TMI Blog1995 (2) TMI 369X X X X Extracts X X X X X X X X Extracts X X X X ..... yre is found to be defective. He returns it to the selling dealer. The dealer examines it and allows the purchaser to buy a second new tyre at a reduced price which is less than the normal catalogue price and he collects sales tax from the purchaser on the reduced price which is collected at the time of sale of the second tyre. 2.. In Vikrant Tyres Ltd. RN-291 of 1992, the case of Revenue authorities, who are the applicants, is that at the time of assessment for the period of 12 months ending March 31, 1982, it was submitted by the dealer before the assessing authority that a sum of Rs. 1,26,149.80 was deducted from gross turnover, because it represented "replacement loss" in the above circumstances. But the assessing authority was not satisfied. In view of the facts that no warranty clause was there in the contract of sale and no time-limit was prescribed for such replacement, the part of the normal price uncollected from the purchaser was treated as an "ex gratia allowance" and, therefore, he imposed tax on the said part of the normal price. An appeal was unsuccessfully preferred by the company before the Assistant Commissioner of Commercial Taxes who dismissed it by his order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the West Bengal Commercial Taxes Tribunal. The dispute arose out of a similar assessment for the period of 12 months ending December 31, 1981. That assessment order was confirmed in an appeal by the Assistant Commissioner by his order dated November 23, 1987 and also by the Tribunal below by its revisional order dated June 2, 1994. In RN-162, it is contended, in addition to the case taken in RN-291 of 1992, that there is nothing in the definitions of "sale price " and "turnover" for allowing deduction by way of compensation or ex gratia allowance, and thus, it was permissible to make addition of the left out part of the normal price to the gross turnover. The transaction is also described as repurchase of the first tyre and reimbursement by the second new one. In RN-163, the Revenue authorities have claimed, in addition to other points already mentioned, that the assessing authority has a duty to correctly determine the consideration charged or chargeable by the seller, where it has not been correctly or truly declared. The second sale is allegedly unconnected with the first one, because if any refund was made, it was made although not in cash, but in relation to the first sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and causes it to be examined by qualified service engineers. If the report is to the effect that the tyre suffers from a manufacturing defect, unused portion of its normal life is ascertained by experts in accordance with a table and a ready reckoner, and then a new tyre or tube is offered at a reduced price and sales tax, etc., thereon. If the buyer agrees, a second new tyre is supplied to him at the reduced price and sales tax thereon. The sales tax returns and the account of sales of MRF did not show the replacement loss. The correct and actual turnover was shown in the returns and the accounts. The Revenue authorities allegedly have got no jurisdiction to question why MRF is charging a reduced money consideration for the sale of second tyre and could not add the replacement loss to the gross turnover. The invoice or sale bills showed correct money consideration received from the buyers and the Revenue authorities cannot question or alter the money considerations actually charged. MRF also filed an affidavit-in-reply. Identical is the case of CEAT Ltd., in RN-163 of 1994. 6.. The assessing authorities held, in course of impugned assessment orders in respect of Vikrant Tyres, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... catalogue price. The seller had the liberty to charge a reduced price. In fact, in some cases no price was at all charged for the supply of second tyre, where the first defective tyre was returned very soon after the first sale. (iii) The offer of the second tyre against return of the first defective tyre and at a reduced price was optional to the buyer, who might accept or refuse the offer. (iv) He distinguished (1987) 27 ELT 553 (SC); AIR 1987 SC 701 (Assistant Collector of Central Excise v. Madras Rubber Factory Ltd.), the second McDowell case [1985] 59 STC 277 (SC) and [1964] 15 STC 367 (Guj) (Ambica Mills Ltd. v. State of Gujarat). (v) A commercial person is required to take a commercial decision and in doing so, he was not violating any law in offering a second tyre to the buyer at a reduced price in the circumstances of the first tyre found to be defective. Since only the reduced amount was received as money consideration or sale price, as defined in the 1954 Act, the portion of catalogue price not charged, cannot be taken into account for arriving at gross turnover for the purpose of sales tax. (vi) Reliance was placed on [1988] 68 STC 53 (Raj) (Commercial Taxes Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sales Tax (Law) v. Motor Industries Co.] and it was submitted that it was not a case of refund but was a case of ex gratia amount as compensation. (v) It was submitted that replacement cases given entirely free of cost were not brought to the notice of the assessing authority. (vi) The two sales are independent of each other. By referring to paragraph 5 at page 5 of the application of MRF it was submitted that it was an adjustment award. By referring to the terms and conditions of sale on the reverse of the invoices, it was submitted that it was a case of ex gratia allowance or compensation and not a replacement sale, as the first tyre was reduced to scrap for investigating manufacturing defect. (vii) [1988] 68 STC 53 (Raj) (Commercial Taxes Officer v. Ceat Tyres of India) and [1993] 88 STC 408 (Orissa) (State of Orissa v. Firestone Tyres Rubber Company of India Ltd.) were distinguished. 