Hon'ble Mr. Justice Sanjay Kishan Kaul
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.1822 of 2007
M/S. TATA MOTORS LTD. ….Appellant
versus
THE DEPUTY COMMISSIONER OF
COMMERCIAL TAXES (SPL) & ANR. ….Respondents
With
C.A. No. 3004-3006/2017
C.A. No. 1821/2007
C.A. No. 2756/2012
C.A. No. 3856/2013
C.A. No. 3824/2011
C.A. No. 3827/2011
C.A. No. 3820/2011
C.A. No. 3821/2011
C.A. No. 3825-3826/2011
C.A. No. 3823/2011
C.A. No. 3822/2011
SLP(C) No. 15642-15643/2011
SLP(C) No. 25905/2013
SLP(C) No. 12806-12808/2016
SLP(C) No. 12280/2014
1
C.A. No. 5815/2012
C.A. No. 8049/2009
C.A. No. 6167/2009
C.A. No. 6171/2009
C.A. No. 6166/2009
C.A. No. 6160/2009
C.A. No. 6173/2009
C.A. No. 6161/2009
C.A. No. 6164/2009
C.A. No. 6163/2009
C.A. No. 6162/2009
C.A. No. 6165/2009
C.A. No. 5967/2011
C.A. No. 5969/2011
C.A. No. 6168/2009
SLP(C) No. 19758/2009
SLP(C) No. 19745/2009
SLP(C) No. 19754/2009
SLP(C) No. 19748/2009
SLP(C) No. 19750/2009
SLP(C) No. 19756/2009
SLP(C) No. 19757/2009
SLP(C) No. 19746/2009
SLP(C) No. 19755/2009
SLP(C) No. 19752/2009
SLP(C) No. 19753/2009
SLP(C) No. 19751/2009
C.A. No. 6172/2009
SLP(C) No. 14260/2007
SLP(C) No. 28859/2011
SLP(C) No. 31698-31702/2013
C.A. No. 4019/2011
C.A. No. 4021/2011
SLP(C) No. 5447/2014
SLP(C) No. 5449-5451/2014
C.A. No. 4516/2018
(With appln. for exemption from filing O.T)
C.A. No. 9979/2018
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(With appln. for c/delay in filing SLP, exemption from filing c/c of
the impugned judgment, permission to file additional documents)
C.A. No. 10924/2018
(With appln. for c/delay in filing SLP)
C.A. No. 11724/2018
(With appln. for c/delay in filing SLP and exemption from filing
O.T.)
J U D G M E N T
SANJAY KISHAN KAUL, J.
1. The common question of law, which arises for consideration in these
appeals, is the liability towards sales tax, in respect of the free
replacement of defective parts in motor vehicles, during the period of
warranty.
2. Civil Appeal No.1821/2007, filed by one of the dealers [M/s. Prerana
Motors (P) Ltd.], was taken up as the main appeal for addressing the
submissions and, thus, reference to some of the relevant facts is qua that
appeal.
3. M/s. Prerana Motors (P) Ltd./appellant is a dealer of Tata Motors. Sales Tax
is paid on the vehicles sold. There is a warranty given to the purchaser
3
for free replacement of parts, during the period of warranty. To facilitate
this, the dealer is obliged to keep a stock of spare parts. The purchaser
has an option to go to any dealer, and not be confined to the dealer from
whom the purchase was made. Sales tax is paid on the stock of spare
parts purchased from Tata Motors. The defective parts are sent back to
Tata Motors and credit note may be given by Tata Motors for the said
parts. The customer does not pay for the replacement of the defective
part, which is stated to be the crucial fact. The stand of the Revenue is
that sales tax is liable to be paid even qua the return of the spare parts, as
credit note is given for the same, to the dealer.
4. In the facts of this case, the assessment order and the appeal went against the
appellant/dealer, while the Tribunal held in favour of the appellant/dealer.
However, the High Court, relying upon the judgment of this Court in
Mohd. Ekram Khan & Sons v. Commissioner of Trade Tax, U.P.,
Lucknow1
set aside the order passed by the Tribunal, restoring the order
of the assessing authority.
5. Mr. P. Chidambaram, learned senior counsel appearing for the appellant,
drew our attention to the Dealership Agreement and pointed out that it is
a principal-to-principal agreement, but that would not really make a
1 (2004) 6 SCC 183
4
difference to the controversy in question. In terms of this Agreement,
inter alia a stock of spare parts has to be kept by the dealer.
