MORIROKU UT INDIA {P) LTD. versus STATE OF U.P. AND ORS.

Citation: [2008] 3 S.C.R. 678 · Decided: 03-03-2008 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed

Judgment (excerpt)

[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) 
B 
MARCH 3, 2008 
[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 
D sale price of auto components should be the same both for 
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 
E Honda Siel Cars India Ltd. - Held, No - Moulds were 
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 
H - s.35D. 
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 
·• 
on ground that the sale price of auto components should 
ti 
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,

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