Holding

The amortisation cost of the toolings is not includible in the sale price for purposes of the U.P. Trade Tax Act, and the provisions of the Central Excise Act and its valuation rules cannot be read into Section 3 of the Trade Tax Act.

Summary

Moriroku UT India (P) Ltd., a manufacturer of plastic automobile components, received tools, dies and moulds free of cost from its customer Honda Siel Cars India Ltd. to produce components. The Uttar Pradesh Tax Department levied trade tax under Section 3 of the U.P. Trade Tax Act, 1948 on the amortisation cost of these toolings, arguing that the sale price for excise and trade tax purposes should be the same. The Supreme Court examined whether the amortisation cost, calculated under Rule 6 of the Central Excise Valuation Rules, could be included in the sale price for trade‑tax purposes and whether provisions of the Central Excise Act could be read into the Trade Tax Act. It held that the cost of moulds was incurred by the buyer, not the appellant, making the amortisation cost a notional expense that cannot be added to the price under the Trade Tax Act. Consequently, Section 4 of the Excise Act and Rule 6 cannot be imported into Section 3 of the Trade Tax Act. The High Court’s decision was set aside and the civil appeal was allowed.

Issues considered

Whether the amortisation cost of toolings supplied free of charge by the buyer is includible in the sale price of auto components for purposes of the U.P. Trade Tax Act, 1948.
Whether Section 4 of the Central Excise Act, 1944 read with Rule 6 of the Excise Valuation Rules, 2000 can be applied to Section 3 of the U.P. Trade Tax Act, 1948.
Whether the cost of moulds incurred by the buyer can be treated as consideration under sales‑tax law.

Legislation cited

Central Excise Act, 1944s. 4, s. 4(1)(a), s. 4(1)(b)
Income Tax Act, 1961s. 35D
U.P. Trade Tax Act, 1948s. 2(h), s. 2(i), s. 3, s. 3-A, s. 3-D, s. 3-F, s. 3-H

Subjects

amortisationtrade taxexcise dutyvaluationtoolingsmouldssales taxCentral Excise ActU.P. Trade Tax ActRule 6notional costcost of manufacturedepreciation

Judgment

[2008] 3 S.C.R. 678

A MORIROKU UT INDIA {P) LTD.
... •

v.
STATE OF U.P. AND ORS.
(Civil Appeal. No. 1709 of 2008)
MARCH 3, 2008
B
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.)

Taxation - UP Trade Tax Act, 1948 - s.3 r/w s.2(i) and
,..
.
(h) - Mis Honda Siel Cars India Ltd. supplied tools, dies,
c moulds etc. free of cost to Appellant-assessee to enable it to
manufacture plastic automobile components for use in Honda
Siel cars - Dispute as to why amortisation cost in respect of
footings and moulds should not be taxed uls.3 of the Trade
Tax Act - Tax imposed on amortisation cost on ground that
sale price of auto components should be the same both for
D
the purposes of the Excise Act and for the Trade Tax Act -
Whether amortisation cost of the footings calculated in terms ••
of r. 6 of Excise Valuation Rules is inc/udible in the sale price
of auto components sold by Appellant to its customer, Mis
Honda Siel Cars India Ltd. - Held, No - Moulds were
E manufactured by the buyer/customer so that auto components
could be manufactured by Appellant in terms of the
specifications given by buyer - Cost of manufacture of the
moulds was incurred by the buyer/customer and not by the
Appellant - ''Amortisation cost" is notional in the sense that it • ...
F is not the cost in the hands of the Appellant - Since 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 - Distinction between excise law and sales tax law -
Central Excise Act, 1944 - s.4 - Central Excise Valuation
G (Determination of Price of Excisable Goods) Rules, 2000 -
r.6.
Words and Phrases - "amortisation" and "depreciation"
••
- Meaning and concept of- Explained - Income Tax Act, 1961
- s.35D.
H 678'
--l
MORIROKU UT INDIA (P) LTD. v. STATE OF U.P. 679
. AND ORS .
-· M/s Honda Siel Cars India Ltd. supplied tools, dies, A
moulds etc. free of cost to Appellant-assessee to enable
it to manufacture plastic automobile components for use
<. in the Honda Siel cars. Appellant was called upon to sho~
cause as to why amortisation cost in respect of toolings
and moulds should not be taxed u/s.3 of the U.P. Trade 8
Tax Act, 1948. Tax was imposed on the amortisation cost
ti
·• on ground that the sale price of auto components should
be the same both for the purposes of the Central Excise
Act, 1944 and for the U.P. Trade Tax Act, 1948.
In appeals to this Court the question which arose for c
consideration is whether the the amortisation cost of the
toolings calculated in terms of Rule 6 of the Central Excise
Valuation (Determination of Price of Excisable Goods)
Rules, 2000 is includible in the sale price of auto
components sold by Appellant to its customer, M/s Honda D
·-~ Siel Cars India Ltd.
Allowing the appeals, the Court
HELD: 1.1. The expression "amortisation", in
accountancy parlance is a general expression, which E
basically means the writing off of the cost of an asset over
a period of time. As a matter of usage, "depreciation" is
the expression used in relation to tangible assets,
... ., "depletion" to natural assets, which are subject to
exhaustion, for example, oil deposits or mineral deposits, F
and "amortisation" to intangible assets, such as, patents,
copyrights, trade marks etc. Thus, depreciation is a form
of amortisation. [Para 8) [688-F, G]
1.2. One of the working differences between the
depreciation and amortisation and the reason why the G
expression "depreciation" is used in relation to tangible
. '
man-made assets in preference to amortisation is that the
notion of depreciation is to write off 90% of the cost of
asset over its useful life either on a sliding scale system,
which is the written-down value method, which works on H
680 SUPREME COURT REPORTS [2008] 3 S. C.R.

