Case Law Details
Tata Motors Ltd. Vs Deputy Commissioner of Commercial Taxes (SPL) & Anr. (Supreme Court of India)
In Assistant Collector of Central Excise vs. Madras Rubber Factory Ltd., 1986 Supp SCC 751, the question arose under the Central Excises and Salt Act, 1944 with regard to the method of computation of assessable value in a cum-duty price at the factory gate and the permissible deductions to be made from the cum-duty paid selling price to arrive at the assessable value and then tariff rate being applicable to the assessable value. One of the contentions regarding deduction was with regard to TAC-warranty discount to be made for determining the assessable value. It was observed that a 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.
The said view was reiterated in Government of India vs. Madras Rubber Factory Ltd., (1995) 4 SCC 349 where the question was whether the claim put forward as TAC -warranty discount is a trade discount within the meaning of Section 4 of Central Excises and Salt Act, 1944. It was observed that the claim is only a claim for refund by the buyer for the manufacturing defect in the tyre sold by the assessee therein, which is being honoured by the assessee in a manner acceptable to both the parties. It was reiterated that it is a benefit given to the customers by way of compensation for the loss suffered by them in the previous sale owing to a defective tyre. It is a compensation in the nature of a warranty allowance on a defective tyre.
Thus, the manufacturer gives the warranty to the consumer by making a representation with regard to the automobile. It is in the nature of a promise which the dealer assessee carries out on behalf of the manufacturer. There is transfer of property in the spare part from the stock of the dealer to the customer for which the manufacturer pays by way of a credit note. The said promise is carried out and a valuable consideration is received by the dealer through credit notes. In substance, when the dealer receives a credit note, it is a sale within the meaning of the definition under the respective sales tax legislation under consideration, pursuant to the warranty for which the manufacturer compensates the dealer by issuance of a credit note. The value of the credit note is a valuable consideration received which is in the nature of a benefit from the manufacturer which is exigible to tax. If the dealer had sold a spare part of the automobile from his stock to any other consumer across the counter, he would have collected the requisite sales tax along with the price from that consumer but in the instant case, the consideration is received in the form of a credit note from the manufacturer which is subject to sales tax. The person who pays the valuable consideration in a sale transaction is irrelevant so long as it is paid.
In this context, it would be relevant to refer to the provisions of the Indian Contract Act, 1872. Section 2 (d) of the said Act states that 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 for the promise; Section 2 (c) states that the person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promisee”; Section 2 (a) states that when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal; Section 2 (b) states that when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; Further, promises which form the consideration or part of the consideration for each other, are called reciprocal promises vide Section 2 (f) of the said Act.
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