11.. The sum and substance of the contentions of Revenue are that the sellers (who are also manufacturers) had absolved themselves of the legal obligation arising out of a warranty for sale of goods and hence the remission in the sale price of the second article was an ex gratia allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly relevant, the definition of "turnover" in clause (e) of section 2 of the 1954 Act is as follows: "'turnover' used in relation to any period means the aggregate of the sale prices or parts of sale prices receivable by a dealer or, if a dealer so elects, actually received by the dealer during such period." So, whether receivable or actually received, "turnover" is the aggregate of sale prices. Now, according to clause (d) of section 2 of the 1954 Act: "'Sale price' used in relation to a dealer means the amount of the money consideration for the sale.......". Hence, sale price is nothing but clearly the money consideration for the sales. In view of this definition of "sale price" in the 1954 Act, we cannot hold that the uncollected part of normal catalogue price of the second tyre can be a component of sale price or can be included in the dealer's gross turnover. It is to be noted that the contract of sale of the second tyre was entered at the reduced price only. So, whether we call the reduced portion of catalogue price as ex gratia allowance or compensation or anything else, it cannot form part of the sale price. 14.. Assuming that in the disputed transactions, reductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tyres (annexure pages 37 to 40). The gist of the same is that the company expressly excluded all conditions and warranties and repudiated all claims of damages, but reserved the right to consider claims and offer an "ex gratia" allowance in its absolute discretion, when a defective article is returned in accordance with the stated procedure. These terms and conditions of sale clearly do not constitute either an express warranty under section 12(3) or an implied warranty under section 14 of the 1930 Act. And, in any case, implied liability was expressly excluded by the terms of the contracts of sale in these cases in accordance with section 62 of the 1930 Act. So, no claim of damages or compensation can be lawfully made by the buyer. Therefore, the amount reduced from catalogue price of the second article can by no means be called legal damages or compensation, although in the words of the Supreme Court in (1987) 27 ELT 553 (SC) (Assistant Collector of Central Excise v. Madras Rubber Factory Ltd.) at page 560, it is "in the nature of a benefit given to the customers by way of compensation for the loss suffered by them in the previous sale". There is obviously a distinction between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the question of correct valuation of goods for the purpose of Central excise duty. Reduction in price of this nature was held to be not a trade discount on the second tyre sold. But, the criteria for determining the assessable value for the purpose of Central excise duty are different from those for determining the money consideration for the purpose of sales tax under the 1954 Act. Therefore, the Revenue cannot derive any true benefit from this decision. Nor does the second case of McDowell Co. [1985] 59 STC 277 (SC) help the Revenue in any manner. It was held there that, where the excise duty was paid by the buyer separately and directly to the excise authorities under an arrangement between the manufacturer and the buyer, although under the relevant rule as amended in 1981, the liability for payment of the same was that of the manufacturer, it was a part of the consideration for sale and should be included in the manufacturer's turnover for determining its liability for sales tax under the Andhra Pradesh General Sales Tax Act, 1957. Thus, in that case, payment of excise duty was nothing but payment made to the seller, because the buyer paid it on behalf of the latter. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the sale price agreed to in the contracts and if the assessee gave remissions therefrom and received lesser than the contracted amounts, they would not be entitled to have their turnover calculated on the basis of the contract price less the remissions. But, here, the contract price was the reduced price which was lesser than catalogue price. As the contract of sale was entered on the basis of the reduced price, that price alone should be taken into account for calculating the turnover of the selling dealers. 20.. In the result, the application in RN-291 of 1992 filed by the Revenue authorities is dismissed. We confirm the impugned order dated December 20, 1991, passed by the learned single Member of the West Bengal Commercial Taxes Tribunal in revision case No. 134/54 of 1986-87. The applications in RN-162 and RN-163 of 1994 filed by MRF Ltd., and CEAT Ltd., respectively are allowed. The assessment order under the 1954 Act in respect of MRF Ltd. for the period of 12 months ending September 30, 1981, is modified, and the appellate order dated April 30, 1987, passed by the Assistant Commissioner and the revisional order dated June 2, 1994, passed by the learned Division Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X
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