A the reducing balance principle or on the straight-line
. • ,..

method - in which 90% 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 350 of the Income-
B 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. [Para 9] [689-A, 8, C, D]
c 1.3. 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
D 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 asset$ whereas
amortisation is generally used in the context of intangible
assets, such as, copyrights, patents, goodwill and
E capitalized costs. On the liability side also amortisation
takes place. On the liability side, amortisation is commonly
applied to deferred revenue items such as premium
income or subscription revenue and, therefore, in such
cases, it is recognised as income distribution over some • ~

F future period of time. Amortisation is a means by which
accountants apply the period concept in accrual-based
financial statements; income and expenses are recorded r
in the periods affected, rather than when the cash actually
changes hands as it would be inappropriate to expense
the entire cost of a facility in the year of its acquisition if
G
its life extends over several years just as it would be
equally wrong to expense fully an intangible asset only
in the first year. Intangible asset such as copyrights, patent
and goodwill can be of benefit to a business for many
' .
years, so the cost of accruing such an asset should be
H
MORIROKU UT INDIA (P) LTD. v. STATE OF U.P. ~J1
AND ORS.

spread over the entire time period that the company is A
likely to use the asset or generate revenue from it. The
term "amortisation" is also used in connection with loans.
The amortisation of a loan is the rate at which the principle
balance will be paid down over a period of time. Shorter
periods will have higher amounts amortised. Therefore, s
amortisation is the process of decreasing or accounting
.. ~ for an amount over a period of time. It is allocation of a
lump sum amount to different time periods, particularly
for loans and other forms of finances. Amortisation of
capital expenditures of certain assets under accounting c
rules, particularly intangible assets, is analogous to
depreciation. [Para 1O] [689-D, E, F, G; 690-A, B, C, D]
2.1. Section 4 of the Central Excise Act, 1944 Act
requires the Department to find out the real.value of the
excisable article. Excise law is a tax on value. This is the D
•~ most important distinction between the excise law and
the sales tax law. [Para 13] [691-G-H; 692-A]
2.2. Valuation is a matter of principle. Under Rule 3 of
the Excise Valuation Rules, 2000, the value of any
excisable goods has got to be determined for purposes E
of Section 4(1)(b). In other words, the value for the
purposes of Section 4(1)(b) has to be determined only in
accordance with the Excise Valuation Rules, 2000. Thus,
.. ~ the said Rules are limited and restricted in their application.
The concept of amortised cost is undoubtedly an F
accounting concept. However accounting for costs differs
according to the object and the purpose for which the
exercise is undertaken. The concept of depreciation
(amortisation) differs from enactment to enactment. When
excise law seeks to tax the value, the concept therein G
cannot be bodily lifted and incorporated in Section 3 of
the U.P. Trade Tax Act, 1948, which essentially deals with
.. • ascertainment of the price-structure depending upon the
negotiations between the parties. Moreover, the effect of
clause (ii) of Explanation 1 to Rule 6 of Excise Valuation H
682 SUPREME, COURT REPORTS [2008] 3 S.C.R.

