TMI Blog2007 (4) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by the assessing authority. 2. The facts and circumstances giving rise to this case are that petitioner, a company registered under the Indian Companies Act, 1956, is a manufacturer of plastic automobile components. Petitioner is also manufacturing parts for use in the Honda Car being manufactured in India by Honda Siel Cars India Limited (hereinafter called the customer), as per the designs and specifications given by it. The customer supplies tools, dyes, moulds and some child parts free of cost to the petitioner to enable it to manufacture motor parts for the customer. Customer retains the rights to inspect and verify the condition of such moulds, dyes and tools in the premises of the petitioner and the goods are manufactured exclusively for the said customer. For the year 2000-2001, a final assessment order was passed on 29-10-2002 under the provisions of UP. Trade Tax Act, 1948 (hereinafter called the Act). Thereafter, a notice under Section 21 of the Act was issued by the assessing authority for reassessment, to which petitioner submitted reply. While passing the re-assessment order dated 30-9-2003, tax has also been imposed on the amount of amortisation costs, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of tax evasion. Amortisation cost is to be included while fixing the tax liability of the petitioner. Therefore, petitioner is bound to pay the tax in terms of the circular. 4. We have heard the learned counsel for the parties and perused the record. Generally, extraordinary writ jurisdiction is not exercised unless petitioner exhausts the statutory remedies. Thus, first it is required to examine as to whether petition be entertained or petitioner be asked to show cause and plead his case before the notice issuing authority. There is no dispute to the settled legal proposition that the circular issued by the higher authorities is binding upon the assessing authority. The instructions issued by the department are binding on the authorities for the reason that issuing a circular/instruction is intimately conversant not only with the policy of legislation for the purposes of the provisions of the Act but also familiar with the nature and qualities of the commodities and also their use from time to time. Therefore, such notifications/circulars/executive instructions in fiscal statutes are binding. Apart from the fact that circulars of the Board are binding on the tax department, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be issued as it directs the assessing authority to proceed and assess in a particular manner. It also interferes with the judicial discretion of the assessing authority. While deciding the said case a very heavy reliance has been placed on its earlier judgment in M/s. Hindustan Aluminium Corporation Ltd. v. State of U.P. Ors. - 1977 UPTC 81, wherein it had been held that the Commissioner of Trade Tax cannot issue such a direction or instruction or guideline which has a overriding effect on the charging section/notification. 8. A Constitution Bench of the Apex Court in Collector of Central Excise, Vadodra v. Dhiren Chemical Industries, 2002 (139) E.L.T. 3 (S.C.) = (2002) 2 SCC 127 held that circulars issued by the Central Board of Excise and Customs which provides for a different interpretation than given by the Supreme Court, to a particular phrase, would be binding upon the revenue. Therefore, in a case where the circular is binding, the Court should not ask the petitioner to avail alternative remedy. 9. Undoubtedly, a show cause notice cannot be challenged in a writ Court unless petitioner satisfies the Court that the authority which has issued the notice has no compete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Upendra Singh - (1994) 3 SCC 357, Executive Engineer, Bihar State Housing Board v. Ramesh Kumar Singh Ors., AIR 1996 SC 691; Union of India Ors v. Metal Box Co. of India Ltd. Ors. - 1996 (87) E.L.T. 327 (S.C.) = (1996) 11 S.C.C. 122 and Whirlpool Corporation v. Registrar of Trade Marks, Mumbai Ors. - (1998) 8 SCC 1. 15. While dealing with a similar issue in State of Uttar Pradesh v. Brahm Datt Sharma Anr. AIR 1997 SC 943, the Hon ble Supreme Court observed as under- When a show cause notice is issued to a Government servant under the statutory provision seeking upon him to show cause ordinarily the Government servant must place his case before the Authority concerned by showing cause and the Court should be reluctant to interfere with the notice at that stage unless the notice is shown to have been issued palpably without any authority of law. An order violating fundamental principles of law and causing substantial injustice to a party may also be examined in a writ jurisdiction. (Emphasis added) 16. In Special Director Anr. v. Mohd Ghulam Ghouse Anr. - 2004 (164) E.L.T. 141 (S.C.) = AIR 2004 SC 1467, the Hon ble Supreme Court held that where the show cau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fruitful purpose. 