6. Learned senior counsel fairly conceded that if the judgment in Mohd.
Ekram Khan & Sons2
case is applicable, then the appellant would really
have no case, but that his endeavour would be to distinguish the said
judgment and/or persuade this Court that some of the observations made
therein were per incuriam, and that in any case the matter needs to be
examined by a larger Bench. In this course of action, learned senior
counsel referred to the following judgments:
7. Premier Automobiles Ltd. & Anr. Etc. v. Union of India:3
Mr.
Chidambaram, learned senior counsel submitted by reference to pages
537 & 538 that the principle of warranty covering cars sold has been well
enunciated. Accordingly, all defects on account of faulty manufacture in
workmanship have to be set right and the defective parts have to be
replaced, free of cost, by the manufacturer or his dealer, within a
specified period of time or a given distance travelled by the car. Free
services have to be rendered. Car manufacturers enter into an agreement
with the manufacturers of components, providing for a warranty so far as
2 (supra)
3 (1972) 2 SCR 526
5
the components are concerned. The whole object behind warranty is that
a consumer who has made a heavy investment, while purchasing a car, is
assured of proper performance of the vehicle “in a trouble-free manner
for a reasonable length of time.” It is, thus, his submission that this
fundamental concept appears to have been lost in Mohd. Ekram Khan &
Sons.4
8. Commissioner of Sales Tax v. M/s. Prem Nath Motors (P) Ltd.:5
Learned
senior counsel drew our attention to paras 17 & 18 of this judgment,
where observations have been made to the effect that a dealer sells cars
along with a warranty, under which it is agreed that it would replace the
parts free of cost. When such a part is replaced, it becomes a part of the
car and the property in it stands transferred to the buyer/consumer. There
is no separate consideration paid for the part so transferred and, thus, the
only reasonable inference is that the consideration for the part or parts
that might be replaced, under the warranty, was not separately specified
because it was included in the price fixed and paid for the car at the time
of its sale. The price so fixed and received is, thus, a consolidated price
for the car and the parts that may have to be supplied by way of
4 (supra)
5 ILR (1978) II Delhi 273
6
replacement, in pursuance of the warranty.
9. Prem Motors v. Commissioner of Sales Tax, Madhya Pradesh6
: The Court
rejected the contention of the Revenue that when spare parts are replaced
by the assessee and given to the customer free of charge, that being the
condition of the warranty, the assessee recovers the price from the
manufacturer and, in substance, it is a sale of the spare parts to the
manufacturer and therefore liable to be taxed. It was opined that when a
dealer sells automobile vehicles, he sells it with all parts in a saleable
condition. The warranty given is a warranty from the manufacturer and
therefore, if during the warranty period, any part is found to be defective
and is to be replaced, the responsibility of replacement is on the
manufacturer. This is neither a sale of parts by the dealer to the customer
nor to the manufacturer. What is effectively done is a passing on, of the
parts, from the manufacturer to the customer, but in order to avoid delays
and prevent any inconvenience to the customer, he replaces the part first
and gets them from the manufacturer later. The cost for the same is
reimbursed by the manufacturer.
It may be noted that this judgment has specifically been overruled in the
6 (1986) 61 STC 244 (MP Division Bench)
7
Mohd. Ekram Khan & Sons7
case.
10. Geo Motors v. State of Kerala8
: The reasoning of the Delhi High Court in
Commissioner of Sales Tax v. M/s. Prem Nath Motors (P) Ltd.9
was
adopted to conclude that the transaction could not be categorised as a
‘sale’ even though the dealer had purchased spare parts by giving ‘C’
Forms. Such a transaction was purely for replacement and not for sale.
This judgment again has been specifically overruled in Mohd. Ekram
Khan & Sons10 case.
11. Commercial Tax Officer (Anti-Evasion), Jodhpur v. Marudhara Motors11:
This opinion is post the judgment in the Mohd. Ekram Khan & Sons12
case. The learned single Judge of the Rajasthan High Court
distinguished the case of the assessee dealer from the facts obtaining in
Mohd. Ekram Khan & Sons13 case. One such distinguishing factor was
that in the Mohd. Ekram Khan & Sons14 case, there was a relationship of
principal to agent and not of principal to principal. The most crucial
7 (supra)
8 (2001) 122 STC 285 (Kerala Division Bench)
9 (supra)
10 (supra)
11 (2010) 29 VST 114 (Raj)
12 (supra)
13 (supra)
14 (supra)
8
aspect observed in this case, and which is also the plea of
Mr. Chidambaram, learned senior counsel, is qua the observations in para
6 of the Mohd. Ekram Khan & Sons15 case. It was observed that “in a
case the manufacturer may have purchased from the open market parts
for the purpose of replacement of the defective parts, for such
transactions, it would have paid taxes. The position is not different
because the assessee had supplied the parts and had received the price.”
