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TMI Blog2016 (12) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... l the ingredients of sale namely transfer of property in goods by the respondent-assessee to the customer for valuable consideration are present in the transaction and therefore, the transaction is clearly a sale within the meaning of Section 2(ac) of the U.P. VAT Act, 2008. He supports the assessment order and relies upon a decision of Hon'ble Supreme Court in the case of Mohd. Ekram Khan and Sons Vs. CTT 2004 UPTC 1198 (pr 6) as well as the judgment of Bombay High Court in Navnit Motors PVt. Ltd. Vs. State of Maharashtra 2012 (Vol. 47) VST 511. Sri M.M. Rai, learned counsel for the respondent submits that the relationship between respondent-assessee and the manufacturer is that of Principal to Principal and not as Principal and Agent. He relied upon a decision of Rajasthan High Court in the case of C.T.O. (AE) Jodhpur Vs. Marudhara Motors, Jodhpur 2010 NTN (Vol. 42) 205 (Pr 20, 22, 23 and 26). On a specific query put to Mr. M.M. Rai, that what was the nature of transaction between respondent-assessee and the customer and what was the relationship between them, he states that relationship between the respondent-assessee and the customer is of Seller and Purchaser but nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumer in respect of his product and certain conditions are attached to it. The warranty is offered for a limited period or running of the product and if any defect in the parts fitted in the sold vehicle arises, the same is to be replaced "free of cost" as per clauses of warranty offered by the manufacturer to the purchaser of the product. Generally, the manufacturer is stationed at far off distance from place of the consumer and he cannot approach the manufacturer directly, the respondent acts as an intermediary between the manufacturer and the purchaser of the product for the replacement of the defective parts and thus could be called a "Service Provider". In the course of rendering the free service, the respondent replaces the defective part from his own stock purchased earlier from M/s. Tata Motors Ltd. If the same is covered under the warranty period, the respondent returns the defective parts to the manufacturer who after scrutiny, issues credit note for the amount which was paid/ payable for that part earlier. Thus, the credit note is nothing but a promise of reimbursement of the amount which was incurred by the respondent at the time of making purchases of parts earlier. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct before the Additional Commissioner, Grade-II, (Appeal), Commercial Tax, Aligarh which was allowed by order dated 30.12.2013. The first appellate authority relied upon the decision of Rajasthan High Court in the case of C.T.O. (AE), Jodhpur Vs. M/s. Marudhara Motors, Jodhpur 2010 NTN (Vol. 42) 205 and a decision of Noida Bench of the Tribunal in the case of Nawab Auto Engineers Pvt. Ltd., Noida 2012 NTN (Vol. 50) Tribunal-28. Aggrieved with the aforesaid order of the first appellate authority, the Commissioner, Commercial Tax, U.P., Lucknow filed Second Appeal No. 183 of 2014 which has been dismissed by the Tribunal by impugned order dated 01.12.2014. Aggrieved with the order of the Tribunal, the Commissioner, Commercial Tax, U.P., Lucknow has filed the present revision. Discussion and Findings: 7. Undisputedly, the respondent-assessee is an authorized dealer of M/s. Tata Motors Ltd. He purchased vehicles during the assessment year in question and sold it to his customers. Apart from purchase of motor vehicles, he also purchased spare parts against form-C. According to the respondent-assessee, some spare parts were given to the customers by way of replacement under warranty sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound defective during warranty period. iv. Respondent-assessee is an intermediary between the manufacturer and the consumer. For the purposes of replacement of parts, the respondent-assessee is a service provider. v. Respondent-assessee replaces defective parts of vehicles of consumer from his own stock. vi. The cost of spare parts given to consumer under the warranty offered by the manufacturer to the consumer, is reimbursed by the manufacturer to the respondent assessee through credit notes which is a commercial document issued by the manufacturer to the respondent-assessee for repayment of money or to set off a balance due, to eliminate the amount which the buyer has to pay. vii. The transaction is not a 'sale' under Section 2(ac) of the Act. 9. The revision is admittedand it is being finally heard with the consent of learned counsel for the parties on the following question of law:- "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?" 10. Before I proceed to examine the aforesaid question, it would be appropriate to quote the relevant provisions of the U.P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed authority: Provided that the declaration is furnished within the prescribed time or within such further time as that authority may, for sufficient cause, permit. (5) ..................... (6) ..................... (7) ..................... (8) .................................." The Central Sales Tax Rules, 1957 "Rule 12(1) The declaration and the certificate referred to in sub-section (4) of section 8 shall be in Forms 'C' and 'D' respectively: [Forms C and D] Provided that Form 'C' in force before the commencement of the Central Sales Tax (Registration and Turnover) (Amendment) rules, 1974, or before the commencement of the Central Sales Tax (Registration and Turnover) (Amendment) Rules, 1976, may also be used up to the 31st December, 1980 with suitable modification: (Omitted) Provided further that a single declaration may cover all transactions of sale, which take place in a quarter of a financial year between the same two dealers. Provided also that where, in the case of any transaction of sale, the delivery of goods is spread over to different quarters in a financial year or of different financial year it shall be ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; secondly, the transaction of sale of motor vehicles to consumers; thirdly, transaction of purchase of spare parts from persons including manufacturer and fourthly supply of spare parts to consumers under warranty agreement between him and the manufacturer, for consideration in the form of credit notes. 