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

Citation: [2023] 10 S.C.R. 1268 · Decided: 15-05-2023 · Supreme Court of India · Bench: K.M. JOSEPH · Disposal: Reference answered

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2023] 10 S.C.R.
M/s TATA  MOTORS LTD.
v.
THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES
(SPL) & ANR.
(Civil Appeal No. 1822 of 2007)
MAY 15, 2023
[K. M. JOSEPH, B. V. NAGARATHNA AND
AHSANUDDIN AMANULLAH, JJ.]
Sales Tax – Credit Note – Warranty Agreement – Whether, a
credit note issued by a manufacturer to a dealer of automobiles in
consideration of the replacement of a defective part in the
automobile sold pursuant to a warranty agreement being collateral
to the sale of the automobile is exigible to sales tax under the sales
tax enactments of the respective States – Observations made by
Supreme Court in Mohd. Ekram Khan case wherein three other
judgments of the Delhi High Court, Madhya Pradesh High Court
and Kerala High Court in Prem Nath Motors; Prem Motors and Geo
Motors respectively were considered and the latter two judgments
were overruled – Correctness of – Held: The judgment of in Mohd.
Ekram Khan is applicable to a situation where a manufacturer issues
a credit note to a dealer acting under a warranty given by the
manufacturer pursuant to a sale of an automobile in the following
situations – The dealer replaces a defective part of the automobile
by a spare part maintained in the stock of the dealer or when the
same is purchased by the dealer from the open market – In such
situations, the credit note issued in the name of the dealer is a
valuable consideration for a transfer of property in the spare part
made by the dealer to the customer and hence a sale within the
meaning of the sales tax legislations of the respective States under
consideration – The value in the credit note is thus exigible to sales
tax under the respective sales tax enactments under consideration
– The judgment in Mohd. Ekram Khan does not apply to a case
where the dealer has simply received a spare part from the
manufacturer of the automobile so as to replace a defective part
therein under a warranty collateral to the sale of the automobile –
In such a situation also, the dealer may receive a consideration for
the purpose of the service rendered by him as a dealer under a
1268
[2023] 10 S.C.R. 1268 : 2023 INSC 533
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1269
dealership agreement or any other agreement akin to an agent of
the manufacturer which is not a sale transaction – On the above
understanding of the judgment in Mohd. Ekram Khan, the same does
not call for any interference – In light of the above, overruling of
the judgments in the case of Prem Motors and Geo Motors in Mohd.
Ekram Khan, is just and proper – A credit note issued by a
manufacturer to the dealer, in the situations explained above, is a
valuable consideration within the meaning of the definition of sale
and hence, exigible to sales tax under the respective State enactments
of the States under consideration – Appellants-dealers/assessees
liable to pay sales tax under the respective State enactments under
consideration – Sale of Goods Act, 1930 – Central Sales Tax Act.
Contract – Contract of sale – Elements to constitute a valid
contract of sale – Discussed.
Contract – Contract of sale differentiated from other contracts
– Question whether a given contract is one of sale or a contract of
any other description is one of substance and not of form – It
depends on the real meaning and nature of the contract.
Contract – Contract of sale – Condition and warranty – Held:
A condition is a stipulation essential to the main purpose of the
contract, the breach of which gives rise to a right to treat the contract
as repudiated – A warranty is, on the other hand, a stipulation
collateral to the main purpose of the contract, the breach of which
gives rise to a claim for damages but not to a right to reject the
goods and treat the contract as repudiated – Whether a stipulation
in a contract of sale is a condition or a warranty depends in each
case on the construction of the contract – However, a stipulation
may be a condition, though called a warranty in the contract.
Contract – Collateral contracts and collateral warranties –
Discussed.
Answering the Reference, the Court
HELD: 1. The entire controversy must be viewed in the
perspective of a composite transaction and not in isolation as the
dealer (assessee) would be acting under a warranty with there
being a manufacturer on one end and the purchaser or customer
of an automobile at the other end and the dealer acting on behalf
M/s TATA  MOTORS LTD. v. THE DEPUTY COMMISSIONER
OF COMMERCIAL TAXES (SPL) & ANR.
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