2018 (8) TMI 232 - HC - VAT and Sales Tax

Liability of tax - replacement during warranty period - inclusion of amount received by the appellant from the principal by way of Credit Notes towards cost of the parts replaced during warranty period - Held that - The contention of the appellant that replacement of motor vehicle part during warranty period by the appellant assessee is not covered in sale and, therefore, is not liable to tax, is not correct - the decision in the case of MOHD. EKRAM KHAN & SONS VERSUS COMMISSIONER OF TRADE TAX, UP. 2004 (7) TMI 341 - SUPREME COURT OF INDIA , is squarely applicable to the facts of present case, where it was held that the transaction was subject to levy of tax as has been rightly held by the High Court. Tax liability upheld - appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Taxability of warranty charges received by the appellant from the manufacturer.
2. Applicability of interest on the assessed tax amount.
3. Relevance of precedents from higher courts in determining the tax liability.

Detailed Analysis:

1. Taxability of Warranty Charges:
The primary issue in this appeal was whether the warranty charges received by the appellant from the manufacturer for the replacement of defective parts during the warranty period are includible in the turnover and liable to tax. The appellant, a dealer in four-wheeler vehicles and spare parts, contended that these charges should not be taxed as they do not constitute a sale to the manufacturer. However, the Assessing Authority, First Appellate Authority, and the Madhya Pradesh Commercial Tax Appellate Board held that the amount received by the appellant from the manufacturer through credit notes for parts replaced during the warranty period is includible in the turnover and subject to tax. The decision was based on the Supreme Court ruling in Mohammad Ekram & Sons v. Commissioner of Trade Tax, UP, Lucknow, which established that such transactions are taxable as the dealer receives consideration for the parts replaced.

2. Applicability of Interest:
The Assessing Authority also levied interest on the difference amount of tax under Section 18 (4) (a) of the Madhya Pradesh Value Added Tax Act, 2002. This aspect was not separately contested in the appeal, indicating the appellant's primary focus was on the taxability of the warranty charges rather than the interest levied on the assessed tax amount.

3. Relevance of Precedents:
The appellant cited several precedents, including the Rajasthan High Court's decision in Commercial Tax Officer (AE), Jodhpur v. Marudhara Motors, Jodhpur, which distinguished the Supreme Court's ruling in Mohammad Ekram Khan & Sons. However, the Appellate Board and the High Court relied on the Supreme Court's decision, which overruled earlier conflicting decisions and clarified that the consideration received for parts replaced under warranty is taxable. The Karnataka High Court in State of Karnataka v. Cauvery Motors (P) Ltd. also upheld this view, affirming the taxability of such transactions and aligning with the Supreme Court's interpretation.

Conclusion:
The High Court dismissed the appeal, affirming the taxability of the warranty charges received by the appellant from the manufacturer for parts replaced during the warranty period. The court emphasized the binding nature of the Supreme Court's decision in Mohammad Ekram & Sons, which clarified that such transactions are subject to tax. The appeal lacked merit, and the court upheld the decisions of the lower authorities and the Appellate Board, including the imposition of interest on the assessed tax amount.