of seating system is artificially being segregated to avoid payment of sales tax. Without payment of designing and tooling cost, the applicant would not part with the seating system. The definition of "purchase price" will have to be read in conjunction with the "sale price".
13. The production / manufacture of the seating system is only on the basis of the said mould which is designed. Without the said mould, the seating system could not be manufactured. The said Uday S. Jagtap 12 of 15 ::: Uploaded on - 05/08/2017 ::: Downloaded on - 06/08/2017 00:43:12 ::: 42-09-STR-Judgment=.doc mould is retained by the vendor. The said mould cannot be used for any other purpose. The development charges for the mould is agreed to be charged and paid as a part of the contract of supply of seating system. The development charges for designing and tool have inescapable bearing on the delivery of the seating system and, therefore, they will have to be held as part of the sale price of the seating system.
14. In a case of Moriroku UT India (P) Ltd. referred to supra, the tooling and the moulds were supplied by the customer free of cost to the vendor to enable it to manufacture automobile components. The Apex Court held that amortization cost of tooling is not includable in sale price of automotive components. In the present case, the moulds are of the vendor. The moulds are to be designed in a manner to manufacture / produce the seating system as per the requirement of the vendee. The cost incurred for such designing and tooling for the purpose of manufacture of seating system is received by the vendor (applicant) from the customer and without the designing and tooling of the mould, the seating system cannot be produced / manufactured. The said moulds are retained by the Uday S. Jagtap 13 of 15 ::: Uploaded on - 05/08/2017 ::: Downloaded on - 06/08/2017 00:43:12 ::: 42-09-STR-Judgment=.doc applicant / vendor. All these facts would go to show that the designing and tooling cost is nothing but a part of the sale price of seating system. Without the customer paying the price of the designing and tooling, the customer would not receive the seating system. The purchase price as defined means the amount of valuable consideration paid or payable by a person for any purchase made, including any sum charged for anything done by the seller in respect of goods at the time of or before delivery thereof. The sale price as defined under the Sales Tax Act is also in a similar manner. The sale price means, the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the dealer in respect of the goods at the time of or before delivery thereof. The sale price as such would mean the amount paid to a dealer for any sale made including any sum charged for anything done by the dealer in respect of the goods at the time of or before delivery thereof. Considering the definition of the "sale price" and "purchase price" in conjunction, there can be no room of doubt that the designing and tooling cost incurred by the vendee for the manufacture of seating system in the present facts and circumstances of the case, would be a part of the "sale price" of the Uday S. Jagtap 14 of 15 ::: Uploaded on - 05/08/2017 ::: Downloaded on - 06/08/2017 00:43:12 ::: 42-09-STR-Judgment=.doc seating system.
15. Considering the above, the question referred to is answered in favour of the Revenue and against the assessee. The said designing charges and tooling cost reimbursed to the applicant by its customers, would form part of the "sale price" as defined under Section 2(29) of the Bombay Sales Tax Act.
(G.S. KULKARNI, J.) (S.V. GANGAPURWALA, J.)
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