21. Therefore, it is evident that where the notice itself makes it abundantly clear that the authority has already made up his mind and is likely to pass an order in a particular manner, submission of reply or hearing would be an empty formality. Thus, party be not asked to avail alternative remedy. 22. In the instant case, the circular, impugned, is binding on the assessing authority. The impugned notices themselves reveal that reason for giving notice is not adding the amortization costs while making the payment of Tax. Then, it is difficult to imagine that the assessing authority is likely to entertain the pleas of the petitioner. The writ requires to be entertained by the Court. 23. As per the agreement dated 8-10-1997, the customer supplied tools, dyes, moulds and some child part to the petitioner to enable it to manufacture motor parts for the customer. Customer retains the rights to inspect and verify the condition of such moulds, dyes and tools in the premises of the petitioner and the goods are manufactured exclusively for the said customer. For the use of tools, dyes, moulds etc. under the agreement, customer settled the amount which is called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [Vide Loknath Padhan v. Birendra Kumar Sahu - AIR 1974 SC 505; Sanjeev Coke Manufacturing Company v. M/s Bharat Coking Coal Ltd. Anr., AIR 1983 SC 239; Har Sharan Verma v. Charan Singh Ors. - (1985) 1 SCC 162; Basant Kumar v. State of Rajasthan Ors. - (2001) 7 SCC 201; and M.L. Binjolkar v. State of Madhya Pradesh Ors. - (2005) 6 SCC 224]. Grievance of the petitioner is that the circular is binding upon the assessing authority and in view of the circular it is not expected from the assessing authority to take any different view and, therefore, the validity of the circular on merit is to be examined. Circular only relates to the amortisation cost, therefore, we are confining ourself to the dispute whether the amortisation cost is the part of turnover and liable to Trade Tax. 28. At the cost of repetition, it is desirable to mention that submission of the learned counsel for the petitioner is that the amount which is payable by the purchaser and which is receivable by the seller is the sale price which is liable to tax. He submitted that in the present case, the price received by the petitioner was the amount after deducting the amortisation cost from the assessable va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to work-contract e.g. M/s. N.M Goyal Company v. Sales Tax officer - AIR 1989 SC 285; Rashtriya Ispat Nigam Ltd. v. State of Andhra Pradesh - (1998) 8 SCC 439; Cooch-Behar Contractor s Association v. State of West Bengal Ors. - (1996) 10 SCC 380; and Karya Palak Engineer v. Rajasthan Taxation Board - 2004 (177) E.L.T. 3 (S.C.) = (2004) 7 SCC 195. 30. The relevant parts of the contract between petitioner and the customer dated 8-10-1997 read as under : 1. Supply of Toolings The Owner shall supply the Toolings to the Supplier and the Supplier undertakes that the Toolings shall be used for the purpose of manufacture of the Parts by the Supplier exclusively for the Owner , upon the terms and conditions specified herein below in this Agreement. 2. Records (a) Complete details of all Toolings given to the Supplier by the Owner shall be enumerated in Tooling Records kept by the Supplier for this purpose. Such Tooling Records shall be furnished to Supplier by the Owner at such intervals as may be determined by the Owner . The Supplier undertakes that the Tooling Records furnished by the Owner shall be completed, verified, signed by an authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortisation cost, per Tooling will be determined at the time of finalisation of the prices, and will be added to the cost only from the point of view of calculation of statutory levies in force from time to time xxxx xxxxxxx xxxxxx 17. Assignment (I) The Owner shall have the right to assign its rights and liabilities under this Agreement, in respect of the Toolings rendered by it to the Supplier , whereas the Supplier shall have no right to assign its rights and liabilities hereunder or any interest herein without the prior written consent of the Owner The invoice (Annex.8) reads as under :- EXCISE REGN NO. 20/MORIROKU/CH87/2810074154/97F C.O. No. 2810074154AAACM8884DXM001 C.S.T. No.ND-0085872 DT. 30th August 1997 C.S T. No: ND-5082377 DT 30th August 1997EXCISE TARRIF HEADING NO. 8708.00 RATE OF EXCISE DUTY 16.00 % FULL POSTAL ADDRESS OF EXCISE RANGE RANGE : I DIVISION III PHASE - II. NEAR N.E.P.Z. NOIDA - 201305 GAUTAM BUDH NAGAR (U.P.) CONSIGNEE HONDA SIEL CARS INDIA LTD.P. NO. A-1, SEC 