1978 (5) TMI 108 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the replacement of parts during the warranty period constitutes a "sale" u/s 2(g) of the Bengal Finance (Sales Tax) Act, 1941.
2. Whether the purchase price of parts used for replacements under warranty should be added to the taxable turnover of the purchasing dealer.

Summary:

Issue 1: Replacement of Parts During Warranty as "Sale"
The Court examined whether the replacement of parts during the warranty period constitutes a "sale" within the meaning of section 2(g) of the Bengal Finance (Sales Tax) Act, 1941. The dealer, M/s. Prem Nath Motors (P.) Ltd., argued that such replacements did not constitute "sales" as no additional price was charged for the parts replaced under warranty. However, the Financial Commissioner held that the transfer of property in the parts replaced under the warranty constituted a "sale" and was part of the original sale of the car, for which a consolidated price was paid at the time of the initial sale. The Court agreed with this view, stating that the consideration for the parts replaced under the warranty was included in the original sale price of the car, and thus, the replacements were not liable to further sales tax.

Issue 2: Inclusion of Purchase Price in Taxable Turnover
The second issue was whether the purchase price of parts used for replacements under the warranty should be added to the taxable turnover of the purchasing dealer. The Financial Commissioner had held that the parts supplied in replacement, free of cost, by the dealer in terms of the warranty, were sold along with the car for a consolidated price on which sales tax was already paid. Therefore, the replacement of parts would be deemed a "sale" not liable to further sales tax. The Court upheld this view, answering the second question in the negative, indicating that the purchase price of such parts should not be added to the taxable turnover.

Conclusion:
The Court concluded that the replacement of parts under the warranty constitutes a "sale" included in the original sale price of the car, and thus, no further sales tax is applicable on such replacements. The purchase price of parts used for replacements under the warranty should not be added to the taxable turnover of the purchasing dealer. The reference was answered accordingly, with no order as to costs.