16. Perusal of Section 2(ac) of the U.P. Act indicates that for a transaction of sale, three ingredients are required namely:- (i) Transfer of property in goods otherwise than by way of mortgage, hypothecation, charge or pledge; (ii) By one person to another; (iii) For cash or for deferred payment or for any other valuable consideration and includes certain transfers specified in clause (i) to (vi). 17. The first and second ingredient of transfer of property in goods in the form of spare parts by the respondent-assessee to the consumers for the manufacturer has been admitted by the respondent-assessee as also evident from the written submission quoted above. The only thing that remains to be considered, is whether the transfer was for cash or for deferred payment or for any other valuable consideration. In the case of Mohd. Ekram Khan and Sons Vs. CTT 2004 UPTC 1198 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by way of credit notes and/or other mode of payment. That being the position, the High Court was justified in its view about the taxability of the transactions. 6. The decision in Premier Automobiles case (supra) is really of no assistance to the assessee. The fact situation there was different. The issues in the said case were different. One of the issues was whether the expenses on account of warranty and statutory bonus were to be excludable while working out the ex-work cost. It was held by this Court that manufacturers furnish warranty covering the cars sold. Under the warranty all defects on account of faulty manufacture have to be set right and the defective parts have to be replaced free of costs by the manufacturer or his dealer within the specified period or given distance travelled by the car. The car manufacturers enter into an agreement with the manufacturers of components providing for a warranty so far as the components supplied are concerned. The whole object behind the warranty is that the consumer who has to make a heavy investment for the vehicle should be assured of a proper performance of the vehicle in a trouble free manner for reasonable length of time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (h) of the U.P. Trade Tax Act, 1948 was considered by the Hon'ble Supreme Court. The judgment in the case of Premiere Automobiles 1972 (2) SCR 526 was distinguished and Geo Motors Vs. State of Kerala 2001 (Vol. 122) STC 285, Prem Motors Vs. CST (1986) 61 STC 244 (MP) were overruled. It was observed that though the decision in Geo Motors case (supra) and Premiere Motors case (supra) support the stand of the assessee, we find that basic issue as to nature of these transactions between assessee and the manufacturer was lost sight of. Accordingly, the transaction was held to be a transaction of sale. The aforesaid judgment of Hon'ble Supreme Court in the case of Mohd. Ekram Khan and Sons (supra) squarely applies on the facts of the present case. 19. In the case of MGF Motors Limited Vs. State of Kerala [2012] 55 VST 81 (Ker) a Division Bench of Kerala High Court considered similar controversy, the judgment of Hon'ble Supreme Court in the case of Mohd. Ekram Khan and Sons (supra) and the judgment of Hon'ble Rajasthan High Court in the case of Marudhara Motors (supra) and held as under: "The learned Government Pleader resisted the claim of the petitioner by stating tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h judgment of Rajasthan High Court in the case of Marudhara Motors (supra) was a case of reassessment as evident from para 2 of the judgment and a finding was recorded in paras 20 and 21 of the judgment as under: "such spare parts are supplied by the present assessee free of cost to the consumers is a fact not disputed by the revenue in the present case. ................. Since title of property in goods namely spare parts passed from the hands of respondent-assessee to the customers free of cost and such title of property in spare parts does not pass from the assessee-dealer to the manufacturer, no taxable sale can be said to have taken place in the hands of respondent-assessee at all. 22. In para 23 the Court treated the replacement of parts as a "sales return" which is not the case in the present set of facts. 23. The judgment of Hon'ble Supreme Court in the case of Mohd. Ekram Khan and Sons (supra) is binding under Article 141 of the Constitution of India. This judgment and the judgment of Kerala High Court in the case of MGF Motors (supra) are directly on the issue involved in this revision and state the correct position of law. 24. The order of this Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o consumers, completed transaction of inter-State purchase of spare parts and lastly the transaction of supply of spare parts to consumers in lieu of valuable consideration received through credit notes of the manufacturers. 