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

C.A. No.-001822-001822 - 2007Supreme Court2023 INSC 53315 May 2023Bench: HON'BLE MR. JUSTICE K.M. JOSEPH HON'BLE MRS. JUSTICE B.V. NAGARATHNAAuthor: HON'BLE MR. JUSTICE K.M. JOSEPH106 pages
For Petitioner: MANIK KARANJAWALA
AI SummaryPartly Allowed

What were the facts?

These appeals involved multiple High Courts and concerned the exigibility of sales tax on credit notes issued by automobile manufacturers to dealers for replacement of defective parts under warranty. The core issue was whether such credit notes constituted consideration for a sale. The Supreme Court, in a reference order, expressed reservations about the judgment in Mohd. Ekram Khan & Sons v. CTT, (2004) 6 SCC 183, and referred the matter to a larger bench. The factual matrix, exemplified by M/s Marudhar Motors, involved dealers replacing defective parts from their stock or open market, returning the defective part to the manufacturer, who then issued a credit note. The assessing authorities sought to impose sales tax on these transactions.

What did the Supreme Court hold?

The Supreme Court held that the judgment in Mohd. Ekram Khan & Sons v. CTT, (2004) 6 SCC 183, is applicable when a manufacturer issues a credit note to a dealer for replacing a defective part under warranty, provided the dealer replaces the part from their own stock or from the open market. In such scenarios, the credit note constitutes valuable consideration for the transfer of property in the spare part from the dealer to the customer (and subsequently to the manufacturer), thus amounting to a sale exigible to sales tax. The value in the credit note is taxable. However, the judgment in Mohd. Ekram Khan does not apply if the dealer simply receives a spare part from the manufacturer to replace a defective one. In that case, the dealer might receive consideration for services rendered as an agent, which is not a sale. The Court found the overruling of judgments in Prem Motors and Geo Motors in Mohd. Ekram Khan to be proper. Consequently, dealers are liable to pay sales tax on credit notes issued under the described circumstances. The appeals filed by the dealers were dismissed, and those by the revenue were allowed.

What were the issues?

1. Whether a credit note issued by a manufacturer to a dealer for the replacement of a defective spare part under a warranty, which is collateral to the sale of an automobile, is exigible to sales tax under the respective State Sales Tax Acts? (Question of law) Assessee's contentions (implied from the reference order and the judgment's discussion): - The credit note does not represent consideration for a sale, as there is no sale of the spare part from the dealer to the manufacturer. The replacement is part of the warranty obligation. - The transaction is merely an adjustment of accounts or reimbursement for services rendered by the dealer as an agent of the manufacturer. - The judgment in Mohd. Ekram Khan & Sons v. CTT, (2004) 6 SCC 183, which treated credit notes as consideration, may have been wrongly decided or has a different factual context. Revenue's contentions (implied from the judgment's discussion): - The credit note represents valuable consideration for the transfer of the defective spare part from the dealer to the manufacturer, constituting a sale. - The transaction falls within the definition of 'sale' under the respective Sales Tax Acts, making the value of the credit note taxable.

Which sections of the Income-tax Act were involved?

Section 30,Section 28,Section 65

AI-generated summary — verify with the full judgment below

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURI ICTION CIVIL APPEAL No.1822/2007

M/S. TATA MOTORS LTD. …. APPELLANT(S)

VERSUS

THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES(SPL) & ANR. …. RESPONDENT(S)

WITH CIVIL APPEAL No. 1446/2010

CIVIL APPEAL No.3733 of 2023 (@ SLP(C) No. 11509/2017)

CIVIL APPEAL No.3734 of 2023 (@SLP(C) No. 12119/2017)

CIVIL APPEAL No. 11724/2018 CIVIL APPEAL No. 3827/2011 CIVIL APPEAL No. 3856/2013 CIVIL APPEAL No. 5815/2012 CIVIL APPEAL No. 2756/2012 CIVIL APPEAL No.3718 of 2023 (@ SLP(C) No. 28859/2011) CIVIL APPEAL No. 5969/2011 CIVIL APPEAL No. 5967/2011 2

CIVIL APPEAL Nos.3716-3717 of 2023 (@ SLP(C) Nos. 15642-15643/2011) CIVIL APPEAL No. 3821/2011 CIVIL APPEAL No. 4019/2011 CIVIL APPEAL No. 3822/2011 CIVIL APPEAL No. 4021/2011 CIVIL APPEAL Nos.3719-3723 of 2023 (@ SLP(C) Nos. 31698-31702/2013) CIVIL APPEAL No.3735 of 2023 (@ SLP(C) No. 25905/2013) CIVIL APPEAL No. 4516/2018 CIVIL APPEAL No. 10924/2018 CIVIL APPEAL No. 1821/2007 CIVIL APPEAL No. 9979/2018 CIVIL A

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