2016 (12) TMI 1305 - HC - VAT and Sales Tax

Sale u/s 2(ac) of the Act - spare parts given to the customers by way of replacement under warranty scheme - whether the transaction in question is a sale within the meaning of Section 2(ac) of the Act and consequently, liable to tax under Section 3 of the Act? - Held that - There is no obligation on the part of the respondent-assessee under the warranty of the manufacturer to consumers to replace the defective parts. The respondent-assessee is not even a party to that warranty. The supply of parts by the respondent-assessee to consumers to replace the defective parts and receipt of consideration through credit notes in lieu thereof from the manufacturer is a separate transaction of sale. Credit notes received by the respondent-assessee for specific amount in terms of money towards price of the spare parts supplied by the respondent-assessee to consumers in fulfillment of the warranty obligations of the manufacturer towards consumer, construed valuable consideration in lieu of the price of such spare parts and thus a transaction of sale within the meaning of Section 2(ac) of the U.P. Act has emerged attracting liability to tax under Section 3 of the Act. The manufacturer is warrantor and the consumer is warrantee to whom the warrantor has made a statement or representation with regard to his product i.e. motor vehicle. Thus, in the present set of facts the manufacturer being warrantor has made certain promise with regard to its product to consumers (warrantee) called warranty. The respondent assessee has not given warranty to consumers. Supply of parts by him is a sale for consideration received by him through credit notes. Revision allowed - decided against Respondent-assessee.

Issues Involved:
1. Relationship between the respondent-assessee and the customer.
2. Nature of the transaction between the respondent-assessee and the manufacturer.
3. Whether the transaction in question is a sale within the meaning of Section 2(ac) of the U.P. VAT Act, 2008 and consequently liable to tax under Section 3 of the Act.

Analysis of the Judgment:

1. Relationship between the respondent-assessee and the customer:
The respondent-assessee contended that the relationship between the respondent-assessee and the customer is that of seller and purchaser, but the nature of the transaction is not a sale within the meaning of Section 2(ac) of the U.P. VAT Act, 2008 due to the absence of consideration. The respondent-assessee argued that the parts were given free of cost to the customers under the warranty provided by the manufacturer, and the credit notes issued by the manufacturer were merely reimbursements for the parts previously purchased by the respondent-assessee.

2. Nature of the transaction between the respondent-assessee and the manufacturer:
The respondent-assessee, as an authorized dealer of the manufacturer, purchased spare parts against form-C and sold them to customers. When defective parts were replaced under the manufacturer's warranty, the respondent-assessee provided these parts from its own stock and received credit notes from the manufacturer as reimbursement. The respondent-assessee claimed that this transaction did not constitute a sale as there was no transfer of property for consideration.

3. Whether the transaction in question is a sale within the meaning of Section 2(ac) of the U.P. VAT Act, 2008 and consequently liable to tax under Section 3 of the Act:
The court analyzed the definition of "sale" under Section 2(ac) of the U.P. VAT Act, 2008, which includes any transfer of property in goods for cash, deferred payment, or any other valuable consideration. The court referred to the Supreme Court's judgment in Mohd. Ekram Khan and Sons Vs. CTT, which held that the supply of parts to customers under a warranty agreement for consideration received through credit notes constituted a sale. The court found that the transaction between the respondent-assessee and the manufacturer, where the respondent-assessee received credit notes as consideration for the parts supplied to customers, fulfilled all the criteria of a sale under the U.P. VAT Act, 2008.

Conclusion:
The court concluded that the respondent-assessee's transaction of supplying spare parts to customers under the manufacturer's warranty and receiving credit notes as consideration constituted a sale within the meaning of Section 2(ac) of the U.P. VAT Act, 2008. Consequently, the transaction was liable to tax under Section 3 of the Act. The tribunal's order was set aside, and the assessment order passed by the assessing authority was restored. The revision was allowed, with no order as to costs.

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