# M/s TATA MOTORS LTD v. THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES

- **Citation:** 2023 INSC 533
- **Court:** Supreme Court of India
- **Decided:** 2023-05-15
- **Case number:** Civil Appeal No. 1822 of 2007
- **Bench:** K. M. Joseph, B. V. Nagarathna, Ahsanuddin Amanullah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-tata-motors-ltd-v-the-deputy-commissioner-of-commercial-taxes-36575
- **Pages:** 79

## Headnote

Sales Tax - Credit Note - Warranty Agreement - Whether, a
credit note issued by a manufacturer to a dealer of automobiles in
consideration of the replacement of a defective part in the
automobile sold pursuant to a warranty agreement being collateral
to the sale of the automobile is exigible to sales tax under the sales
tax enactments of the respective States - Observations made by
Supreme Court in Mohd. Ekram Khan case wherein three other
judgments of the Delhi High Court, Madhya Pradesh High Court
and Kerala High Court in Prem Nath Motors; Prem Motors and Geo
Motors respectively were considered and the latter two judgments
were overruled - Correctness of - Held: The judgment of 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
- 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
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dealership agreement or any other agreement akin to an agent of
the manufacturer which is not a sale transaction - On the above
understanding of the judgment in Mohd. Ekram Khan, the same does
not call for any interference - In light of the above, overruling of
the judgments in the case of Prem Motors and Geo Motors in Mohd.
Ekram Khan, is just and proper - A credit note issued by a
manufacturer to the dealer, in the situations explained above, is a
valuable consideration within the meaning of the definition of sale
and hence, exigible to sales tax under the respective State enactments
of the States under consideration - Appellants-dealers/assessees
liable to pay sales tax under the respective State enactments under
consideration - Sale of Goods Act, 1930 - Central Sales Tax Act.
Contract - Contract of sale - Elements to constitute a valid
contract of sale - Discussed.
Contract - Contract of sale differentiated from other contracts
- Question whether a given contract is one of sale or a contract of
any other description is one of substance and not of form - It
depends on the real meaning and nature of the contract.
Contract - Contract of sale - Condition and warranty - Held:
A condition is a stipulation essential to the main purpose of the
contract, the breach of which gives rise to a right to treat the contract
as repudiated - A warranty is, on the other hand, a stipulation
collateral to the main purpose of the contract, the breach of which
gives rise to a claim for damages but not to a right to reject the
goods and treat the contract as repudiated - Whether a stipulation
in a contract of sale is a condition or a warranty depends in each
case on the construction of the contract - However, a stipulation
may be a condition, though called a warranty in the contract.
Contract - Collateral contracts and collateral warranties -
Discussed.
Answering the Reference, the Court
HELD: 1. The entire controversy must be viewed in the
perspective of a composite transaction and not in isolation as the
dealer (assessee) would be acting

