2011 (11) TMI 614 - HC - VAT and Sales Tax

Liability of service tax - dealership agreement - Under the dealership agreement the applicant replaces defective parts which cannot be instantly repaired with new ones from the ready stock without any cost consideration or charge to the customer - Held that - In the present case clause 49 of the agreement of dealership which deals with warranty requires the dealer to promptly and effectively deal with any claim made by the customer of any vehicle under the provisions of the warranty currently in force. In terms of the warranty the cost of parts incurred by the dealer in carrying out repairs or replacement of defective parts is in accordance with the procedure established by the manufacturer reimbursed by the manufacturer to the assessee. Application dismissed.

Summary

Issues:
1. Tribunal's refusal to make a reference under section 61 of the Bombay Sales Tax Act, 1959.
2. Interpretation of dealership agreement terms regarding warranty claims and replacement of defective parts.
3. Comparison with the Supreme Court judgment in Mohd. Ekram Khan and Sons v. Commissioner of Trade Tax [2004] 136 STC 515 (SC).
4. Distinction between agency relationship and principal to principal basis in warranty transactions.

Analysis:
1. The High Court addressed the issue of the Tribunal's denial to make a reference under section 61 of the Bombay Sales Tax Act, 1959. The Tribunal based its decision on the Supreme Court precedent in Mohd. Ekram Khan and Sons v. Commissioner of Trade Tax [2004] 136 STC 515 (SC), stating that no reference was warranted. The applicant, an authorized dealer of vehicles and spare parts, engaged in replacing defective parts under warranty without charge to customers.

2. The Tribunal examined the dealership agreement terms, emphasizing that the appellant was not an agent of the manufacturers, and the title and risk of goods passed to the appellant at the factory gate. The agreement required the appellant to settle warranty claims and replace defective parts from purchased stock. The Tribunal found the case aligned with the Supreme Court judgment in Mohd. Ekram Khan and Sons v. Commissioner of Trade Tax [2004] 136 STC 515 (SC).

3. Drawing parallels with Mohd. Ekram Khan and Sons v. Commissioner of Trade Tax [2004] 136 STC 515 (SC), where the Supreme Court ruled on tax liability for parts supplied under warranty, the High Court noted the appellant's attempt to distinguish based on agency relationship. However, the Tribunal correctly rejected this distinction, emphasizing the warranty terms and reimbursement procedure similar to the Supreme Court case.

4. The High Court dismissed the applicant's attempt to differentiate the present case from Mohd. Ekram Khan and Sons v. Commissioner of Trade Tax [2004] 136 STC 515 (SC) based on service aspects in the dealership agreement. The Court upheld the Tribunal's decision, stating that the Supreme Court's binding precedent must be followed, regardless of the service elements. The application was therefore dismissed, affirming the Tribunal's decision based on the established legal principles.