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TMI Blog2008 (3) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-2007 delivered by Division Bench of the Allahabad High Court in CWP (Tax) No. 13/04 by which, the writ petition filed by the appellant herein, seeking to restrain the AO from imposing any tax on moulds (toolings) supplied by its customer, Honda Siel Cars India Ltd., free of cost was sought to be taxed under Section 3 of U.P. Trade Tax Act, 1948, stood dismissed. 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 amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the cost is written off over the estimated useful life. On the other hand, amortisation generally is to write off the entire cost. The concept of amortisation is indicated in Section 35D of the Income-tax Act, 1961. It refers to amortisation of preliminary expenses. These are, however, differences only in practice and not in the fundamental underlined concept, i.e., to apportion the cost of even fixed assets over a period of time, namely, their useful life. 10. Amortisation, therefore, is an accounting concept similar to depreciation. It is gradual reduction of the value of an asset or liability by a periodic amount. It is essentially a means to allocate categories of assets and liabilities to their pertinent time period. The key difference between depreciation and amortisation is qua the nature of the items to which the terms apply. Therefore, depreciation is generally used in the context of tangible assets whereas amortisation is generally used in the context of intangible assets, such as, copyrights, patents, goodwill and capitalized costs. On the liability side also amortisation takes place. On the liability side, amortisation is commonly applied to deferred revenue it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the real assessable value. According to the Department, without the supply of moulds from its customer, final product could not be made. By use of the moulds, the appellant was able to manufacture the auto components. Therefore, according to the Department, some money value was required to be attributed on account of usage of moulds as such moulds contributed to the value of the final product, namely, auto components. Therefore, by not taking into account the money value of moulds supplied by the customer, the price stood depressed. In the circumstances, according to the Department, amortised cost had to be loaded to the price charged or chargeable by the appellant for the finished products. 12. On the above case of the Department, the question which arises for determination in this civil appeal is whether Section 4 of the 1944 Act read with Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 ("Excise Valuation Rules 2000") can be read into Section 3 of the U.P. Trade Tax Act, 1948? 13. Valuation is a matter of principle. Under Section 4 of the 1944 Act, the basis of valuation is the transaction value for each removal. Section 4 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is not attracted. What is attracted in such cases is Section 4(1)(b), which refers to "deemed value" and which requires valuation to be done in terms of Excise Valuation Rules, 2000. The important aspect to be noted is that the Department, in the present case, has borrowed the concept of "amortised goods" from Rule 6 of the Excise Valuation Rules, 2000. Therefore, we quote herein below Rule 6, which reads as follows : "Rule 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub section (1) of Section 4 of the Act except the circumstances where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. Explanation - For removal of doubts, it is hereby clarified that the value, apportioned as appropriate, of the following goods and services, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tools, moulds etc., to the extent such value has not been included in the price paid or payable, has to be treated as the money value of additional consideration flowing directly or indirectly from the buyer/customer to the assessee in relation to sale of goods being valued and aggregated accordingly. This is because under the excise law, the Department has to ascertain the real value of excisable article and to ascertain such real value, if in a given case, the Department detects apportionment of the value between the manufacturer and its customer then under clause (ii) of Explanation 1 to Rule 6, on account of deeming fiction, loading of such additional consideration is required to be made to the price of the final products. Such loading takes place on account of the express provision, namely, clause (ii) of Explanation 1 to Rule 6, which uses the expression "apportioned as appropriate". This is where the accounting concept of amortisation has been incorporated specifically vide clause (ii) of Explanation 1 to Rule 6. For levy of excise duty, "value" is to be determined per unit of excisable goods. Tools, dies, moulds etc. have their own life span and will be used for estimated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve a discount on account of defect in quality or delay. The important thing to be noted is that "price" is the amount of consideration which a seller charges the buyer for parting with the title to the goods. It comprises of the amount which the dealer himself has to pay for the purchase of the goods, the expenditure, which he is to incur for transporting the goods from the place of purchase to the place of sale, the duties, if any, levied on the particular goods bought by him, the octroi duty, which he may have had to pay and his own margin of profit after meeting handling charges including interest on the capital invested. The cost price of the goods actually paid by him under various heads of accounts would no doubt constitute the consideration for which he would part with his title to the goods. The entire amount of consideration, including the sales tax component, which the purchaser pays, would constitute the price of goods. To this extent, there is no difficulty. The difficulty comes in when by law or by legal fiction the Department seeks to introduce a notional concept as an element of the "real price". This is particularly important when there is no rule to that effect in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other valuable consideration, and includes- (i) a transfer, otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration : (ii) a transfer of property in goods (whether as goods, or in some other form) involved in the execution of a works contract; (iii) the delivery of goods on hire purchase or any system of payment by instalments; (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (v) the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; and (vi) the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash or deferred payment or other valuable consideration; Explanation I. - A sale or purchase shall be dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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