MOHD. EKRAM KHAN AND SONSversusCOMMISSIONER OF TRADE TAX, U.P., LUCKNOW

A                    MOHD. EKRAM KHAN AND SONS                                   '       ~
                                        v.
           COMMISSIONER OF TRADE TAX, U.P., LUCKNOW

                                JULY 21, 2004

B               [S.N. VARIAVA AND ARIJIT PASAYAT, JJ.]

         Uttar Pradesh Trade Tax Act, 1948 :
                                                                                       ~




          S.2(h)-Sale-Supply of motor parts to customers by agent under
c   warranty agreement-Amount received by agent from manufacturer for
    such· supply of parts-Assessed to tax-Held, assessee received payment
    of the price for the parts supplied to customers-Transactions were subject
    to levy of tax.

         A manufacturer of vehicles in Maharashtra had an agreement
D with its customers to replace defective parts during warranty period.
    The agent in the State of Uttar Pradesh supplied the parts to the                  ..-
    customers under the warranty agreement and received the price
    thereof from the manufacturer. The assessing authority opined that the
    transaction amounted to sale and assessed the amount received by
E   agent from the manufacturer as liable to tax under the U.P. Trade Tax
    Act, 1948. The Commissioner (Appeals) upheld the assessment. But the
    Trade Tax Tribunal held that there was no sale. However, the High
    Court set aside the order of the tribunal holding that the transactions
    constituted sale attracting levy of tax. Aggrieved the assessee-agent
    filed the present appeals.
F
         Dismissing the appeals, the Court

       HELD : The High Court has rightly held that the transaction was
  subject to levy of tax. The categorical factual finding recorded by the
G taxing authorities and the High Court is'that the assessee had received
  the payment of the price for the parts supplied to customers. In the
  event of manufacturer purchasing parts from open market for the
  purpose of replacement of defective parts, it would have paid tax for
  such transactions. The position is not different because the assessee had      ...   "\.'


H supplied the parts and had received the price. Assessing authorities had
                                       116
            MOHD. EXRAM KHAN v. COMMR. OF TRADE TAX [PASAYAT, J.] 117

        categorically recorded a finding that the transaction is intra-State in A
        nature. (120-A-D]

              Premier Automobiles Ltd & Anr. Etc. v. Union of India, [1972] 2
        SCR 526 and Commissioner of Sales Tax, Delhi Administration, Vikas
        Bhawan, New Delhi v. Prem Nath Motors (P) Ltd, (1979) 43 STC 52, B
        distinguished.

             Prem Motors v. Commissioner ofSales Tax, Madhya Pradesh, (1986)
        61 SCT 244 and Geo Motors v. State of Kera/a, (2001) 122 STC 285,
        overruled.

             CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9618 of C
        2003.

             From the Judgment and Order dated 25.4.2003 of the Allahabad High
        Court in T.T.R. No. 332 of 2201.

                                          WITH
                                                                                    D

              C.A. No. 9619 of2003.

              Dhruv Agarwal and Preveen Kumar for the Appellant.

              Punit Dutt Tyagi for the Respondent.                                  E
              The Judgment of the Court was delivered by

               ARIJIT PASA YAT, J. : These two appeals relate to common
 •      judgment rendered by a learned Single Judge of the Allahabad High Court. F
         The appellant (hereinafter referred to as the 'assessee') was a dealer
         registered under the Uttar Pradesh Trade Tax Act, 1948 (hereinafter
         referred to as the 'Act'), for the relevant assessment years i.e. 1990-91 and
          1996-97. The only question involved in these appeals is whether the
         amount received by the assessee for supply of parts to the customers as
        . a part of the warranty agreement was liable to tax. The assessee was an G
          agent of Mis Mahindra and Mahindra (hereinafter referred to as the
          'manufacturer'). The manufacturer had warranty agreement. with the
         purchasers of vehicles (hereinafter referred to as the 'customers') to replace
,_ ,.     defective parts during the warranty period. As found by the taxing
          authorities and the High Court, the manufacturer made payment for certain H
    118                 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
                                                                                     ..
A price as the parts were supplied by the assessee to the customers. Credit
    notes were issued by the manufacturer to the assessee in respect_ of the price
    of the parts supplied to the customers. The assessing officer was of the view
    that the payments received through credit notes amounted to a sale in terms
    of Section 2(h) of the Act. said Provision, so far as relevant reads as
B   follows:

                  "(h) 'Sale' with its grammatical vanat1ons and cognate
             expressions, means any transfer of property in goods (otherwise
             than by way of a mortgage, hypothecation, charge or pledge) for
             cash or deferred payment or other valuable consideration and
c            includes-"

          Accordingly tax was levied for the two assessment years in question.