12. While giving relief to the assessee, the significance of lack of consideration
passing, i.e., spare parts being provided free of cost was taken note of,
and thus, the cost of spare parts was held to be part of the cost of the
vehicle, while giving such warranty for a limited period of time to the
customer.
13. Learned senior counsel, thus, contended that the aforesaid significant aspect
clearly distinguishes his case from the case of Mohd. Ekram Khan &
Sons16
, i.e., the aspect of the replacement being undisputedly free. In
this behalf, he referred to Section 4(1) of The Sale of Goods Act, 1930,
which reads as under:
“4. Sale and agreement to sell.—
(1) A contract of sale of goods is a contract whereby the seller
15 (supra)
16 (supra)
9
transfers or agrees to transfer the property in goods to the buyer
for a price. There may be a contract of sale between one partowner and another.”
The submission, thus, is that for the sale of the parts of the car, a
price has to be paid, which is not so in the present case.
14. SLP (C) Nos.12806-12808/2016: Learned counsel inter alia drew our
attention to “Treitel- The Law of Contract” by G.H. Treitel, (7th ed.), to
contend that to be enforceable as a collateral contract, a promise must be
supported by consideration. It was submitted that the contract to supply
spare parts, during the warranty period was akin to a collateral contract.
15. Learned counsel appearing for the other assessees also supported the stand
taken by Mr. Chidambaram.
16. On the other hand, Mr. Basava Prabhu S. Patil, learned senior counsel
appearing for the respondents in the aforesaid civil appeal, sought to
contend otherwise and submitted that the Mohd. Ekram Khan & Sons17
case is the binding precedent, and in this light, the matter does not need
to be examined any further.
17. Learned senior counsel drew our attention to the following judgments:
17 (supra)
10
i. Navnit Motors Pvt. Ltd. v. State of Maharashtra18
ii. Kataria Automobiles (P.) Ltd. v. State of Gujarat19
iii. The Commissioner, Commercial Tax, Lko. v. S/S Maskat
Motors Pvt. Ltd.20
18. These judgments emanate from the Bombay High Court, Gujarat High Court
and the Allahabad High Court respectively, and the submission is that a
consistent view, in favour of the Revenue, has been taken by these three
High Courts. We may, however, notice that the view emanates only by
reason of reliance upon the Mohd. Ekram Khan & Sons21 case.
19. Learned counsel also referred to the judgment in Bharat Heavy Electricals
Ltd. v. Commissioner of Customs & Central Excise, Indore22 to contend
that while considering the issue of excise duty in respect of components
towards the “complaint reserve”, it was held that the same would be
excisable. It was observed that while the initial price charged for the
machinery may include the element of the “complaint reserve”, at the
time of purchase, it is not known whether there will be any requirement
to replace any part and, in many cases, the parts are not required to be
18 (2012) 47 VST 511 (Bom)
19 (2015) 51 GST 403 (Gujarat)
20 (2017) 102 VST 220 (All)
21 (supra)
22 (2003) 9 SCC 185
11
replaced. In such an eventuality, the price equivalent of the “complaint
reserve” is not returned to the customer.
20. We are not delving into the controversy in any further detail as we are of the
opinion that the issue raised is required to be looked into by a larger
Bench. 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 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. This is in the
context of the observations discussed aforesaid 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 & Sons23 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
23 (supra)
12
judgment in Premier Automobiles Ltd. & Anr. Etc.24 case is stated to
contain a different factual situation, as per the observations in the Mohd.
Ekram Khan & Sons25 case. There are observations referred to above,
again in the Mohd. Ekram Khan & Sons26 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 to the manufacture, was given a credit note.
21. We have some reservations in respect of the observations and legal
propositions laid down in the Mohd. Ekram Khan & Sons27 case and
consider it appropriate that the matter be considered by a larger Bench.
22. The papers be placed before Hon’ble the Chief Justice for necessary orders.
..….….…………………….J.
[L. Nageswara Rao]
24 (1972) 2 SCR 526
25 (supra)
26 (supra)
27 (supra)
13
...……………………………J.
[Sanjay Kishan Kaul]
New Delhi.
February 05, 2019.
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