27. The impugned order of the Tribunal refers to clause-18 of some agreement/ guidelines of the manufacturer but has completely failed to examine it. The aforesaid clause-18 has been quoted in the order of first appellate authority which is reproduced below: "The dealer agrees that the only warranty binding on the company shall be the warranty published by the company and all implied warrantees under law are hereby excluded. The dealer shall have no authority to give to his purchasers a different warranty binding upon the company. The dealer shall meet the company's warranty obligations to the purchasers of the products and / or the spare parts in accordance with sales procedure and advice issued or to be issued by the company from time to time." 28. Perusal of the afore quoted clause clearly indicates that the warranty on the product has been offered by the manufacturer to the consumers and the respondent-assessee has no authority to give to his purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant was required to handover molasses to the said Company for an amount equivalent to the licence fee and such a transaction would not constitute a sale of molasses so as to attract the provisions of the Act. 23. An adjustment of price in a case of this nature, in our opinion, therefore, would come within the purview of the term "other valuable consideration", inasmuch as both the appellant and the Company, were aware that they have to fulfil their respective terms of obligations, i.e., (i) payment of licence fee on monetary terms; and (ii) payment of price of molasses supplied by the appellant to the Company, which is again on monetary terms. Parties, therefore, by mutual consent only have agreed to adjust the price of molasses supplied with the amount of licence fee. The rate for supply of molasses was to be determined by the Central Government. In that view of the matter, presumably one party or the other shall make good the shortfall or the excess upon taking into consideration the price of molasses fixed by the Central government. The transaction, in our opinion does not constitute an exchange or barter. It was not a transaction by way of transfer of stock. It was also no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable. By reason of such an arrangement by the parties, the State is not creating a new taxable event nor imposing a new tax which was unknown in law." (Emphasis supplied by me) 30. In the case of Commissioner of Central Excise, Mumbai Vs. Fiat India (P) Ltd. and Another (2012) 9 SCC 332 (paras 68, 69, 70, 71, 72 & 73) Hon'ble Supreme Court has held as under: "68. Now what requires to be considered is what is the meaning of the expression `sole consideration'. Consideration means something which is of value in the eyes of law, moving from the plaintiff, either of benefit to the plaintiff or of detriment to the defendant. In other words, it may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other, as observed in the case of Currie v. Misa (1875) LR 10 Ex. 153. 69. Webster's Third New International Dictionary (unabridged) defines, consideration thus: "Something that is legally regarded as the equivalent or return given or suffered by one for the act or promise of another." 70. In volume 17 of Corpus Juris Secundum (p.420- 421 and 425) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 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. 32. Although I have discussed all aspects of the matter and held that the transaction in question is a transaction of taxable sale under the U.P. Act and the impugned order of the Tribunal deserves to be set aside and the order of the assessing authority deserves to be restored, yet some discussion is required with respect to the contract of "warranty" which was undisputedly between manufacturer and the consumer. Warranty:- 33. The word 'Warranty' has not been defined either under the U.P. Act or the Central Act. The dictionary meaning of the words "Warrantee", "Warrantor" and "Warranty" have been given in the Black's Law Dictionary, IXth Edition as under: Warrantee:- "A person to whom a warranty is given; esp., a person who receives a written warrantee. The term also sometimes applies to the beneficiary of an implied warranty." Warrantor:- "A person who give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not mean that a good which is otherwise excisable, should be exempted from paying excise duty. When offering the incentive, the manufacturer or dealer is choosing to take upon himself the cost of that good. So far as the Revenue is concerned, that good remains excisable." (Emphasis supplied by me) 36. In the case of Government of India Vs. Madras Rubber Factory Limited (1995) 4 SCC 349 (para 46) a three Judges Bench of Hon'ble Supreme Court while considering as to whether warranty discount is a trade discount under Section 4 of the Central Excise and Salt Act, 1944, explained the effect of warranty on tyres and held it to be relating to the goods which are subsequently sold to the same customers, as under: "The question is whether the claim, put forward as TAC/Warranty discount is a trade discount within the meaning of Section 4(4)(d)(ii)? We think not. It is only a claim for refund by the buyer for the manufacturing defect in the tyre sold by the assessee, which is being honoured by the assessee in a manner acceptable to both the parties. In a given case, a buyer may well insist that he must be reimbursed in cash and not in kind. In such a case, the assessee cannot cert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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