A Rules, 2000 is that where any tools or dies or moulds are
supplied by the buyer free of charge or at a reduced costs
for use in connection with production of the goods, the
value apportioned as appropriate to such tools, moulds
etc., to the extent such value has not been included in the
B 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
i
.
c 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 B
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
0
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
E 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 production during their useful life. ~ '"
F Consequently, depending upon the expected useful life
and/or expected number of units likely to be produced,
value of tools, dies, moulds etc. supplied by the buyer/
customer free of charge to the appellant is to be
appropriately apportioned per unit of production. This is
G where the concept of amortisation comes in specifically
in Rule 6. The amount so apportioned is required to be
added to the price/transaction value as per clause (ii) of
Explanation 1 to Rule 6 read with Section 4(1 )(b). The ••
important thing to be noted is that this entire exercise of
H loading/adding to the transaction value is exclusively for
MORIROKU UT INDIA (P) LTD. v. STATE OF U.P. 683
AND ORS.

determination of assessable value for central excise A
purposes and to fulfill the requirement of Section 4 which
provides for measure for levy of excise duty. Rule 6 of
Excise Valuation Rules, 2000 creates the deeming fiction
only for the purposes of Section 4(1)(b) of the 1944 Act
and for laying down the measure for levy of excise duty. It 8
provides for items which constitute additional
consideration. There is no such provision in Section 3 of
the 1_948 Act. Therefore, one cannot borrow and
automatically apply the concept of amortised cost to
Section 3 of the 1948 Act. [Para 15] [693-E, F, G; 694-A to G; C
695-A, 8, C, D]
2.3. In Income-tax cases, tax is exigible on "real
income" which means the actual income received by or
which accrues to the assessee. In case of sales-tax, tax
is exigible on real price received or receivable by the D
dealer in respect of a sale. A dealer is entitled to frame his
price-structure in a manner conducive to the type of his
business or with a view to withstand the competition. In a
given case, cost may be more than the price. The dealer
may base his price-structure to give an incentive to his E
clients, agents, distributors etc., particularly if he is a
manufacturer. In such cases, his price-structure has to
be scrutinized by the Department under the sales-tax law
to find out the real sale-price receivable by him. There may
be cases where he is required to give a discount on
account of defect in quality or delay. The important thing F
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 G
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 H
684 SUPREME COURT REPORTS [2008] 3 S.C.R.

A 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
B 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 the sales-tax law.
c Even under the definition of turnover in Section 2(i) one
has to take into account only the aggregate amount for
which goods are bought or sold. It is this aggregate
amount which is taxable under Section 3 read with
Section 2(i) of the 1948 Act. [Para 16] [695-E, F, G;
D 696-A, B, C, D]
Union of India and Ors. v. Bombay Tyre International Ltd.
....
AIR 1984 SC 420; Mis Chhotabhai Jethabhai Patel and Co.
v. Union of India and Ors. AIR 1962 SC 1006; Delhi Electricity
Regulatory Commission v. BSES Yamuna Power Ltd. and Ors.
E (2007) 3 SCC 33 and CoC v. Ferodo India Pvt. Ltd. vide Civil
Appeal No. 8426/02 - referred to.
3. 1. The 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
..
F "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.
Section 3 inter alia provides that every dealer shall for
G 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
ua, which shall be determined in such manner as may be
prescribed.' Section 3-F provides for tax on transfer of right
'.
1-.j to use any goods or goods involved in execution of works
MORIROKU UT INDIA (P) LTD. v. STATE OF U.P. 685
AND ORS .
•
..+-'..

contract. The definition of "sale" in Section 2(h) is in two A
parts. The first part covers the normal sale and the second
part covers deemed sales. The present case concerns
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 B
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
c
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 D
.._...,
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. [Para 19] [699-E,
F, G; 700-A, 8, C, D] E
3.2. 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 F
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. Excise duty is a duty on
manufacture. The provisions relating to measure (Section G
4of1944 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 H
686 SUPREME COURT REPORTS [2008] 3 S.C.R.

