TMI Blog1978 (5) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of section 2(g) of the Act, the purchase price of the parts purchased on the strength of certificate of registration free of cost or purchased at the concessional rate of tax under the Central Sales Tax Act, 1956, on furnishing C form, is liable to be added to the taxable turnover of the purchasing dealer under the provisions of the second proviso to clause (ii) of sub-section (2) of section 5 of the Bengal Finance (Sales Tax) Act, 1941, as in force in Delhi?" The respondent herein M/s. Prem Nath Motors (P.) Ltd. (hereinafter referred to as the "dealer"), is registered as a dealer under the Sales Tax Act. It carries on the business of sale of motor cars, their spare parts and their accessories. For the period of assessment 1964-65, the dealer was assessed to sales tax by an order under section 11(1) of the Sales Tax Act dated 30th August, 1968. During the aforesaid period of assessment, the dealer purchased spare parts of motor vehicles locally on the strength of the registration certificate free of sales tax under the Sales Tax Act. It also purchased spare parts of motor vehicles at concessional rate of tax furnishing form C prescribed under section 8 of the Central Sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsumers. It was also pointed out that according to the warranty as between the dealer and the buyers-consumers, it applied to two periods, viz., (i) predelivery period and (ii) post delivery period. It was explained that in the pre-delivery period, if the dealer feels that any part of the car which is to be supplied to any buyer-consumer needs replacement, it is automatically done by the company and no price extra is charged by the company, and hence the question of any sale having been effected does not arise. As regards the post delivery period, it was explained that, in that period, when it is brought to the notice of the dealer by any buyer-consumer that any part or parts of the car needs replacements and the dealer is satisfied with the claim of the buyer-consumer, the dealer is obliged, under the terms of the warranty, to replace it without making any charge from the buyer-consumer. It was contended that even if, for the sake of argument, such replacement was considered to be covered by the definition of the term "sale" as given in the Sales Tax Act, the question would be as to what would be the "sale price" of such a part replaced by the dealer, as no price was actually cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e replacement of parts as a consequence of the terms and stipulations of the warranty must be deemed to be a continuation of the original sale, the price of which stood included in the consolidated sale price determined and realised at the time of the transfer of goods in the shape of the car with a warranty. The Financial Commissioner also held that the parts supplied in replacement, free of cost, by the dealer, in terms of the warranty, are sold along with the car for which a consolidated price was realised at the time of the initial transfer and on which sales tax was paid, and the replacement of the parts would be deemed to be a "sale" not liable to imposition of further sales tax. The Commissioner of Sales Tax, thereupon, filed an application before the Lt. Governor under section 21 of the Sales Tax Act praying that the two questions which we have set out earlier in this judgment be referred to this Court. The said questions have since been referred by the Lt. Governor. The precise questions that arise for consideration are as to whether the transfer of the parts replaced in pursuance of the warranty clause amounts to "sale" within the meaning of section 2(g) of the Sales Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers or which has been subject to negligence, accident, improper use or alterations whatsoever. The company reserves the right to repair defective parts under warranty instead of replacing them whenever, in the company's opinion, such repairs can be satisfactorily carried out. Warranty adjustments will only be made when necessary repairs of parts involved are handled through an authorised dealer of the company. The warranty shall not apply to any particular assembly or components of the vehicle in or to which any part not manufactured and/or sold by Premier Automobiles Limited has been affixed, so as to, in the company's judgment, affect its suitability or reliability." The relevant portion of the warranty as between the dealer and the buyer-consumer, as set out in the order of the Deputy Commissioner, reads as follows: "During this period you will not be charged for Fiat replacement parts required because of defective material or workmanship or for labour required to instal these parts. This warranty will not apply. 1.. If parts and/or labour are required due to negligence, accident or improper use. 2.. If you have your car repaired by other than an authorised dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract as repudiated, while a breach of a warranty gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. A perusal of the warranty between the dealer and the buyer/consumer set out above shows that there was no stipulation empowering the buyer/consumer to reject the car and repudiate the contract if any of the parts is found to be defective. The stipulation was only that the dealer will replace the defective part/parts, free of cost. It is thus clearly a warranty and not a condition. Now, the warranty was to replace the defective part or parts free of cost. When a part is replaced in accordance with the stipulation or warranty, it becomes a part of the car and the property in it stands transferred to the buyer/consumer. No separate consideration for the part so transferred is specified. No dealer can reasonably be expected to enter into such a stipulation or warranty which might result in the transfer of the property in the part or parts replaced without consideration for the transfer. In the circumstances, the only reasonable inference is that the consideration for the part or parts that might be replaced under the warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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