XEROX MODICORP LIMITED. versus STATE OF KARNATAKA

Citation: [2005] SUPP. 2 S.C.R. 895 · Decided: 24-08-2005 · Supreme Court of India · Bench: S.N. VARIAVA · Disposal: Dismissed

Judgment (excerpt)

" 
XEROX MODICORP LIMITED. 
v. 
STATE OF KARNATAKA 
AUGUST 24, 2005 
[S.N. VARIAVA AND TARUN CHATTERJEE, JJ.] 
Sales Tax: 
Karnataka Sales Tax Act, 1957-Sections 2(1), 2(v) & 5B-Karnataka 
Sales Tax Rules, 1957-Explanation I to Rule 6(4)--Company doing business 
in Xerox machines, parts and accessories-Service-cum-maintenance 
agreen1ent entered into between con1pany and custon1er after sale of Xerox 
machine-Supply of spare parts of components like toners/developers under 
the agreement-Held: Supply was for a price-There was transfer of property 
in tangible goods before they got consumed-Hence had all elements of sale. 
Appellants are a Public Limited Company doing business in Xerox 
machines, part and accessories. After the Xerox machine is sold to a 
customer, if the customer so desires, the Appellants enter into a Full 
Service Maintenance Agreement (FSMA) or a Spares and Service 
Maintenance Agreement (SSMA). 
In FSMA the Appellants take on the responsibility offully maintaining 
the machine, servicing if and if necessary replacing parts. The Appellants 
also supply material, like toners and developers. They charge at a fixed 
rate per copy produced by the machine. Under the SSMA, the Appellants 
agree to maintain the machine including replacement of parts, if necessary, 
for a fixed lump sum amount per annum. However, the costs of toners, 
developers etc. are to be borne by the customers. 
The question that arose for consideration in the present appeal is 
whether the supply of spare parts and components like toners and 
developers under the aforementioned two types of agreements amounted 
to sale. 
Dismissing the appeal, the Court 
A 
B 
c 
D 
E 
F 
G 
HELD: I.I. The Agreements are not just service contracts but also H 
895 
896 
SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R. 
A maintenance contracts. Under the Agreements, apart from the service 
element, for which no tax is sought to be levied, there is the element of 
supply parts and components like toners/developers etc. Merely because 
price is not being separately charged for this, does not detract from the 
position that the supply is for a price. Such supply has all the elements 
B of sale as understood in law. There is transfer of title in movables for a 
price. [900-C-D-E] 
1.2. The mere fact that it is not known in the beginning whether or 
not a part will have to be replaced is irrelevant. Even in the absence of 
any such Agreements, if a part was required to be replaced and was 
C replaced there would be a sale of that part. The same position remains 
even under the Agreements. As and when a part is required to be and is 
replaced, a sale takes place at that instance. The tax is on sale. So if there 
is no replacement of a part then there is no sale of a part. There is sale 
of parts, both in FSMA and SSMA. [900-E-F-G; 903-E] 
D 
E 
1.3. So far as toners and developers are concerned it is known from 
the beginning that they will require regular replenishment. Under SSMA 
the customer buys them. Under FSMA they are replenished by the 
Appellants. There is sale of toners and developers even in the case of 
FSMA. (900-G-H; 903-E-F] 
The State of Madras v. Gannon Dunkerly & Co., (Madras) Ltd., [1959] 
SCR 379 and State of U.P. v. Union of India, [2003) 3 SCC 239, referred 
to. 
p 
2.1. Though the Appellants submitted that the part or component 
G 
replaced can be considered to be material which is consumed in the execution 
of the maintenance contract and, therefore, not exigible to tax by virtue of 
Explanation I ~o Rule 6( 4) of the Karnataka Sales Tax Rules, but the term 
'consumables' used in the said Explanation has to be read in the context of 
the words preceding and following. [900-H; 901-A, C-D) 
2.2. The words 'consumables' in Explanation I to Rule 6(4) refers to 
such items which get consumed before the property in the goods can pass. 
Toners and developers are liquids which are put in the Xerox machine. 
They perform the same function as ink in printers. "£!nder the Sale of 
H Goods Act, 1930 if specified goods in a deliverable state are delivered the 
,.. 
.. 
-, 
XEROX MODICORP LIMITED v. STATE 
897 
property in the goods passes. Undisputably, the toners and developers are A 
delivered in bottles/containers. [902-E-F] 
Pest Control India Ltd v. Union of India & Ors., (1989) 75 SIC 188; 
The Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), 
Ernaku/am v, MK. Velu, (1993) 89 SIC 40 and Dynamic Industrial & 
Cleaning Services 

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