Case: Moriroku UT India (P) Ltd., Vs. State of U.P. &amp; Others

this Act, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place--(a) when the goods are transferred from a principal to his selling agent and from the selling agent to his purchaser,(b) when the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the agent is found, in either of the cases aforesaid,--(i) to have sold the goods at one rate and passed on the sale proceeds to his principal at another rate; or(ii) to have purchased the goods at one rate and passed them on to his principal at another rate; or(iii) not to have accounted to his principal for the entire collection or deductions made by him, in the sales or purchases effected by him on behalf of his principal; or(iv) to have acted for a fictitious or non-existent principal." 19. U.P. Trade Tax Act, 1948 is a self-contained code for levy of tax on sale or purchase of goods in Uttar Pradesh. Clause (bb) of Section 2 defines the expression "trade tax" to mean a tax payable under the Act. Clause (h) of Section 2 defines the expression "sale" to include transfer of the right to use any goods for any purpose for cash or deferred payment or other valuable consideration. In this case we are concerned only with Section 3 and not with Section 3-F of the 1948 Act. Section 3 inter alia provides that every dealer shall for each assessment year pay a tax at the rates provided under Section 3-A, Section 3-D or Section 3-H on his turnover of sales or purchases or both, as the case may be, which shall be determined in such manner as may be prescribed. Section 3-F provides for tax on transfer of right to use any goods or goods involved in execution of works contract. The definition of "sale" in Section 2(h) is in two parts. The first part covers the normal sale and the second part covers deemed sales. In the present case, we are concerned with sale of auto components to the buyer. It is a normal sale. The aggregate amount for which these auto parts/components are sold constitutes the turnover relating to such sales within the meaning of turnover in Section 2(i). Therefore, it is on such turnover that liability of tax under Section 3 of the 1948 Act has to be determined. Therefore, sales-tax or trade-tax under the 1948 Act is leviable on sale, whether actual or deemed, and for every sale there has to be a consideration. On the other hand, excise duty is a levy on a taxable event of "manufacture" and it is calculated on the "value" of manufactured goods. Excise duty is not concerned with ownership or sale. The liability under the excise law is event-based and irrespective of whether the goods are sold or captively consumed. Under the excise law, the liability is there even when the manufacturer is not the owner of raw material or finished goods (as in the case of job workers). Excise duty, therefore, is independent of ownership (see: Ujagar Prints & Ors. v. Union of India & Ors. [(1989) 3 SCC 488] . Therefore, for sales-tax purposes, what has to be taken into account is the consideration for transfer of property in goods from the seller to the buyer. For this purpose, tax is to be levied on the agreed consideration for transfer of property in the goods and in such a case cost of manufacture is irrelevant. As compared to the sales-tax law, the scheme of levy of excise duty is totally different. For excise duty purposes, transfer of property in goods or ownership is irrelevant. As stated, excise duty is a duty on manufacture. The provisions relating to measure (Section 4 of 1944 Act read with Excise Valuation Rules, 2000) aim at taking into consideration all items of costs of manufacture and all expenses which lead to value addition to be taken into account and for that purpose Rule 6 makes a deeming provision by providing for notional additions. Such deeming fictions and notional additions in excise law are totally irrelevant for sales-tax purposes. Therefore, in any event, these notional additions cannot be read into clause 5.1 and clause 5.2 of the General Agreement for Purchase of Parts dated 31.7.1997. 20. Before concluding, it may be clarified, that, 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. In our judgment, we have termed the "amortisation cost" as notional in the sense that it is not the cost in the hands of the appellant. As stated above, Rule 6 of Excise Valuation Rules, 2000 refers to items of additional consideration. But for Rule 6 it was not possible for the Department under the 1944 Act to load such items to the transaction value of the final product. It is for above reasons, particularly because cost of manufacture is not incurred by the appellant but by the customer, such cost cannot be added to the price of the final product, particularly when there is no law to that effect.21. Accordingly, we hold that the High Court had erred in holding that the amortization 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.,22. Consequently, the impugned judgment is set aside and the civil appeal filed by the assessee is allowed with no order as to cost.[TS Tech Sun (India) Ltd. v. State of Uttar Pradesh & Ors.] 23. In the light of the above judgment, in the case of Moriroku UT India (P) Ltd. v. State of U.P. & Ors., this

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]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. In our judgment, we have termed the "amortisation cost" as notional in the sense that it is not the cost in the hands of the appellant. As stated above, Rule 6 of Excise Valuation Rules, 2000 refers to items of additional consideration. But for Rule 6 it was not possible for the Department under the 1944 Act to load such items to the transaction value of the final product. It is for above reasons, particularly because cost of manufacture is not incurred by the appellant but by the customer, such cost cannot be added to the price of the final product, particularly when there is no law to that effect.21. Accordingly, we hold that the High Court had erred in holding that the amortization 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.,22. Consequently, the impugned judgment is set aside and the civil appeal filed by the assessee is allowed with no order as to cost.[TS Tech Sun (India) Ltd. v. State of Uttar Pradesh &