40-41 (KASNA ROAD) GREATER NOIDA, G.B. NAGAR (U.P.) E.C.C. NO. AAA CH 1765 QXM 001, DESCRIPTION OF MATERIALS PURCHASE ORDER NO. QUANTITY UNIT SELLING RATE PER UNIT (Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. (iii) ...................... (iv) a transfer of the rights to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. xxxxx xxxxxxxxx xxxxxx Explanation I. A sale or purchase shall be deemed to have taken place in the State - (ii) in a case falling under sub-clause (iv), if the goods are used by the lessee within the State during any period, notwithstanding that the agreement for the lease has been entered into outside the State or that the goods have been delivered to lessee outside the State. (Emphasis added) Section 2(i) of the Act 1948 defines turnover , as under - Turnover means the aggregate amount for which goods are supplied or distributed by way of sale or so sold, by the dealer, either directly or through another on his account or account of others, whether for cash or deferred payment or other valuable consideration. Explanation I Omitted by U.P. Act 12/1979 w.e.f. 1-6-75 Explanation II - Subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inition of sale price in Section 2(p) of the Rajasthan Sales Tax Act, which is similar to the definition of the turnover under the U.P. Trade Tax Act, has been considered. The Apex Court held as follows : This definition is in two parts. The first part says that sale price means the amount payable to a dealer as consideration for the sale of any goods. Here, the concept of real price or actual price retainable by the dealer is irrelevant. The test is, what is the consideration passing from the purchaser to the dealer for the sale of the goods. It is immaterial to enquire as to how the amount of consideration is made up, whether it includes excise duty or sales tax or freight. The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale and not as to what is the net consideration retainable by the dealer. Take for example, excise duty payable by a dealer who is a manufacturer. When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. Ordinarily, it is not shown as a separate item in the bill, but it is included in the price charged by him. The sale price in such a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the purchaser not under any statutory or other liability but as part of the consideration for the sale of the goods and it would, therefore form part of sale price within the meaning of the first part of the definition. 35. In the case of Dyer Meakin Breweries Ltd. v. State of Kerala - (1970) 3 SCC 253, the Apex Court considered a case wherein the assessee claimed that the amount charged for freight and handling charges incurred by it in transporting the goods from the breweries and distilleries to the warehouse in Kerala were eligible for deduction under Rule 9(f) of the Kerala General Sales Tax Rules, 1963. The Court negatived the said claim observing that all the expenditure incurred in prior to the sale was evidently a component or the price for which the goods were sold and making separate bills for the price of the goods ex-factory and for freight and handling charges would not make the difference. The Court observed as under : It is common ground that the sale of the liquor took place in Ernakulam. The company arranges to transport liquor for sale from the factories to its warehouse at Ernakulam. It was not brought for any individual customer. All the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he net amount payable by the purchaser. The Apex Court held as follows : An adjustment of price in a case of this nature, in our opinion, therefore, would comes within the purview of the terms of other valuable consideration inasmuch both the appellants and the Company were aware that they have fulfilled their respective terms and obligation. Court further held that the price of molasses to be adjusted from the amount payable by the appellant to the owner by way of consideration for use of the mill. Such a mutual agreement is merely one for the purposes of adjusting the account. The transaction between the parties not affect and substance involved passing of monetary consideration, it would, thus come within the purview of the expression any other valuable consideration . 37. Merely because a clause of retention of ownership is included in the terms of contract denying acquisition and the right, title or interest of the supplier in the toolings, the same does not preclude the user of toolings which have been specifically provided for in clause 1 of the agreement. Secondly, merely because toolings are to be returned back to the owner, the same would not waive the considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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