Case Law Details
M/s. Tata Motors Ltd. Vs Deputy Commissioner Of Commercial Taxes (Supreme Court of India)
Conclusion: In case of warranty for the supply of free spare parts, once the replacement was made and the defective part was returned to the manufacturer, whether 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 to dealer by the manufacturer was referred to Larger Bench to decide.
Held: Assessee was a dealer of Tata Motors. Sales Tax was paid on the vehicles sold. There was a warranty given to the purchaser for free replacement of parts, during the period of warranty. To facilitate this, the dealer was obliged to keep a stock of spare parts. The purchaser had an option to go to any dealer, and not be confined to the dealer from whom the purchase was made. Sales tax was paid on the stock of spare parts purchased from Tata Motors. The defective parts were sent back to Tata Motors and credit note might be given by Tata Motors for the said parts. The customer did not pay for the replacement of the defective part, which was stated to be the crucial fact. The stand of the Revenue was that sales tax was liable to be paid even qua the return of the spare parts, as credit note was given for the same, to the dealer.The crucial point for consideration was whether in the case of warranty for the supply of free spare parts, once the replacement was made and the defective part was 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. Thus, if there was no consideration for these replaced parts, can sales tax be levied at all? The judgment in the Mohd. Ekram Khan & Sons case referred to the credit notes received as consideration for the replacement; but it was a moot point whether credit notes could be treated as a mode of payment or not. The judgment in Premier Automobiles Ltd. & Anr. Etc. case was stated to contain a different factual situation, as per the observations in the Mohd. Ekram Khan & Sons case. There were observations referred to above, 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 was not different because assessee had supplied the parts and received the price.” Assessee actually had purchased the parts and paid sales tax on it, but on return of the defective part to the manufacture, was given a credit note. It was consider it appropriate that the matter be considered by a Larger Bench.
FULL TEXT OF THE SUPREME COURT JUDGMENT
1. The common question of law, which arises for consideration in these appeals, is the liability towards sales tax, in respect of the free replacement of defective parts in motor vehicles, during the period of
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