                                                                                          ..
          The orders of assessment were questioned before the commissioner
D (Appeal), Varansai who upheld the assessments by common order dated
    20.6.200 I. The matter was carried in appeal before the Trade Tax Tribunal,
    Varanasi (in short 'Tribunal') by the assessee which placed reliance on
    certain decisions of different High Courts and came to hold that there was
    no sale. The matter was carried in revision by Revenue before the
    Allahabad High Court. The High Court set aside the order of the Tribunal
E   and held that the transactions constituted sale attracting levy of tax.

          In support of the appeals, learned counsel submitted that the position
    in law is no longer res integra. In Premier Automobiles Ltd & Anr. Etc.
    v. Union of India, [1972] 2 SCR 536 it was clearly held that the
F   replacement of defective parts during the warranty period would not
    involve any sale. Reliance was also placed on decisions of the Delhi,
    Madhya Pradesh and Kerala High Courts reported in Commissioner of
    Sales Tax, Delhi Administration, Vikas Bhawan, New Delhi v. Prem Nath
    Motors (P.) Ltd., [1979] 43 STC 52, Prem Motors v. Commissioner a/Sales
G   Tax, Madhya Pradesh, [1986] 61 STC 244 and Geo Motors v. State of
    Kera/a, [2001] 122 STC 285. It was submitted that the assessee, as part
    of the warranty agreement, replaced the defective parts. There was a
    contractual obligation for the same and, therefore, there was no sale
    involved.

H         In response, learned counsel for the revenue submitted that the
   MOHD. EXRAM KHAN v. COMMR. OF TRADE TAX [PASAYAT, J.] 119

transaction between the assessee and the manufacturer was a separate A
transaction. It is not the case of the assessee that the manufacturer had
supplied the goods to the customers. If it had supplied parts to the
customers through asseessee; that position may have been different. The
manufacturer was obligated to make the replacement. If it did not possess
the parts to meet the contractual obligation, it would have purchased the B
parts from any seller of the parts and would have paid the sales tax. In the
instant case, the assessee had supplied the goods for which it received the
consideration 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.
                                                                           c
      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 D
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 compo- E
nents 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 mann~r for reasonable
length of time. Therefore, entire cost of warranty was to be borne by the
manufacturer. The issue was entirely different from the one at hand and F
the ratio in the said case provides no answer to the present dispute. Prem
Nath's case (supra), as the factual position goes to show, dealt with transfer
of property in the part or parts replaced in pursuance of the stipulation of
warranty as part of the original sale of car for the fixed price paid by the
buyer/consumer. The price so fixed and received was a consolidated price G
for the car and the parts that may have to be supplied by way of
replacement in pursuance of the warranty. That decision also throws no
light on the present controversy. Though the decision in Geo Motor's case
(supra) and Prem Motor's case (supra) support the stand of the assessee,
we find that basic issue as to the nature of the transaction between the H
    120                 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A assessee and the manufacturer was lost sight of. As noted above, in a case
    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. The categorical factual
B   finding recorded by the taxing authorities and the High Court is that the
    assessee had received the payment of the price for the parts supplied to
    customers. That being so, the transaction was subject to levy of tax as has
    been rightly held by the High Court. The decisions in Geo Motor's case
    (supra) and Prem Motor's case (supra) stand overruled.

C          However, learned counsel for the assessee submitted that even if it
    is conceded for the sake of arguments that the transactions attracted levy
    of sales tax, no categorical finding has been recorded about the nature of
    the sale i.e. whether it is intra-State or inter-State in character. It was
    submitted that the manufacturer was located in the state of Maharashtra
D   and, therefore, the transaction would be inter-state in nature. We find no
    such plea advanced by the assessee before the forums below. On the
    contrary assessing authorities had categorically recorded a finding that the
    transaction is intra-State in nature. In view of the factual finding we do not
    find any substance in the plea taken by tht assessee. It was further
E   subm~tted that on facts the position would be different for other assessment
    years We do not think it necessary to express any opinion in this regard.
    It is for the assessee to place materials in support of its stand, if any, which,
    it goes without saying, would be examined by the authorities in accordance
    with law.

F        The appeals are sans merit and deserve dismissal which we direct.
    Costs made easy.

    R.P.                                                       Appeals dismissed.·