Case Note & Summary
The judgment concerns two groups of Sales Tax References under the Bombay Sales Tax Act, 1959, involving M/s. Tata Johnson Controls Automotive Ltd. and M/s. Supreme Industries Ltd. The common question of law is whether development charges recovered by the assessees from their customers for making or rectifying moulds, which are used exclusively to manufacture the assessees' products, constitute a 'sale' and are thus subject to sales tax. The assessees manufacture products such as seating systems (Tata Johnson) and injection/extrusion films, radio accessories, etc. (Supreme Industries). For manufacturing these products, they develop or rectify moulds that remain in their possession and are not delivered to customers. However, they raise debit notes on customers for these development charges. The Sales Tax Tribunal held that such charges are taxable as sale of goods. The High Court analyzed the definition of 'sale' under the Bombay Sales Tax Act, 1959, and the Central Sales Tax Act, 1956, emphasizing that a sale requires transfer of property in goods. Since the moulds never leave the assessees' possession and are used solely for their own production, there is no transfer of property to the customers. The court distinguished between a sale of goods and a mere reimbursement of development costs. It held that the debit notes represent development charges, not consideration for sale of moulds. The court also noted that the moulds are capital assets of the assessees and not goods sold. Consequently, the court answered the question in favor of the assessees, holding that the development charges are not exigible to sales tax. The references were disposed of accordingly.
Headnote
A) Sales Tax - Development Charges - Moulds - Sections 2(28), 2(29) Bombay Sales Tax Act, 1959 - The issue was whether development charges recovered by the assessee from customers for making/rectifying moulds used exclusively for manufacturing the assessee's products constitute 'sale' - The court held that there is no transfer of property in the moulds as they remain with the assessee and are not delivered to customers; the debit notes raised are for development charges and not for sale of goods - Held that such charges are not exigible to sales tax (Paras 1-15).
Issue of Consideration
Whether the development charges recovered by the assessee from its customers for making/rectifying moulds used exclusively for manufacturing the assessee's products constitute 'sale' within the meaning of the Bombay Sales Tax Act, 1959 and the Central Sales Tax Act, 1956, and whether such charges are exigible to sales tax.
Final Decision
The High Court answered the question in favor of the assessees, holding that the development charges recovered for making/rectifying moulds do not constitute a 'sale' and are not exigible to sales tax under the Bombay Sales Tax Act, 1959 and the Central Sales Tax Act, 1956. The references were disposed of accordingly.
Law Points
- Development charges for moulds not constituting sale of goods
- No transfer of property in moulds
- Moulds remain property of manufacturer
- Debit notes for development charges not taxable as sale
Case Details
2017 LawText (BOM) (08) 51
Sales Tax Reference No. 42 of 2009, 43 of 2009, 46 of 2009, Sales Tax Reference (L) Nos. 58 of 2008, 74 of 2010, 75 of 2010, 54 of 2011
S.V. Gangapurwala, G.S. Kulkarni
Mr. Pradeep S. Jetly for applicant in STR Nos.42/2009, 43/2009 and 46/2009; Mr. B.B. Sharma, Spl. Counsel a/w. Mr. Dushyant Kumar and Ms. Jyoti Chavan for Respondent in STR No.42/2009; Mr. V.A. Sonpal, Spl. Counsel for Respondent in STR No.43/2009 and STR No.46/2009; Mrs. Nikita Badheka for applicant in STR(L) No.58/08, 74/10, 75/10 and 54/11; Mr. B.B. Sharma, Spl. Counsel a/w Mr. Dushyant Kumar and Ms. Jyoti Chavan, AGP for respondent State
M/s. Tata Johnson Controls Automotive Limited, M/s. Tata Auto Plastic Systems Limited, Supreme Industries Ltd.
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Nature of Litigation
Sales Tax References under the Bombay Sales Tax Act, 1959, seeking opinion of the High Court on a question of law arising from orders of the Sales Tax Tribunal.
Remedy Sought
The applicants (assessees) sought a declaration that development charges recovered from customers for making/rectifying moulds are not subject to sales tax.
Filing Reason
The Sales Tax Tribunal held that development charges for moulds constitute sale of goods and are taxable; the assessees challenged this by way of references to the High Court.
Previous Decisions
The Sales Tax Tribunal decided against the assessees, holding that the development charges are taxable as sale of goods.
Issues
Whether development charges recovered by the assessee from its customers for making/rectifying moulds used exclusively for manufacturing the assessee's products constitute 'sale' within the meaning of the Bombay Sales Tax Act, 1959 and the Central Sales Tax Act, 1956.
Whether such development charges are exigible to sales tax.
Submissions/Arguments
The assessees argued that there is no transfer of property in the moulds as they remain with the assessee and are not delivered to customers; the debit notes are for development charges, not sale of goods.
The respondent State argued that the development charges represent consideration for the moulds and thus constitute a sale.
Ratio Decidendi
A sale requires transfer of property in goods. Since the moulds remain with the assessee and are not delivered to customers, there is no transfer of property. The debit notes represent development charges, not consideration for sale of goods. Hence, such charges are not taxable as sale.
Judgment Excerpts
The said moulds remain with the applicant and are not delivered to the customers.
However, the applicant raises debit notes to the customers for making / rectifying the moulds used for making the components as development charges.
Save and except the difference in the product manufactured by the assessee, the facts are similar.
Procedural History
The Sales Tax Tribunal decided against the assessees, holding development charges taxable. The assessees filed Sales Tax References under the Bombay Sales Tax Act, 1959, to the High Court. The High Court heard all references together and delivered a common judgment on 3 August 2017.
Acts & Sections
- Bombay Sales Tax Act, 1959: 2(28), 2(29)
- Central Sales Tax Act, 1956:
