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

3. Appellant is the company registered under the Companies Act, 1956 and is a manufacturer of plastic automobile components. Appellant is manufacturing such components for use in the Honda Siel Cars manufactured in India by Honda Siel Cars Ltd. (hereinafter called the "customer"), as per designs and specifications given by it. The customer supplies tools, dies, moulds etc. (toolings) free of cost to the appellant herein to enable it to manufacture automobile components.4. For the assessment year 2000-2001, a final assessment order was passed on 29.10.2002 under the provisions of the U.P. Trade Tax Act, 1948 ("1948 Act"). Thereafter, a notice under section 21 was issued by the AO for reassessment to which the appellant submitted its reply. By the said Notice, the appellant was called upon to show cause why amortisation cost in respect of toolings and moulds should not be taxed under section 3 of the 1948 Act.5. Vide reassessment order dated 30.9.2003, tax was imposed on the amortisation cost on the ground that the sale price of the auto components should be the same both for the purposes of Central Excise Act, 1944 ("1944 Act") and for 1948 Act.6. Being aggrieved, an appeal was preferred by the appellant-assessee under section 9 of the 1948 Act, which was rejected in the light of the circular dated June, 2003 issued by the Commissioner, Trade Tax, U.P. by which amortisation cost was sought to be taxed under the 1948 Act. Accordingly, the appellant herein challenged the validity of the circular which, as stated above, was upheld by the High Court. Hence, this civil appeal.

Reasoning: 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 &