A additions. Such deeming fictions and notional additions
..
•

in excise law are totally irrelevant for sales-tax purposes.
[Para 19) [700-D, E, F, G]
3.3. In the present case, moulds were manufactured
by the buyer/customer so that the auto components could
B 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. The "amortisation
cost" is notional in the sense that it is not the cost in the
C hands of the appellant. 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
D 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. [Para 20) [701-A, B, CJ
3.4. The High Court had erred in holding that the
E 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 to its customer,
M/s Honda Siel Cars India Ltd. [Para 21) [701-D, E]
F Ujagar Prints & Ors. v. Union of India & Ors. (1989) 3
sec 488 - relied on.
CIVILAPPELLATE JURISDICTION: Civil Appeal No.1709
of 2008.
G From the Judgment and Order dated 6.4.2007 of the High
Court of Judicature at Allahabad in C.M.W.P. (Tax) No. 13/2004
and C.M.W.P. No. 368/2005.
WITH
."
Civil Appeal No. 1710 of 2008
H
MORIROKU UT INDIA (P) LTD. v. STATE OF U.P. 687
AND ORS. [KAPADIA, J.]
A
'*-Jo
H.N. Salve, Bharat Ji Aggarwal, A.R. Madhav Rao, Alok A
Yadav, Manish Gaur, Monish Pandu and M.P. Devanath for the
Appellant.
S.K. Bagaria, Tarun Gulati, Praveen Kumar and Jaiveer
Shergill for the Intervenor.
B
Shail Kumar Dwivedi, AAG., Rakesh Dwivedi, Abhishek

. .. Chaudhary, S.P. Kesarwani, Shantanu Krishna, Manoj Kumar
Dwivedi and Gunnam Venkateswara Rao for the Respondents.
The Judgment of the Court was delivered by
c
KAPADIA, J. Leave granted in both the special leave
petitions.
Civil Appeal arising out of SLP(C) No. 8789/07:
[Moriroku UT India (P) Ltd. v. State of U.P. & Ors.]
D
,,._ 2. This civil appeal filed by M/s Moriroku UT India (P) Ltd.
is directed against judgment dated 6.4.2007 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 E
(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 F
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 G
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
H
688 SUPREME COURT REPORTS [2008] 3 S.C.R.

~
• ...
A 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
B 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
c 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
D
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.
E 7. A short question which arises for determination in this
civil appeal is: whether amortisation cost of toolings was
includible in the sale price of auto components as in the case of
excise duty under Central Excise Act, 1944? In other words,
whether the Department was right in equating sales tax to excise ~
•
F duty.
8. For deciding this case, we are required to consider the
concept of amortisation of costs. The expression "amortisation",
in accountancy parlance is a general expression, which basically
means the writing off of the cost of an asset over a period of
G time. As a matter of usage, "depreciation" is the expression
used in relation to tangible assets, "depletion" to natural assets,
which are subject to exhaustion, for example, oil deposits or
mineral deposits, an "amortisation" to intangible assets, such . ~

as, patents, copyrights, trade marks etc. Thus, depreciation is
'!'1 a form of amortisation. The Accounting Standard (AS 28) relating
MORIROKU UT INDIA (P) LTD. v. STATE OF U.P. 689
AND ORS. [KAPADIA, J.]
__.....,
to impairment of assets uses the following expression: A
"Depreciation (amortisation) is a systematic allocation of
the depreciable amount of an asset over its useful life."
9. One of the working differences between the depreciation
and amortisation and the reason why the expression B
"depreciation" is used in relation to tangible man-made assets
in preference to amortisation is that the notion of depreciation
...
... is to write off 90% of the cost of asset over its useful life either
on a sliding scale system, which is the written-down value
method, which works on the reducing balance principle or on c
the straight-line method - in which 90% 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
D
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 E
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 F
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 items such as premium
G
income or subscription revenue and, therefore, in such cases,
it is recognised as income distribution over some future period
of time. Amortisation is a means by which accountants apply
'(.
the period concept in accrual-based financial statements;
income and expenses are recorded in the periods affected,
H
690 SUPREME COURT REPORTS [2008) 3 S.C.R.

