M/S. TATA MOTORS LTD. versus THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES (SPL) & ANR.

Citation: [2019] 3 S.C.R. 835 · Decided: 05-02-2019 · Supreme Court of India · Bench: L. NAGESWARA RAO · Disposal: Matter referred to larger bench

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Judgment (excerpt)

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835
M/S. TATA MOTORS LTD.
v.
THE DEPUTY COMMISSIONER OF
COMMERCIAL TAXES (SPL) & ANR.
(Civil Appeal No. 1822 of 2007)
FEBRUARY 05, 2019
[L. NAGESWARA RAO AND SANJAY KISHAN KAUL, JJ.]
Sales Tax :–
Liability towards, in respect of the free replacement of defective
parts in motor vehicles, during the period of warranty – Appellant,
dealer of Tata Motors –  Warranty is given to the purchaser for free
replacement of defective parts, during the period of warranty – To
facilitate this, the dealer is obliged to keep a stock of spare parts –
Sales tax is paid on the stock of spare parts so purchased from Tata
Motors – Defective parts are sent back by the dealer to Tata Motors
and credit note may be given by Tata Motors for the said parts –
Plea of Revenue that sales tax is liable to be paid even qua the
return of the spare parts, as credit note is given to the dealer for the
same – Assessment order and appeal went against the appellant –
Tribunal held in favour of the appellant – High Court set aside the
order and restored the order of the assessing authority – Held:
Judgment in Mohd. Ekram Khan & Sons case refers to the credit
notes received as consideration for the replacement; but the moot
point is whether credit notes can be treated as a mode of payment
or not – Issue raised, as to whether, in the case of warranty for the
supply of free spare parts; once the replacement is made, and the
defective part is returned to the manufacturer, sales tax would be
payable on such a transaction, based on a credit note, which may
be issued for the said purpose, required to be looked into by a
larger Bench – Papers be placed before Hon’ble the Chief Justice
for necessary action.
Referring the matter to larger Bench, the Court
HELD : 1.1 The crucial point which would arise for
consideration, and over which the matter needs to be debated, is
as to whether, in the case of such a warranty for the supply of free
[2019] 3 S.C.R. 835
835
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836                    SUPREME COURT REPORTS            [2019] 3 S.C.R.
spare parts; once the replacement is made, and the defective
part is returned to the manufacturer, sales tax would be payable
on such a transaction relating to the spare part, based on a credit
note, which may be issued for the said purpose. The issue raised
is required to be looked into by a larger Bench.  This is in the
context of the observations regarding the price of the car being
inclusive of the cost of the spare parts, the latter being supplied
for free, upon replacement.  Sales tax on the car is paid.  Sales
tax on the inventory purchased by the dealer is paid.  Thus, if
there is no consideration for these replaced parts, can sales tax
be levied at all?  The judgment in the Mohd. Ekram Khan & Sons
case refers to the credit notes received as consideration for the
replacement; but it is a moot point whether credit notes can be
treated as a mode of payment or not. The judgment in Premier
Automobiles Ltd. & Anr. Etc. case is stated to contain a different
factual situation, as per the observations in the Mohd. Ekram
Khan & Sons case. There are observations, again in the Mohd.
Ekram Khan & Sons case, of the possibility of the manufacturer
having purchased, from open markets, the parts for replacement,
on which taxes would be paid. In that context, it was observed
that “the position is not different because the assessee had
supplied the parts and received the price.” The assessee actually
had purchased the parts and paid sales tax on it, but on return of
the defective part, was given a credit note.  There are some
reservations in respect of the observations and legal propositions
laid down in the Mohd. Ekram Khan & Sons case and it is
considered appropriate that the matter be considered by a larger
Bench. The papers be placed before Hon’ble the Chief Justice
for necessary orders. [Paras 20-22][843-E-H; 844-A-C]
Mohd. Ekram Khan & Sons v. Commissioner of Trade
Tax, U.P., Lucknow (2004) 6 SCC 183 : [2004] 3 Suppl.
SCR 116 ; Premier Automobiles Ltd. & Anr. Etc. v. Union
of India : [1972] 2 SCR 526 ; Commissioner of Sales
Tax v. M/s. Prem Nath Motors (P) Ltd. : ILR (1978) II
Delhi 273 ; Prem Motors v. Commissioner of Sales Tax,
Madhya Pradesh (1986) 61 STC 244 (MP Division
Bench) : Geo Motors v. State of Kerala (2001) 122 STC
285 (Kerala Division Bench) : Commercial Tax Officer
(Anti-Evasion), Jodhpur v. Marudhara Motors (2010)
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837
29 VST 114 (Raj) : Navnit Motors Pvt. Ltd. v. State of
Maharash

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