Bombay High Court
M/S The Supreme Industries Ltd vs The State Of Maharashtra ... on 3 August, 2017
Bench: S.V. Gangapurwala
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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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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