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SUPREME COURT REPORTS
[2023] 10 S.C.R.
M/s TATA MOTORS LTD.
v.
THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES
(SPL) & ANR.
(Civil Appeal No. 1822 of 2007)
MAY 15, 2023
[K. M. JOSEPH, B. V. NAGARATHNA AND
AHSANUDDIN AMANULLAH, JJ.]
Sales Tax - Credit Note - Warranty Agreement - Whether, a
credit note issued by a manufacturer to a dealer of automobiles in
consideration of the replacement of a defective part in the
automobile sold pursuant to a warranty agreement being collateral
to the sale of the automobile is exigible to sales tax under the sales
tax enactments of the respective States - Observations made by
Supreme Court in Mohd. Ekram Khan case wherein three other
judgments of the Delhi High Court, Madhya Pradesh High Court
and Kerala High Court in Prem Nath Motors; Prem Motors and Geo
Motors respectively were considered and the latter two judgments
were overruled - Correctness of - Held: The judgment of 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
- 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
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[2023] 10 S.C.R. 1268 : 2023 INSC 533
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dealership agreement or any other agreement akin to an agent of
the manufacturer which is not a sale transaction - On the above
understanding of the judgment in Mohd. Ekram Khan, the same does
not call for any interference - In light of the above, overruling of
the judgments in the case of Prem Motors and Geo Motors in Mohd.
Ekram Khan, is just and proper - A credit note issued by a
manufacturer to the dealer, in the situations explained above, is a
valuable consideration within the meaning of the definition of sale
and hence, exigible to sales tax under the respective State enactments
of the States under consideration - Appellants-dealers/assessees
liable to pay sales tax under the respective State enactments under
consideration - Sale of Goods Act, 1930 - Central Sales Tax Act.
Contract - Contract of sale - Elements to constitute a valid
contract of sale - Discussed.
Contract - Contract of sale differentiated from other contracts
- Question whether a given contract is one of sale or a contract of
any other description is one of substance and not of form - It
depends on the real meaning and nature of the contract.
Contract - Contract of sale - Condition and warranty - Held:
A condition is a stipulation essential to the main purpose of the
contract, the breach of which gives rise to a right to treat the contract
as repudiated - A warranty is, on the other hand, a stipulation
collateral to the main purpose of the contract, the breach of which
gives rise to a claim for damages but not to a right to reject the
goods and treat the contract as repudiated - Whether a stipulation
in a contract of sale is a condition or a warranty depends in each
case on the construction of the contract - However, a stipulation
may be a condition, though called a warranty in the contract.
Contract - Collateral contracts and collateral warranties -
Discussed.
Answering the Reference, the Court
HELD: 1. The entire controversy must be viewed in the
perspective of a composite transaction and not in isolation as the
dealer (assessee) would be acting under a warranty with there
being a manufacturer on one end and the purchaser or customer
of an automobile at the other end and the dealer acting on behalf
M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER
OF COMMERCIAL TAXES (SPL) & ANR.
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of the manufacturer or an intermediary between the said customer
and manufacturer. The said transaction cannot be viewed in a
myopic sense by truncating or excluding the role or action of a
dealer under the warranty and viewing it only from the perspective
of a transaction simpliciter between manufacturer and a dealer.
Such an approach is not only skewed from a commercial
perspective but also jurisprudentially or in the legal sense.
[Para 30][1326-F-H]
2. When a dealer-assessee sells an automobile to a
customer containing a warranty for the replacement of a defective
part of the automobile in terms of the warranty and when the
customer during the period of warranty approaches the dealer
for the replacement of a defective part, the dealer could resort to
the following: - (a) request the manufacturer to supply the
defective part of the automobile for replacement. In such a
situation, the manufacturer of the automobile could do any of the
following: - (i) send the spare part from his factory either as a
manufacturer of the same to the dealer for replacement and seek
return of the defective part, or (ii) purchase the spare part from
the manufacturer of the particular part by paying the requisite
taxes and send it to the dealer and seek return of the defective
part, or (iii) purchase the spare part from the open market after
paying the requisite taxes and send it to the dealer for replacement
of the defective part in the automobile and seek return of the
defective part. or (b) may purchase the spare part from the open
market by paying the requisite taxes and replace the defective
part and return the same to the manufacturer, or (c) may replace
the defective part from his stock maintained in his showroom
and return the defective part to the manufacturer. [Para 31]
[1327-A-G]
3. In situation (a), since the manufacturer himself has
dispatched the spare part to the dealer for the purpose of
replacement, there is no investment made by the dealer on the
said part. The dealer merely acts on behalf of the manufacturer,
pursuant to the warranty. [Para 32][1327-G-H]
4. In situations (b) and (c), the dealer would have invested
on the spare part either by buying it from the open market or
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earlier would have purchased the same from the manufacturer of
the automobile or from the manufacturer of the particular part by
paying the requisite price and taxes. The dealer has every right
to sell such a part and seek a return on his investment and
possibly a profit also. But when the same is used for the purpose
of replacement of a defective part pursuant to a warranty, the
dealer does not "sell" the part to the customer who has
approached the dealer with the defective part. The dealer does
not receive any consideration in the form of a price from the
customer but on the basis of the warranty, the dealer is obliged
to replace the defective part with a new part. The dealer then
sends the defective part to the manufacturer of the automobile,
who had given the warranty. The manufacturer, from whom the
automobile has been purchased, then issues a credit note which
may be equivalent to the value of the spare part used by the
dealer. This credit note is in order to recompense the dealer for
his investment made on the spare part which was "not sold" by
him to the customer so as to earn any return but has been utilised
to replace a defective part of the automobile as an obligation
under a warranty given at the time of the sale of the automobile
on behalf of the manufacturer. In such a situation, whether, the
recompense made to the dealer can be termed to be a "sale"
between manufacturer and the dealer within the meaning of the
definition of "sale" under the Sales Tax Acts is the question.
[Para 33][1328-A-F]
5. There is no transfer of property between the manufacturer
and the dealer when the spare part from the stock of the dealer
is used for the purpose of replacement of defective part in the
automobile. The spare part used from the stock of a dealer is the
property of the dealer which could have been either sold to any
other customer and seek a return on his investment, in which
case, the customer would have paid the requisite taxes to the
dealer. Alternatively, the spare part could also be used from the
stock maintained by the dealer to replace a defective part when
an automobile has been sold by him and the customer approaches
the dealer during the warranty period when there is a defect in
any part of the automobile. In such a situation, the dealer is acting
on behalf of the manufacturer or as an intermediary between the
M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER
OF COMMERCIAL TAXES (SPL) & ANR.
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manufacturer and the customer of the automobile and discharging
his obligation under a collateral contract. Hence, it is a warranty
given by the manufacturer through the dealer to the customer
during the period of warranty. In such a situation, when a credit
note is issued to the dealer on return of the defective part by the
manufacturer is there a sale within the scope and meaning of
definition of "sale" under the Sale Tax Legislation?
[Para 34][1328-G-H; 1329-A-C]
6. The argument that the purchaser or the customer
seeking replacement of a defective part is distinct and disjunct
from the earlier sale of the automobile by the dealer to the
customer, cannot be accepted. This is for the simple reason that
the dealer discharges his warranty obligation pursuant to the
earlier sale of the automobile made by him to the customer which
transaction of sale is accompanied by a collateral contract in the
form of a warranty. There cannot be a warranty unless there is a
sale of goods in the first place. That is why a warranty is termed
as a contract collateral to the main contract of sale. But for the
warranty which is a contract collateral to the main contract of
sale of an automobile, the dealer would not have replaced the
defective part with a spare part from his stock without any
consideration from customer. This is obvious because when the
defective part is replaced by another part, no consideration passes
from customer to the dealer. This could be contrasted with a
situation where the dealer would have sold the same part to any
other customer and received a price on the sale as well as
collected the tax on the said sale. