TMI Blog2016 (12) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the meaning of Section 2(ac) of the U.P. Act has emerged attracting liability to tax under Section 3 of the Act. The manufacturer is warrantor and the consumer is warrantee to whom the warrantor has made a statement or representation with regard to his product i.e. motor vehicle. Thus, in the present set of facts the manufacturer being warrantor has made certain promise with regard to its product to consumers (warrantee) called warranty. The respondent assessee has not given warranty to consumers. Supply of parts by him is a sale for consideration received by him through credit notes. Revision allowed - decided against Respondent-assessee. - Sales/Trade Tax Revision No. 163 of 2015 - - - Dated:- 8-12-2016 - Hon'ble Surya Prakash Kesarwani, J. For the Applicant : S. C. ORDER 1. Heard Sri B.K. Pandey, learned Standing Counsel for the revisionist and Sri M.M. Rai, learned counsel for the respondent. 2. This revision filed under Section 58 of the U.P. VAT Act, 2008 challenging the order dated 01.12.2014 in Second Appeal No. 183 of 2014 (2009-10) passed by the Member, Commercial Tax Tribunal, Aligarh Bench, Aligarh. 3. Learned counsel for the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to the customer because of agency agreement between the respondent-assessee and the manufacturer for replacement by the respondent-assessee which is reimbursed by the manufacturer through credit notes. After the arguments were concluded and the statement made by learned counsel for the respondent-assessee was noted as above, learned counsel for the respondent-assessee prays that three days' time may be granted to obtain further instruction from the respondent-assessee. As prayed, put up on 08.12.2016. 4. Today Sri M.M. Rai, learned counsel for the respondent stated that he has obtained instructions from the assessee and under his instructions he is submitting the written submission dated 08.12.2016 which is reproduced below: Written Submission of the respondent: The above mentioned Commercial Tax Revision filed by the Revenue was heard on 1st and 2nd December 2016 by his Lordship and after hearing the parties, his Lordship had directed to clarify the stand on two issues, namely, as to what is the relationship between the respondent and the persons to whom the defective motor parts during the warranty period had been replaced and secondly, the cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied upon a decision of this Court in the case of Parishudh Machines Pvt. Ltd., Meerut Road, Ghaziabad Vs. Commissioner of Trade Tax, U.P., Lucknow (2007) 6 VLJ 152 (Vol. 10) and M/s. Tata Motors Limited Vs. Commissioner of Trade Tax 2010 Tax Law Diary 329. 5. Learned Standing Counsel reiterated the submissions made on 02.12.2016 and in addition relied upon a Division Bench judgment of Kerala High Court in the case of MGF Motors Limited Vs. State of Kerala [2012] 55 BST 81 (Ker). I have carefully considered the submissions of learned counsel for the parties. Facts of the case: 6. Briefly stated the facts of the present case are that the respondent-assessee is a registered dealer under the U.P. VAT Act, 2008. For the assessment year 2009-10 its assessment was completed by the assessing authority and tax was levied on certain sales of spare parts which was purchased by the assessee from M/s. Tata Motors Ltd. against form-C. The assessee took the stand that transfer of such spare parts by way of replacement of the old/ defective parts of the vehicles sold to customers was on account of warranty given by M/s. Tata Motors Ltd. and thus there was no sale. The assessee also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in respect to the product for a limited period and if during that period any defect, in the parts fitted in the vehicle sold, is found, the same is replaced free of cost as per warranty offered by the manufacturer to the ultimate purchaser of the product. It has also been submitted by the respondent-assessee that the assessee has acted as an intermediary between the manufacturer and purchaser of the product for the replacement of defective parts and thus he is service provider. It is admitted to the assessee that he replaced the defective parts from his own stock purchased earlier from the manufacturers and thereafter returned the replaced defective parts of customers to the manufacturer who issued credit notes for the amount which was paid/ payable for that part. The first appellate authority and the Tribunal held that the free replacement of parts under the warranty agreement between the manufacturer and the ultimate consumer and issuance of credit note by the manufacturer are two independent transactions and on that basis the free replacement of parts against the credit notes cannot be treated as sale. 8. Thus, the crux of submissions of the respondent-assessee are as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for cash or deferred payment or for any other valuable consideration, and includes,--................................ Section 8 - Rates of tax on sales in the course of inter-State trade or commerce.-- (1) Every dealer, who in the course of inter-State trade or commerce, sells to a registered dealer goods of the description referred to in sub-section (3), shall be liable to pay tax under this Act, which shall be three percent, of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State, whichever is lower: Provided that the Central Government may, by notification in the Official Gazette, reduce the rate of tax under this sub-section. (2) The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-State trade or commerce not falling within subsection (1), shall be at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State. Explanation-- For the purposes of this sub-section, a dealer shall be deemed to be a dealer lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o consumers. 