A rather than when the cash actually changes hands as it would
be inappropriate to expense the entire cost of a facility in the
.-
•

year of its acquisition if its life extends over several years just
as it would be equally wrong to expense fully an intangible asset
only in the first year. Intangible asset such as copyrights, patent
B and goodwill can be of benefit to a business for many years, s9
the cost of accruing such an asset should be spread over the
entire time period that the company is likely to use the asset or
generate revenue from it. The term "amortisation" is also used
..
in connection with loans. The amortisation of a loan is the rate
c at which the principle balance will be paid down over a period
of time. Shorter periods will have higher amounts amortised.
Therefore, amortisation is the process of decreasing or
accounting for an amount over a period of time. It is allocation
of a lump sum amount to different time periods, particularly for
loans and other forms of finances. Amortisation of capital
D
expenditures of certain assets under accounting rules,
particularly intangible assets, is analogous to depreciation. ...
11. Department, in this case, has sought to load amortised
cost of the moulds supplied by its customer to the sale price of
E auto components in the hands of the appellant herein. According
to the Department, under Section 4(1 }(a} of the 1944Act, value
has to be the normal price, which has to be the sole
consideration and if the price fixed is without consideration for
the moulds then, according to the Department, it cannot be said
F that price was sole consideration. In other words, according to • •
the Department, ifthe consideration for moulds is not taken into
account then under the excise law, price, which is the measure
of value, cannot be said to be the sole consideration. According
to the Department, in this case, price of auto components sold
by the appellant was fixed or to be fixed by inter se negotiations.
G
That, without the price of the moulds being taken into account,
the price of the finished product would not reflect the real
assessable value. According to the Department, without the
,Y
supply of moulds from its customer, final product could not be
made. By use of the moulds, the appellant was able to
H
MORIROKU UT INDIA (P) LTD. v. STATE OF U.P. 691
AND ORS. [KAPADIA, J.]
....• manufacture the auto components. Therefore, according to the A
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 B
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 c
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?
D
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 lays down the method for arriving at
the assessable value for levying excise duty. It refers to taxing
the value. Therefore, Section 3 of the 1944 Act is the charging
section which creates the liability to pay excise duty whereas E
Section 4 deals with assessment or quantification of liability ad
valorem. Under Section 4, duty of excise is chargeable with
reference to the value of excisable goods and "value" is defined
by Section 4. The price charged by the manufacturer on sale by
• " him represents the measure of that value, therefore, in the F
judgment of this Court in the case of Union of India and Ors.
v. Bombay Tyre International Ltd. reported in AIR 1984 SC
420 it has been held that under the excise law, prices and sale
are related concepts. In that judgment, it has been further
observed that "price" under the excise law has a definite G
connotation. That, the "value" of an excisable article has to be
computed with reference to the price charged by the
•, manufacturer, the computation being made in terms of Section
4. Therefore, Section 4 of the 1944 Act requires the Department
to find out the real value of the excisable article. As stated above, H
692 SUPREME COURT REPORTS [2008] 3 S.C.R.

A excise law is a tax on value. This is the most important distinction ~
between the excise law and the sales tax law.
14. In the case of M/s Chhotabhai Jethabhai Patel and
Co. v. Union of India and Ors. reported in AIR 1962 SC 1006
at p. 1018 this Court held that a duty of excise is a tax-levy on
B home-produced goods of a specified class or description, the
duty being calculated according to the quantity or value of the
goods and which duty is levied because of the event of ,.
manufacture which is unrelated to and which is not dependent •
on any commercial transaction. This observation indicates a
c vital difference between excise law and sales tax laws. In the
case of excise law, the taxable event is manufacture, which is
not related to commercial transaction. On the other hand,
commercial transaction is the basis of the price-structure in the
sales tax laws. In fact, the above observation of this Court in
D Chhotabhai Jethabhai Patel case (supra) has been explained
by this Court in Bombay Tyre (supra) by saying that levy of d
excise duty is on manufacture while levy of sales tax by its very
nature arises at the stage beyond manufacture, namely, the sale
of the article. In cases of captive consumption, Section 4(1 )(a)
E of the 1944 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
F goods" from Rule 6 of the Excise Valuation Rules, 2000. ~ •
Therefore, we quote hereinbelow 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
G 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.
H
MORIROKU UT INDIA (P) LTD. v. STATE OF U.P. 693
AND ORS. [KAPADIA, J.]
""4 Explanation - For removal of doubts, it is hereby clarified A
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 included in the B
price actually paid or payable, shall be treated to be the

.. ., amount of money value of additional consideration flowing
directly or indirectly from the buyer to the assessee in
relation to sale of the goods being valued and aggregated
accordingly, namely :- c
(i) value of materials, components, parts and similar
items relatable to such goods;

