TMI Blog2009 (3) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... ty because as far as interest is concerned the same is consequential to levy of tax which falls to the ground for the aforesaid reasons and penalty also because same in any case could not have been imposed as all the transactions were duly recorded in the regular books of account and, therefore, the same do not attract any penalty under section 65 of the Act. The question relating to power of assessing authority to invoke section 30 of the Act for reassessment as there was no escapement of turnover is also thus answered in favour of the respondent-assessee and against the Revenue. - - - - - Dated:- 16-3-2009 - VINEET KOTHARI DR. , J. Dr. VINEET KOTHARI J. These revision petitions have been filed by the Revenue under section 86 of the Rajasthan Sales Tax Act, 1994 (hereinafter referred to as, the Act of 1994 ) being aggrieved by the order of the Rajasthan Tax Board, Ajmer dated June 18, 2007, whereby, the Tax Board decided a batch of six appeals filed by the assessee and another batch of six appeals filed by the Revenue. These cross-appeals arose out of the order of first appellate authority Deputy Commissioner (Appeals), Jodhpur, dated July 22, 2006, whereby, the Deputy C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of the Supreme Court decision in the case of Mohd. Ekram case [2004] 136 STC 515; [2004] 6 SCC 183; AIR 2004 SC 3965 and Tax Board has fallen into error in setting aside such levy of tax distinguishing the case of the assessee from the one involved before the Supreme Court in Mohd. Ekram case [2004] 136 STC 515; [2004] 6 SCC 183; AIR 2004 SC 3965 and, therefore, revision petitions filed by the Revenue deserve to be allowed and such levy of tax deserves to be restored along with interest and penalty imposed by the assessing authority, which was wrongly set aside by the first appellate authority as well as Tax Board. He emphatically relied upon the decision of the Supreme Court in case of Mohd. Ekram [2004] 136 STC 515; [2004] 6 SCC 183; AIR 2004 SC 3965. Per contra, Mr. R.P. Bhatt, senior advocate assisted by Mr. Vikas Balia submitted that the judgment of the Supreme Court in Mohd. Ekram's case [2004] 136 STC 515; [2004] 6 SCC 183; AIR 2004 SC 3965 was not applicable to the facts of the present case and, therefore, the Tax Board was perfectly justified in setting aside the levy of tax as well as interest and penalty. Learned counsel for the assessee submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relationship Tata Motors sells vehicles and spare parts to Marudhara Motors by charging Central sales tax against C form. (c) Thereafter Marudhara Motors is free to sell these products to customers/vehicle users through its own invoice collecting local sales tax at a price not exceeding maximum price prescribed by the manufacturer, but under the warranty, if some parts have gone defective, such parts are replaced free of cost to the customers to avoid delay in first securing such parts from the manufacturer M/s. Tata Motors and replacing the same. (d) While selling vehicle manufacturer also sells a warranty bundled along with the vehicle taking upon itself certain obligations about product quality and service. These obligations are subject to a contract the terms of which are given in service manual. (e) Dealer gets the title to vehicle and the warranty bundled with it at the time of purchase of vehicle, which he passes on at the time of selling to the ultimate customer whereby the primary obligation of fulfilling warranty obligation as per the terms contained in the service manual terms rests with the manufacturer. (f) In order to discharge its warranty obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the assessee-dealer and manufacturer, M/s. TATA Motors. The same are also noted below to explain the accounting part of the transactions in question: In the books of dealer, M/s. Marudhara Motors (i) Vehicle Purchase Account To Tata Motors (vehicle purchase) (vehicle purchased through Inv. No. . . . dated. . . . .) Dr. (ii) Tata Motors (Vehicle Purchase) To bank (Amount remitted to Tata Motors for vehicle purchased) Dr. (iii) Tata Motors (parts A/c.) To bank (Money remitted to Tata Motors for supply of parts) Dr. (iv) Parts purchase A/c. To Tata Motors (Parts A/c.) (parts purchased through BN . . . . . . dated . . . . for Rs. . . . . . . .) Dr. (v) Tata Motors (relevant A/c.) To purchase return A/c. (Being return of defective part/s or vehicle) Dr. Tata Motors issues a credit note to confirm the above debit entry and credits the proceed to parts/vehicle account as the case may be. In the books of customers The accounting entries in the books of the customer's account is as under: (i) Vehicle purchase account To Marudhara Motors A/c. (Vehicle purchased through Bill No. . . . . dated . . . . for Rs. . . . . from . . . . . including RST) Dr. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e either replaced by the manufacturer-company or the manufacturer instead, reimburses the same in the form of credit notes issued by the manufacturer in favour of the respondent-assessee and, therefore, since no property in goods is transferred by the assessee-dealer in favour of the manufacturer from whom the replacement is made or for which reimbursement is received in the form of credit notes, no taxable sale of such spare parts can be said to have taken place. The learned counsel also drew the attention of the court towards the following warranty clause in the owner's manual of the vehicles issued by the manufacturer, M/s. Tata Motors. The same is also reproduced for ready reference: We warrant each Tata Indicab car and parts thereof manufactured by us to be free from defect in material and workmanship subject to the following terms and conditions: 1.. This warranty shall be for 18 months from the date of sale of the car irrespective of the distance covered. However, for the cars used for commercial applications (used for hire or reward, viz., those operating with a yellow number plate), the warranty shall be limited to 18 months or 50,000 kms., whichever occurs e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain price as the parts were supplied by the assessee to the customers. Credit notes were issued by the manufacturer to the assessee in respect of the price of the parts supplied to the customers. The assessing officer was of the view that the payments received through credit notes amounted to a sale in terms of section 2(h) of the Act. . . In para No. 5 of the judgment, the honourable court noticed the contention of the Revenue in the following terms: In response, learned counsel for the Revenue submitted that the transaction between the assessee and the manufacturer was a separate transaction. It is not the case of the assessee that the manufacturer had supplied the goods to the customers. If it had supplied parts to the customers through assessee the position may have been different. (In the present case it is so). The manufacturer was obligated to make the replacement. If it did not possess the parts to meet the contractual obligation, it would have purchased the parts from any seller of the parts and would have paid the sales tax. In the instant case, the assessee had supplied the goods for which it received the consideration by way of credit notes and/or other mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay have purchased from the open market parts for the purpose of replacement of the defective parts. For such transactions, it would have paid taxes. The position is not different because the assessee had supplied the parts and had received the price. The categorical factual finding recorded by the taxing authorities and the High Court is that the assessee had received the payment of the price for the parts supplied to customers. (Here in the present case there is no such finding by the Revenue authority). That being so, the transaction was subject to levy of tax as has been rightly held by the High Court. The decisions in Geo Motor's case [2001] 122 STC 285 (Ker) and Prem Motor's case [1986] 61 STC 244 (MP) stand overruled. It is also considered appropriate to now notice the observations of the honourable Supreme Court in a three-judge Bench decision in the case of Premier Automobiles Ltd. v. Union of India AIR 1972 SC 1690. The context in which the said case arose before the honourable Supreme Court was the fixation of fair price of motor cars under the provisions of the Motor Car (Distribution and Sale) Control (Amendment) Order, 1969 promulgated under section 18G of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Pursuant to the recommendation of this Committee an order was promulgated by the Central Government in March 1968 under section 16 of the Act which was to the following effect: 'The warranty with which cars are sold shall be uniformly valid for a period of 12 months or a distance covered of 16,000 kms., whichever occurs earlier. All defects due to faulty manufacture of workmanship shall be rectified and defective parts replaced during this period without passing any part of the burden including incidental charges to the customer'. The effect of the above direction cannot be ignored although it may not be conclusive in the matter of fixing a fair price. We find the statement of the Commission unexceptionable that if the warranty is to be made out of the profits every manufacturer will try to minimise warranty cost by improving the quality of his product. If it is to be included in the ex-works cost it means virtually passing it on to the consumer. As was noticed by the apex court in the case of Mohd. Ekram [2004] 136 STC 515; [2004] 6 SCC 183; AIR 2004 SC 3965 itself that the judgments relied upon by the counsel for the assessee of three different High Courts suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondition. The warranty is the warranty from the manufacturer and therefore if during the warranty period any part is found to be defective and is to be replaced, the responsibility of replacement is that of the manufacturer. For the convenience of the customer, there is an arrangement between the manufacturer and the dealer so that the customer may get replacement done from the dealer which in due course is again made good by the manufacturer. Under those circumstances, when the dealer-assessee replaces parts to the customers and either gets those parts from the manufacturer or gets it reimbursed, it is neither sale of those parts by the dealer to the customer or to the manufacturer. What the dealer does only is to pass on the parts from the manufacturer to the customer but in order to avoid delay and inconvenience of the customer, he replaces the parts first and gets them from the manufacturer later. The pre-delivery charges incurred for damages in transit are also practically of the same type. Therefore, those transactions when the dealer-assessee gets reimbursements in respect of parts supplied during the warranty period or gets parts from the manufacturer supplied during the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 SCC 183; AIR 2004 SC 3965 would not apply to matters which were either pending before statutory authorities or the Appellate Tribunal or even the High Court merely because they related to assessment years prior to the date of the judgment of the Supreme Court, i.e., prior to July 21, 2004. Therefore, that portion of G.O. Ms. No. 144 dated February 11, 2008 wherein it was so declared was void and unenforceable. . . The Bench was not considering the question whether Mohd. Ekram's case [2004] 136 STC 515; [2004] 6 SCC 183; AIR 2004 SC 3965 was at all applicable to the facts of particular case or not, but was called upon to decide the validity of Government order dated February 11, 2009, as aforesaid. From the dispassionate and closer consideration of the material on record, it appears to this court that facts of the present case obtaining in the case of respondent-assessee dealer are distinguishable from the facts obtaining in Mohd. Ekram's case [2004] 136 STC 515; [2004] 6 SCC 183; AIR 2004 SC 3965 before the honourable Supreme Court, therefore, the said judgment of apex court in Mohd. Ekram's case [2004] 136 STC 515; [2004] 6 SCC 183; AIR 2004 SC 3965 could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half of the respondent-dealer. Since title of property in goods, namely, spare parts passes from the hands of respondent-assessee to the customer free of cost and such title of property in spare parts does not pass from assessee-dealer to the manufacturer, no taxable sale can be said to have taken place in the hands of the respondent-assessee at all. Whenever assessee dealer sells such spare parts to other customers who are not getting defective parts replaced under the warranty, the assessee is collecting due RST or local tax, as these parts were purchased by it from the manufacturer under independent contract after paying due CST, but when such parts are replaced under warranty, they are supplied free of cost to the customers and thus no sale in such cases can be said to have taken place at the hands of the assessee. In other words, where there is supply of spare parts to the customer by the dealer there is no consideration passing as it is free of cost and where such consideration or payment is being received by the dealer from the manufacturer in the form of credit notes in discharge of manufacturer's warranty obligations, there is no transfer of property in goods, vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Supreme Court judgment in Premier Automobiles case AIR 1972 SC 1690 appears to support the case of the assessee whereas the later decision in Mohd. Ekram's case [2004] 136 STC 515 (SC); [2004] 6 SCC 183; AIR 2004 SC 3965 on aforesaid three counts appears to be distinguishable from the facts of the present case. This court draws guidance and strength on the aforesaid character of sale and different components to converge in order to levy tax on that, from the recent decision of the honourable Supreme Court in the case of State of Rajasthan v. Rajasthan Chemists Association [2006] 147 STC 542; [2006] 6 SCC 773 from which relevant paras including reference to earlier leading judgments from apex court are quoted hereunder extensively: 10. Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash [1954] 5 STC 193 (SC); AIR 1954 SC 459 arose under the U.P. Sales Tax Act, 1948. In that case the issue related to levy of tax by the assessing authority on the turnover relating to forward contract. The assessee had challenged that the imposition of sales tax on forward contracts was ultra vires the powers of the State Legislature. The U.P. Sales Tax Act, 1948 had been enacted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the Constitution. The case arose under the Madras General Sales Tax Act, 1939 as amended by the Madras General Sales Tax (Amendment) Act, 1947. The definition of 'sale' in section 2(h) was enlarged so as to include 'a transfer of property in goods involved in execution of works contract'. By creating a legal fiction, it was deemed that in execution of a work, property in the goods involved in works contract is transferred as goods so as to include value (not the price) of such goods as part of taxable turnover. 15.. After referring to the definition of expression 'sale of goods' from the times of Roman Law and the Law in England, this court culled out and approved the following principle stated in Benjamin's book 'Sale of Goods': 'Hence it follows that, to constitute a valid sale, there must be a concurrence of the following elements, viz., (1) the parties competent to contract; (2) mutual assent; (3) a thing the absolute or general property in which is transferred from the seller to the buyer; and (4) a price in money paid or promised'. 16.. On the aforesaid premises, the court on considering the Indian Law and after ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales Tax Officer, Bhopal Region, Bhopal [1963] 14 STC 406 (SC); AIR 1964 SC 1037 where the question arose whether giving extended definition of 'retail sale' which sought to render consumption by the owner of motor spirit liable to tax under the concerned Sales Tax Act by virtue of section 3, is beyond the competence of the State Legislature and hence void. This court relying on its earlier decision in Gannon Dunkerley Co. case [1958] 9 STC 353 (SC); AIR 1958 SC 560 held as follows: '. . . In a transaction of sale of goods which is liable to tax there must be concurrence of the four elements, viz; (1) parties competent to contract; (2) mutual assent; (3) a thing, the absolute or general property in which it is transferred from the seller to the buyer; and (4) a price in money paid or promised. A transaction which does not conform to this traditional concept of sale cannot be regarded as one in respect of which the State Legislature is competent to enact an Act imposing liability for payment of tax.' 22.. The court quashed the assessment made on the aforesaid premises. 23.. Levy by the State of Uttar Pradesh as to the basis of levy once a tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to come into existence simultaneous with occurrence of taxing event. The machinery provisions relating to its quantification and collection can take place later. Providing measure to which rate is to be applied is integrally connected with charge itself. 36 to 40 . . . 41.. The position would have been different had the tax on taxable transaction of purchase have been levied with reference to price relatable to subsequent transaction of sale. In that event, the price forming part of subsequent sale would have lost nexus with the transaction that become taxable in the State. 42.. . . . 43.. These cases give a clear picture that entry 54 in List II of the Seventh Schedule empowers the State Legislature to impose and collect taxes on sale of goods. The measure to which tax rate is to be applied must have a nexus to taxable event of sale and not divorced from it. . . . 52.. Applying the principles enunciated above, the inevitable conclusion is that when the wholesaler sells any formulation to a retailer in bulk quantity, taxable event of sale of goods takes place where wholesaler and retailers are the parties to contract, the goods in question are the formulations and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject of tax is not the goods or goods sold, but a transaction of 'sale of goods' as defined under the Sales Act. 58 and 59 . . . 60.. If section 4A is designed to bring a levy into existence which is divorced from the 'sale' subject to tax under the Act, it is beyond legislative competence under entry 54 of List II of the Seventh Schedule. The notification to the extent it intends to levy tax on first point sale with reference to price which could be charged in respect of a subsequent sale which has not come into existence at the time liability to tax arises and is determined ex hypothesis is unsustainable on that basis. Similarly, the Division Bench of this court in the case of Udaipur Distillery Co. Ltd. v. Rajasthan Taxation Tribunal [2003] 132 STC 489 held as under (at pages 490 and 491): Three ingredients of sale as envisaged in the Sale of Goods Act are generally required to be present before a transaction can be considered a sale: (i) there should be an agreement between the parties for the transfer of title to goods, (ii) it should be supported by money consideration, and (iii) as a result of the transaction, the property in the goods, should ..... X X X X Extracts X X X X X X X X Extracts X X X X
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