12. The purchases of spare parts as an inter-State transaction against Form-C on concessional rate of Central Sales Tax became a complete transaction of sale/ purchase under Section 2(g) read with Section 6 and 8 of the Central Act the moment spare parts were sold and delivered by the manufacturer to the respondent-assessee for consideration. 13. No warranty has been given by the respondent-assessee to consumers. Since the assessee is an authorized dealer of the manufacturer and it also sells parts of vehicles in the ordinary course of its business and as such under some commercial arrangement he facilitates the manufacturer to carry out his obligations of warranty towards consumers and therefore, the respondent-assessee has supplied parts of motor vehicles covered by warranty of the manufacturer, from his own stock of spare parts and received consideration from the manufacturer by way of credit notes. The price of such spare parts of his stock delivered to consumers has been paid to him by the manufacturer through credit notes instead of cash payment. 14. The transaction of sale of motor vehicles to consumers and the sale of spare parts by the respondent-asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee for supply of parts to the customers as a part of the warranty agreement was liable to tax. The assessee was an agent of M/s Mahindra and Mahindra (hereinafter referred to as the 'manufacturer'). The manufacturer had warranty agreement with the purchasers of vehicles (hereinafter referred to as the 'customers') to replace defective parts during the warranty period. As found by the taxing authorities and the High Court, the manufacturer made payment for certain 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. Said Provision, so far as relevant reads as follows: 2. (h) 'Sale', with its grammatical variations and cognate expressions, means any transfer of property in goods (otherwise than by way of a mortgage, hypothecation, charge or pledge) for cash or deferred payment or other valuable consideration and includes-- 5. In response, learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of replacement in pursuance of the warranty. That decision also throws no light on the present controversy. Though the decision in Geo Motor's case (supra) and Prem Motor's case (supra) support the stand of the assessee, we find that basic issue as to the nature of the transaction between the assessee and the manufacturer was lost sight of. As noted above, in a case manufacturer may 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. 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(Supra) and Prem Motor's case (supra) stand overruled. (Emphasis supplied by me) 18. Perusal of the judgment in the case of Mohd. Ekram Khan and Sons (supra) shows that the question involved in the said case before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the petitioner is concerned, the position is that the transaction is purchase and resale, and even though the price of the replaced part is not collected from the vehicle owner, the petitioner gets reimbursement of the value from the manufacturer. So much so, in our view, it is the purchase and sale of spare parts by the petitioner as authorised dealer of the manufacturer and the replacement therefor is resale effected by the petitioner for which payment is received through credit note issued by the manufacturer. So much so, we feel the distinction brought by the petitioner does not justify deviation from the decision of the Supreme Court holding that free replacement of parts during warranty period amounts to sale of such parts. Consequently, we dismiss the Sales tax revision case. (Emphasis supplied by me) 20. The judgment in the case of Parishudh Machines Pvt. Ltd. (supra) relied by the respondent-assessee, is distinguishable, inasmcuh as, the facts were entirely different which has been noted by the learned Single Judge in para 2 of the judgment as under: ........ During the year under consideration applicant had sold one such machine to M/s. Munja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Condonation application no. 381178 of 2015 is allowed. The supply of spare parts to the customer during the warranty period without charging any consideration is sought to be taxed by the revenue as a sale. The tribunal by the impugned order dated 25.7.2015 has held otherwise and that the transaction is not assessable in the hands of the dealer. It is well recognized that in supply of spare parts to the customer by the dealer during the period of warranty free of charge, no sale consideration passes from the customer to the dealer and therefore the cost of the spare parts can not be included in the turnover of the sale of the dealer. The revision has no merit and is dismissed. 