M/S.KADOOR SALES CORPORATION, vs. STATE OF KERALA,

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE MR. JUSTICE SYAM KUMAR V.M. FRIDAY, THE 26TH DAY OF JULY 2024 / 4TH SRAVANA, 1946 OT.REV NO. 53 OF 2019 AGAINST THE COMMON ORDER DATED 07.12.2018 IN TA(VAT) NO.15 OF 2016 OF THE KERALA VALUE ADDED TAX/AGRL. INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH,KOZHIKODE REVISION PETITIONER/RESPONDENT: M/S.KADOOR SALES CORPORATION, RKP 333, RAMANATTUKARA, CALICUT- 673633. BY ADVS. A.KUMAR SRI.P.J.ANILKUMAR SMTG.MINI(1748) SRI.P.S.SREE PRASAD RESPONDENT/APPELLANT: STATE OF KERALA, REPRESENTED BY SECRETARY, TAXES DEPARTMENT, THIRUVANANTHAPURAM- 695001. BY GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN, SR THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 26.07.2024, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

:2: OT. Revision No.53 of 2019 O R D E R

Dr. A.K.Jayasankaran Nambiar, J. This OT. Revision impugns the order of the Kerala Value Added Tax Appellate Tribunal, Kozhikode Bench, dated 07.12.2018 in TA(VAT) No.15 of 2016. 2. The brief facts necessary for the disposal of the OT. Revision are as follows: The petitioner is a dealer in construction equipment of a company named M/s. Case New Holland Construction Equipment (India) Pvt. Ltd. It is a registered dealer under the Kerala Value Added Tax Act (for short 'the KVAT Act'). The case of the petitioner is that in the course of its business, it effects sale of construction equipments to customers. The warranty for the equipments sold to the customers is provided by the manufacturer. In terms of the dealership agreement between the petitioner and the manufacturer of the equipment, the petitioner is obliged to provide services to the customers for warranty replacement and repairs. According to the petitioner, when repairs under warranty claims arise consequent to the sale of the equipment, the petitioner intimates the principals of the claim of the customer. The principals,

:3: OT. Revision No.53 of 2019 then honor the warranty and ship the spares free of cost to the petitioner. An invoice is also raised by transferring the goods, which shows the place of delivery as the petitioner's business premise and the value of the spares that are sent to the petitioner for warranty replacement and showing the same in the invoice as spares intended for warranty replacement. 3. It would appear that in the assessment proceedings for the year 2012-13, the assessing authority found that the petitioner would be liable to tax in respect of the value of the spares allegedly sold to the customer as part of the repair activity. In arriving at such a conclusion, the assessing authority appears to have relied on the decision in Mohammed Ekram Khan & Sons v. Commissioner of Trade Tax [(2004) 6 SCC 183]. 4. In the appeal preferred by the petitioner before the First Appellate Authority, the First Appellate Authority found that the petitioner was only a service provider and there was no transfer of materials from the petitioner to the customer. He also found that there was no sale of replaced parts from the petitioner to the customer and that the petitioner was only replacing the defective parts by utilising the spares that were obtained from the manufacturer free of cost. The First Appellate Authority, therefore, found that the contrary finding

:4: OT. Revision No.53 of 2019 entered by the Assessing Authority could not be legally sustained. The assessment was, therefore, modified accordingly in favour of the petitioner. 5. In an appeal preferred by the revenue before the Tribunal, the appellate Tribunal found that the First Appellate Authority had not considered the issue as to whether the claim by the petitioner, that the supply of spares by the manufacturer to him was an interstate transaction as declared before the check post, and the effect of that on the claim for exemption from tax, had not been discussed by the First Appellate Authority, and therefore, the Tribunal was of the view that the order of the Appellate Authority had to be set aside and the assessment order restored. It is significant to note that while the Tribunal finds that the First Appellate Authority did not consider a particular aspect of the case, it did not go further to explain why the order of the Assessing Authority was correct. In other words, it merely refers to an omission on the part of the First Appellate Authority to consider a particular aspect, and then proceeds to mechanically affirm the order of the assessing authority. 6. While the aforesaid defects pointed out in the order of the Tribunal would ordinarily have sufficed for us to remand the matter back to the Tribunal, we find that the decision in Mohammed Ekram

:5: OT. Revision No.53 of 2019 Khan (Supra) has since been revisited by the Supreme Court in the case of M/s.Tata Motors Limited V. the Deputy Commissioner, Commercial Taxes (SPL) and Another [2019-VIL-03-SC] [judgment dated 15.05.2023 in Civil Appeal No.1822/2007 and connected cases], wherein the reference made before the Larger Bench of the Supreme Court has been answered in the following terms: “70. In the circumstances, the reference is answered in the following terms: i) The judgment of this Court 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. ii) 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 dealership agreement or any other agreement akin to an agent of the manufacturer which is not a sale transaction.

:6: OT. Revision No.53 of 2019 On the above understanding of the judgment of this Court in Mohd. Ekram Khan, we are of the view that the same does not call for any interference.” 7. In the light of the clarification provided by the Supreme Court in Tata Motors (Supra), we find that the case of the petitioner is squarely covered by Clause (ii) above, which speaks of the circumstances under which the judgment in Mohammed Ekram Khan (Supra) will not apply. As already noticed from the facts stated earlier, the petitioner had merely received a spare part from the manufacturer so as to replace a defective part under the warranty issued with the sale of the main equipment. The petitioner merely received a consideration for the service rendered by him as a dealer, under the dealership agreement which he had entered into with the customer as an agent of the manufacturer, and hence there was no sale transaction which would attract tax under the KVAT Act. We, therefore, allow this OT. Revision by answering the questions of law raised therein in favour of the assessee and against the revenue.

Sd/- DR. A.K.JAYASANKARAN NAMBIAR JUDGE Sd/- SYAM KUMAR V.M. JUDGE mns

:7: OT. Revision No.53 of 2019 APPENDIX OF OT.REV 53/2019 PETITIONER ANNEXURES ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 26.11.2015. Annexure B TRUE COPY OF THE APPELLATE ORDER DATED 20.01.2016. ANNEXURE C TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 07.12.2018.