2009 (3) TMI 956 - HC - VAT and Sales Tax

Whether the assessing authority could impose tax on the assessee, a dealer of Tata vehicles, on the value of credit notes issued by the manufacturer, M/s. Tata Motors, for defective parts of cars and other vehicles supplied by the assessee, a dealer of the manufacturer under a warranty agreement between the manufacturer and the ultimate customer to whom such vehicles are sold by the assessee? Held that - Credit notes received from manufacturer by the assessee-dealer could not be taxed as sale value of spare parts replaced for defective parts under warranty by the manufacturer to the customer, in the present case. Consequently, the Tax Board cannot be said to have committed any error in distinguishing the judgment of Supreme Court in Mohd. Ekram s case 2004 (7) TMI 341 - SUPREME COURT OF INDIA and finding that in the facts and circumstances of the case, the assessing authority was not justified in imposing tax in the hands of the respondent-assessee. The Tax Board is also justified in upholding the setting aside of interest and penalty because as far as interest is concerned the same is consequential to levy of tax which falls to the ground for the aforesaid reasons and penalty also because same in any case could not have been imposed as all the transactions were duly recorded in the regular books of account and, therefore, the same do not attract any penalty under section 65 of the Act. The question relating to power of assessing authority to invoke section 30 of the Act for reassessment as there was no escapement of turnover is also thus answered in favour of the respondent-assessee and against the Revenue.

Issues Involved:
1. Imposition of tax on the value of credit notes issued by the manufacturer for defective parts replaced under warranty.
2. Applicability of the Supreme Court's decision in Mohd. Ekram Khan & Sons v. Commissioner of Trade Tax.
3. Levy of interest and penalty under section 65 of the Rajasthan Sales Tax Act, 1994.
4. Power of reassessment under section 30 of the Rajasthan Sales Tax Act, 1994.

Detailed Analysis:

1. Imposition of Tax on Credit Notes:
The primary issue was whether the assessing authority could impose tax on the value of credit notes issued by the manufacturer, M/s. Tata Motors, for defective parts replaced under warranty by the dealer (assessee). The court noted that the relationship between Tata Motors and the dealer was that of principal to principal, not principal to agent. The dealer replaced defective parts free of cost to the customer and received credit notes from the manufacturer. The court concluded that since the property in goods (spare parts) did not transfer from the dealer to the manufacturer, no taxable sale occurred in the hands of the dealer. The transactions between the dealer and the customer, and between the dealer and the manufacturer, were independent. Thus, the credit notes could not be taxed as sale value of spare parts.

2. Applicability of the Supreme Court's Decision in Mohd. Ekram Khan & Sons v. Commissioner of Trade Tax:
The Revenue relied on the Supreme Court's decision in Mohd. Ekram Khan & Sons, where the relationship was that of agent and principal, and the assessee received consideration for parts supplied to customers. However, in the present case, the relationship was principal to principal, and the dealer did not receive any consideration from the customer for the replaced parts. The court distinguished the facts of the present case from Mohd. Ekram Khan & Sons, noting that the dealer merely provided a service to the customer on behalf of the manufacturer. Therefore, the Supreme Court's decision was not applicable.

3. Levy of Interest and Penalty:
The first appellate authority had set aside the levy of interest and penalty, which the Tax Board upheld. The court agreed, stating that since the levy of tax itself was incorrect, the consequential interest also fell. Moreover, the penalty could not be imposed as all transactions were duly recorded in the dealer's regular books of account, thus not attracting any penalty under section 65 of the Act.

4. Power of Reassessment under Section 30:
The court addressed the power of the assessing authority to invoke section 30 of the Act for reassessment. It concluded that there was no escapement of turnover, and therefore, the reassessment was not justified. The Tax Board's decision to set aside the reassessment was upheld.

Conclusion:
The court dismissed the Revenue's revision petitions, affirming the Tax Board's decision. The imposition of tax on credit notes was incorrect, the Supreme Court's decision in Mohd. Ekram Khan & Sons was not applicable, and the levy of interest and penalty was unjustified. The reassessment under section 30 was also not warranted. The court found the Tax Board's order in favor of the respondent-assessee to be unassailable.

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