(ii) value of tools, dies, moulds, drawings, blue prints,
technical maps and charts and similar items used in
D
the production of such goods;
.....
(iii) ...
(iv)
15. As stated above, valuation is a matter of principle. E
Under Rule 3, the value of any excisable goods has got to be
determined for purposes of Section 4(1 )(b). In other words, the
value for the purposes of Section 4(1 )(b) has to be determined
only in accordance with the Excise Valuation Rules, 2000. Thus,
the said Rules are limited and restricted in their application. F
The concept of amortised cost is undoubtedly an accounting
concept. However, as held by this Court in the case of Delhi
Electricity Regulatory Commission v. BSES Yamuna
Power Ltd. and Ors. reported in (2007) 3 sec 33, accounting
for costs differs according to the object and the purpose for G
which the exercise is undertaken. The concept of depreciation
(amortisation) differs from enactment to enactment. In the above
judgment of this Court, in the case of Delhi Electricity
Regulatory Commission, this Court was concerned with
Electricity Act. The concept' of depreciation in that Act differs · H
694 SUPREME COURT REPORTS [2008] 3 S.C.R.

A from the Income-tax Act. Electricity taxation stands on a different
footing vis-a-vis corporate taxation. Therefore, this Court
observed that accounting for costs differs according to the object
and purpose for which the exercise is undertaken. Therefore,
when excise law seeks to tax the value, the concept therein
B cannot be bodily lifted and incorporated in Section 3 of the U .P.
Trade Tax Act, 1948, which essentially deals with ascertainment
of the price-structure depending upon the negotiations between
the parties. Moreover, the effect of clause (ii) of Explanation 1
..
to Rule 6 of Excise Valuation Rules, 2000 is that where any
C tools or dies or moulds are supplied by the buyer free of charge
or at a reduced costs for use in connection with production of
the goods, the value apportioned as appropriate to such 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
D 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
E 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 • •
F 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
G etc. have their own life span and will be used for estimated
production during their useful life. Consequently; depending upon
the expected useful life and/or expected number of units likely
to be produced, value of tools, dies, moulds etc. supplied by
the buyer/customer free of charge to the appellant is to be
H appropriately apportioned per unit of production. This is where
MORIROKU UT INDIA (P) LTD. v. STATE OF U.P. 695
AND ORS. [KAPADIA, J.]
·~
the concept of amortisation comes in specifically in Rule 6. The A
amount so apportioned is required to be added to the price/
transaction value as per clause (ii) of Explanation 1 to Rule 6
read with Section 4(1 )(b). The important thing to be noted is
that this entire exercise of loading/adding to the transaction value
is exclusively for determination of assessable value for central B
excise purposes and to fulfill the requirement of Section 4 which
.. <f provides for measure for levy of excise duty. To the same effect
is our judgment in the case of CoC v. Ferodo India Pvt. Ltd.
vide Civil Appeal No. 8426/02 under Rule 9(1)(c) of Customs

... . Valuation (Determination of price of Imported Goods) Rules, c
1988, which also refers to the addition of the cost of royalty
payment to the transaction value. Therefore, Rule 6 of Excise
Valuation Rules, 2000 creates the deeming fiction only for the
purposes of Section 4(1 )(b) of the 1944Act and for laying down
the measure for levy of excise duty. It provides for items which
D
..... constitute additional consideration. There is no such provision
in Section 3 of the 1948 Act. Therefore, one cannot borrow and
automatically apply the concept of amortised cost to Section 3
of the 1948 Act.
16. Before analyzing Section 3 of the 1948 Act, it is E
important to keep in mind that in Income-tax cases, tax is exigible
. on "real income" which means the actual income received by or
which accrues to the assessee. In case of sales-tax, tax is
~ <(
exigible on real price received or receivable by the dealer in
respect of a sale. A dealer is entitled to frame his price-structure F
in a manner conducive to the type of his business or with a view
to withstand the competition. In a given case, cost may be more
than the price. The dealer may base his price-structure to give
an incentive to his clients, agents, distributors etc., particularly
if he is a manufacturer. In such cases, his price-structure has to
G
be scrutinized by the Department under the sales-tax law to find

.'
out the real sale-price receivable by him. There may be cases
where he is required to give 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
H
696 SUPREME COURT REPORTS [2008] 3 S.C.R.

