In Tata Auto Plastic Systems Ltd vs Commissioner Of Sales Tax, the Bombay High Court held that 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.
A bench of Justices S V Gangapurwala and G. S Kulkarni was considering a bunch of references made by the dealers against the orders of the Appellate Tribunal.
The applicant-dealers are manufacturer and trader in automotive seating systems and components. While completing assessment against them, the assessing authority taxed the cost of designing and tooling received by the applicant from his purchasers finding that the same would form part of sales turnover of the dealer.
The dealers submitted before the High Court that they incurs costs towards designing and tooling and subsequently, the same would be reimbursed to them by the consumers. According to them, the designing and tooling are not sold or transferred to the purchasers and hence, levy of tax on amounts received from the purchasers by way of partial reimbursement of designing and tooling cost cannot be treated as sale price.
Aligning with the findings of the Appellate Tribunal the bench rejected the above contentions and noted that 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.”
Justice S. V Gangapurwala, who pronounced the judgment, further said that “the amount of money which goes from the pocket of the vendee to the pocket of the vendor as a 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.”
Read the full text of the Judgment below.