25. The aforequoted order passed in the case of M/s. Vikrant Automobiles (supra) is of no help to the respondent-assessee in view of the distinct facts of the present case as noted above and the law laid down by the Hon'ble Supreme Court in the case of Mohd. Ekram Khan and Sons (supra) which is binding precedent under Article 141 of the Constitution of India and which was not even placed by the parties before the Court in the aforesaid case of M/s. Vikrant Automobiles (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to consumers to replace the defective parts and receipt of consideration through credit notes in lieu thereof from the manufacturer is a separate transaction of sale. Valuable Consideration: 29. The words Valuable consideration as has been used in the definition of Sale under Section 2(ac) of the U.P. Act and Section 2(g) of the Central Act has been explained by Hon'ble Supreme Court in various judgments. In the case of Dhampur Sugar Mills Limited Vs. Commissioner of Trade Tax (2006) 5 SCC 624 (paras 2, 3, 23 and 29) Hon'ble Supreme Court noted the fact and held as under: 2. Whether the adjustment of price of molasses from the amount of licence fee would amount to sale within the meaning of Uttar Pradesh Trade Tax Act, 1948 ('the Act', for short), is the question involved in this appeal which arises out of the judgment and order dated 21.5.2004 passed by the High Court of Judicature at Allahabad in Trade Tax Revision No.1866 of 1993. 3. The basic facts are not in dispute. One M/s. Swaroop Vegetables Products Industries Ltd. ('the Company', for short) owned and possessed a sugar mill known as Sir Shadilal Sugar and General Mills s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k. It is transfer of the ownership in goods wherefor the Company was to pay the price to the appellant. The transaction, therefore, beyond any doubt, answers the description of sale within the meaning of the provisions of the U.P. Trade Tax Act, 1948. For each supply of molasses the appellant would be entitled to the price thereof. The amount towards the price of the goods could be paid either by way of cash or deferred payment. Instead of cash, the price of molasses was to be adjusted from the amount payable by the appellant to the owner by way of consideration for use of the mill. Such a mutual arrangement is merely one for the purpose of adjusting the accounts. The transactions between the parties are in effect and substance involve passing of monetary consideration. It would, thus, come within the purview of the expression any other valuable consideration , which expression would take colour from deferred payment being a monetary payment, but does not loose its character of some other monetary payment by way of mutual arrangement. The parties are not bartering or exchanging any goods so that the element of monetary consideration is absent. Money is a legal tender. Cash is, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, that is, as shown in the definition above, some benefit to the promisor, or some detriment to the promisee. 71. In Salmond on Jurisprudence, the word consideration has been explained in the following words. A consideration in its widest sense is the reason, motive or inducement, by which a man is moved to bind himself by an agreement. It is for nothing that he consents to impose an obligation upon himself, or to abandon or transfer a right. It is in consideration of such and such a fact that he agrees to bear new burdens or to forego the benefits which the law already allows him. 72. The gist of the term consideration and its legal significance has been clearly summed up in Section 2(d) of the Indian Contract Act which defines consideration thus: When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration to the promise. 73. From a conspectus of decisions and dictionary meaning, the inescapable conclusion that follows is that consideration means a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s The Law Lexicon 3rd Edition 2012 the words Warrantee , Warrantor and Warranty have been given meaning as under: Warrantee:- A person to whom a warranty is made. Warrantor:- A person who gives or makes warranty. Warranty:- A promise that a statement, proposition or representation is true. The promise could be expressed or implied. 35. In the case of Bharat Heavy Electricals Ltd. Vs. Commissioner of Customs Central Excise, Indore (2003) 9 SCC 185 Hon'ble Supreme Court held as under: 3. It has been submitted that the part has to be replaced free of cost during the warranty period. It is submitted that the sale price of the machinery includes the price of the part which is subsequently being replaced. It is submitted that there cannot be double levy of excise on the same part. We see no substance in this submission. The price charged for the machinery may include the element of 'complaint reserve'. However, at that time it is not known whether there will be any requirement to replace any part. In many cases, parts are not required to be replaced. When parts are not replaced the component of 'complaint reserve' is not returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transaction (SCC p. 760, para 8). The learned Chief Justice pointed out further that the warranty is not a discount on the tyre already sold, but relates to the goods which are being subsequently sold to the same customers. It cannot be strictly called as discount on the tyre being sold. 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 (SCC p. 760, para 8). He characterised it as a compensation in the nature of warranty allowance on a defective tyre (SCC p. 760, para 11). We express our respectful concurrence with the said observations. 37. Thus, in the present set of facts, the manufacturer is warrantor and the consumer is warrantee to whom the warrantor has made a statement or representation with regard to his product i.e. motor vehicle. Thus, in the present set of facts the manufacturer being warrantor has made certain promise with regard to its product to consumers (warrantee) called warranty. The respondent assessee has not given warranty to consumers. Supply of parts by him is a sale for consideration received by him through credit notes. Conclusion:- 38. The provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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