Sales Tax :–
Liability towards, in respect of the free replacement of defective parts in motor vehicles, during the period of warranty – Appellant, dealer of Tata Motors – Warranty is given to the purchaser for free replacement of defective parts, during the period of warranty – To facilitate this, the dealer is obliged to keep a stock of spare parts – Sales tax is paid on the stock of spare parts so purchased from Tata Motors – Defective parts are sent back by the dealer to Tata Motors and credit note may be given by Tata Motors for the said parts – Plea of Revenue that sales tax is liable to be paid even qua the return of the spare parts, as credit note is given to the dealer for the same – Assessment order and appeal went against the appellant – Tribunal held in favour of the appellant – High Court set aside the order and restored the order of the assessing authority – Held: Judgment in Mohd. Ekram Khan & Sons case refers to the credit notes received as consideration for the replacement; but the moot point is whether credit notes can be treated as a mode of payment or not – Issue raised, as to whether, in the case of warranty for the supply of free spare parts; once the replacement is made, and the defective part is returned to the manufacturer, sales tax would be payable on such a transaction, based on a credit note, which may be issued for the said purpose, required to be looked into by a larger Bench – Papers be placed before Hon’ble the Chief Justice for necessary action.
Referring the matter to larger Bench, the Court HELD : 1.1 The crucial point which would arise for consideration, and over which the matter needs to be debated, is as to whether, in the case of such a warranty for the supply of free spare parts; once the replacement is made, and the defective part is returned to the manufacturer, sales tax would be payable on such a transaction relating to the spare part, based on a credit note, which may be issued for the said purpose. The issue raised is required to be looked into by a larger Bench. This is in the context of the observations regarding the price of the car being inclusive of the cost of the spare parts, the latter being supplied for free, upon replacement. Sales tax on the car is paid. Sales tax on the inventory purchased by the dealer is paid. Thus, if there is no consideration for these replaced parts, can sales tax be levied at all? The judgment in the Mohd. Ekram Khan & Sons case refers to the credit notes received as consideration for the replacement; but it is a moot point whether credit notes can be treated as a mode of payment or not. The judgment in Premier Automobiles Ltd. & Anr. Etc. case is stated to contain a different factual situation, as per the observations in the Mohd. Ekram Khan & Sons case. There are observations, again in the Mohd. Ekram Khan & Sons case, of the possibility of the manufacturer having purchased, from open markets, the parts for replacement, on which taxes would be paid. In that context, it was observed that “the position is not different because the assessee had supplied the parts and received the price.” The assessee actually had purchased the parts and paid sales tax on it, but on return of the defective part, was given a credit note. There are some reservations in respect of the observations and legal propositions laid down in the Mohd. Ekram Khan & Sons case and it is considered appropriate that the matter be considered by a larger Bench. The papers be placed before Hon’ble the Chief Justice for necessary orders. [Paras 20-22][843-E-H; 844-A-C] Mohd. Ekram Khan & Sons v. Commissioner of Trade Tax, U.P., Lucknow (2004) 6 SCC 183 : [2004] 3 Suppl. SCR 116 ; Premier Automobiles Ltd. & Anr. Etc. v. Union of India : [1972] 2 SCR 526 ; Commissioner of Sales Tax v. M/s. Prem Nath Motors (P) Ltd. : ILR (1978) II Delhi 273 ; Prem Motors v. Commissioner of Sales Tax, Madhya Pradesh (1986) 61 STC 244 (MP Division
Bench) : Geo Motors v. State of Kerala (2001) 122 STC
285 (Kerala Division Bench) : Commercial Tax Officer (Anti-Evasion), Jodhpur v. Marudhara Motors (2010)
29 VST 114 (Raj) : Navnit Motors Pvt. Ltd. v. State of Maharashtra (2012) 47 VST 511 (Bom) ; Kataria
Automobiles (P.) Ltd. v. State of Gujarat (2015) 51 GST
403 (Gujarat) ; The Commissioner, Commercial Tax, Lko. v. S/S Maskat Motors Pvt. Ltd. (2017) 102 VST 220 (All) ; Bharat Heavy Electricals Ltd. v. Commissioner of Customs & Central Excise, Indore (2003) 9 SCC 185 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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