A 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
B 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.
c 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
D
in the sales-tax law. Even under the definition of turnover in -4•
Section 2(i) one has to take into account only the aggregate
amount for which goods are bought or sold. It is this aggregate
amount which is taxable under Section 3 read with Section 2(i)
of the 1948 Act.
E
17. We quote hereinbelow Section 3 and Section 2(i) of
the 1948 Act, which read as follows:
"3. Liability to tax under the Act.- (1) Subject to the
provisions of this Act, every dealer shall, for each • .
F assessment year, pay a tax at the rates provided by or
under Section 3-A or 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."
G
"2(i) 'Turnover' means the aggregate amount for which
goods are supplied or distributed by way of sale or are
sold, by a dealer, either directly or through another, on his '~
account or on account of others, whether for cash or
deferred payment or other valuable consideration:
H
MORIROKU UT INDIA (P) LTD. v. STATE OF U.P. 697
AND ORS. [KAPADIA, J.]

Explanation I.- Omitted. A
Explanation//.- Subject to such conditions and restrictions,
if any, as may be prescribed in this behalf:-
(i) the amount for which goods are sold or purchased
r shall include the price of the packing material in which B
they are packed, and any sums charged for anything
done by the dealer in respect of the goods sold, at
the time of or before the delivery thereof, other than,
cost of freight or delivery or cost of installation or the
amount realised as trade tax on sale or purchase of c
goods, when such cost or amount is separately
charged ;
(ii) any cash or other discount on the price allowed in
respect of any sale and any amount refunded in
respect of articles returned by customers shall not D
be included in the turnover; and
(iii) where for accommodating a particular customer, a
dealer obtains goods from another dealer and
immediately disposes of the same without profit to E
the customer, the sales in respect of such goods
shall be included in the turnover of the latter dealer
alone."
• • 18. We also quote hereinbelow Section 2(h) of the 1948
Act, which reads as follows: F
"(h) · 'Sale', with its grammatical variations and cognate
expressions, means any transfer of property in goods
(otherwise than by way of a mortgage, hypothecation,
charge or pledge) for cash or deferred payment or
other valuable consideration, and includes- G

.,
(i) a transfer, otherwise than in pursuance of a
contract of property in any goods for cash,
deferred payment or other valuable
consideration;
H
698 SUPREME COURT REPORTS [2008] 3 S.C.R.

•••
A (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;
B
(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;
c (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

D
(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
E consideration ;
Explanation 1.-A sale or purchase shall be deemed to
have taken place in the State,-
(i) in a case falling under sub-clause (ii) if the goods are
• ..
F in the State at the time of transfer of property in such
goods (whether as goods or in some other form) involved
in the execution of the works contract, notwithstanding
that the agreement for the works contract has been wholly
or in part entered into outside the State;
G
(ii) in a case falling under sub-clause (iv), if the goods are
used by the lessee within the State during any period,
,P
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.
H
•J

MORIROKU UT INDIA~)
LTD. v. STATE OF U.P. 699
AND ORS. [KAPADIA, J.]
~
Explanation 11.-Notwithstanding anything contained in A
" 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 agenl to his purchaser,
8
(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 c
(ii) .. to have purchased the goods at one rate and passed
them on to his principal at another rate; or
_.J
(iii) not to have accounted to his principal for the entire
.={ collection or deductions made by him, in the sales or D
• purchases effected by'him on behalf of his principal;
or
(iv) to have acted for a fictitious or non-existent principal."
19. UOP. Trade Tax Act, 1948 is a self-contained code for E
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 F
"" 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 G
the case maybe, which shall be determined in such manner as
may be prescribed. Section 3-F provides for tax on transfer of
-r, 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
H
700 SUPREME COURT REPORTS [2008) 3 S.C.R.

A 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
B 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
-
c 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
D '
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
E 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.
F 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
G 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.
. "

H
MORIROKU UT INDIA (P) LTD. v. STATE OF U.P. 701
AND ORS. [KAPADIA, J.]
(.
20. Before concluding, it may be clarified, that, in the A
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, B .
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 c
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.
D
21. Accordingly, we hold that the High Court had erred in
holding that the amortization cost calculated in terms of Rule $
of the Excise Valuation Rules; 2000 is includible in the sale price
of auto components sold by the appellant herein to its customer,
Mis Honda Siel Cars India Ltd.. E
22. Consequently, the impugned judgment is set aside and
the civil appeal filed by the assessee is allowed with no order
as to cost. ·
•• Civil Appeal arising out of SLP(C) No. 9259/07: F
[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 appeal G
is also allowed with no order as to costs.
B.B.B. Appeals allowed.

H