2017 (11) TMI 136 - HC - VAT and Sales Tax

Valuation - scope of taxable turnover - whether cost of warranty replacement by Revisionist is liable to be treated as taxable turnover or not? - Held that - It is not the case of Revisionist that relationship of Revisionist with M/s MUL is that of principal to principal but it admits that it is an authorized agency of M/s MUL and sale is being effected by manufacturing company through Revisionist. Similarly, goods have been supplied by M/s MUL directly and there is no independent transaction between Dealer and customer but Revisionist is acting as an agent of M/s MUL. Neither learned counsel for Revisionist could show any otherwise distinction nor there is any material to show that Revisionist Dealer acted as a Principal with respect to sale of vehicles as also replacement of parts and it was not an agent of manufacturer but its status is that of a Principal vis-a-vis M/s MUL. Reliance placed in the case of Mohd. Ekram Khan & Sons Versus Commissioner of Trade Tax, UP 2004 (7) TMI 341 - SUPREME COURT OF INDIA , where it was held that 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, and the transaction was subject to levy of tax. Revision dismissed - decided against revisionist.

Summary

Issues Involved:
1. Inclusion of warranty replacement cost in taxable turnover.
2. Justification of Tribunal's decision without proper findings.
3. Remanding the matter to the First Appellate Authority.

Detailed Analysis:

1. Inclusion of Warranty Replacement Cost in Taxable Turnover:
The primary issue in both revisions is whether the cost of warranty replacement should be included in the taxable turnover. The applicant, a dealer of M/s Maruti Udyog Limited (MUL), argued that the cost of parts replaced under warranty should not be considered taxable turnover as these parts were replaced on behalf of MUL, which bore the cost. The Tribunal's inclusion of these costs in the taxable turnover was challenged without specific findings on whether the price of the replaced parts was charged by the applicant.

The court referred to the Supreme Court's judgment in Mohd. Ekram Khan and Sons vs. Commissioner of Trade Tax, U.P., which held that the amount received by an agent for supplying parts under a warranty agreement constitutes a sale and is thus taxable. The court found the facts of the applicant's case similar to Mohd. Ekram Khan and Sons, where the dealer acted as an agent of the manufacturer, and the replacement parts were supplied by the manufacturer directly. Hence, the cost of warranty replacements was rightly included in the taxable turnover.

2. Justification of Tribunal's Decision without Proper Findings:
The applicant contended that the Tribunal allowed the appeal of the opposite party without proper application of mind and by incorrectly applying the law from the case of Mohd. Ekram, which was not applicable. The court, however, found that the Tribunal's decision was justified as the relationship between the applicant and MUL was that of an agent and principal, similar to the relationship in Mohd. Ekram Khan and Sons. The court emphasized that the applicant's status was not that of a principal vis-a-vis MUL but an agent, and therefore, the Tribunal's application of the law was correct.

3. Remanding the Matter to the First Appellate Authority:
In the second revision, the applicant challenged the Tribunal's decision to remand the matter to the First Appellate Authority without cogent reasons. The applicant argued that the situs of sale or purchase is irrelevant in determining whether a transaction is an inter-State or intra-State sale. The court, however, did not find merit in this argument and upheld the Tribunal's decision to remand the matter for further examination.

Conclusion:
The court concluded that the facts of the applicant's case were similar to those in Mohd. Ekram Khan and Sons, where the relationship between the dealer and manufacturer was that of an agent and principal. Therefore, the cost of warranty replacements was rightly included in the taxable turnover. The court dismissed both revisions, affirming the Tribunal's decisions and answering the questions of law against the applicant.