1992 (4) TMI 227 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the warranty charges collected by the assessee form part of the sale price for tax assessment purposes?

Comprehensive Analysis:
The case involved a revision under the Rajasthan Sales Tax Act, 1954, challenging the order of the Rajasthan Sales Tax Tribunal regarding the inclusion of warranty charges in the sale price for tax assessment. The assessing authority found that the assessee was collecting four-year service warranty charges on refrigerators sold to sister concerns, but these charges were not shown as part of the sale price. It was observed that only a one-year service warranty was actually provided to customers, raising questions about the inclusion of the four-year warranty charges in the sale price. The Deputy Commissioner (Appeals) held that the four-year warranty charges were not part of the sale price, emphasizing a legal standpoint rather than factual analysis.

In the appeal before the Rajasthan Sales Tax Tribunal, reference was made to a judgment of the Andhra Pradesh High Court distinguishing between one-year and four-year warranties, stating that the latter was optional for the purchaser and not necessarily included in the sale agreement. The Tribunal concurred with this view, concluding that the four-year warranty charges should not be considered part of the sale price. The assessing authority argued that the warranty charges were compulsory and should be included in the sale price based on Supreme Court precedents discouraging tax evasion through artificial arrangements in commercial transactions.

On behalf of the assessee, it was contended that based on relevant case law, including a decision of the Supreme Court, the warranty charges should not be taxable as part of the sale price. The Court considered the precedents and highlighted the distinction between mandatory and optional warranty charges, emphasizing that voluntary charges for warranties should not be included in the sale price for tax assessment purposes. The Court directed the matter back to the assessing authority to determine the nature of the warranty charges, whether they were optional, and if they were separately charged from the sale price.

Ultimately, the Court partly allowed the revision, emphasizing the need for a factual examination by the assessing authority to ascertain the inclusion of warranty charges in the sale price. The assessee was instructed to provide relevant documents and agreements to support the contention that the charges did not form part of the sale price, indicating a requirement for a detailed assessment based on factual evidence rather than mere legal arguments.