2004 (7) TMI 341 - SC - VAT and Sales Tax

Whether the amount received by the assessee for supply of parts to the customers as a part of the warranty agreement was liable to tax? Held that - Appeal dismissed. 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.

Summary

Issues:
Whether the amount received by the assessee for supplying parts as part of a warranty agreement is liable to tax.

Analysis:
The judgment pertains to two appeals concerning a common judgment by the Allahabad High Court. The appellant, a registered dealer under the U.P. Trade Tax Act, was involved in supplying parts to customers as part of a warranty agreement. The central issue was the tax liability on the amount received for these parts. The taxing authorities and the High Court found that the manufacturer made payments to the assessee for the parts supplied to customers, leading to the assessment of tax for the relevant years.

The Commissioner (Appeal) and the Trade Tax Tribunal upheld the assessments, which were then challenged before the Allahabad High Court. The High Court ruled that the transactions constituted a sale subject to tax, contrary to the assessee's contention that the warranty parts replacement did not involve a sale. The appellant relied on various High Court decisions and argued that the replacement of defective parts under warranty did not amount to a sale.

The Revenue contended that the transaction between the assessee and the manufacturer was distinct and that the parts supplied by the assessee were subject to consideration, thus constituting a sale. The Court noted that the factual findings indicated that the assessee received payment for the parts supplied, leading to the conclusion that the transaction was taxable. The Court distinguished previous cases cited by the appellant, emphasizing the specific nature of the transactions in the present case.

The Court dismissed the appeals, emphasizing that the transactions were subject to tax as per the factual findings. The Court rejected the assessee's argument regarding the nature of the sale being intra-State or inter-State, as no such plea was raised earlier. The Court directed the dismissal of the appeals, stating that the costs were to be borne by the appellant.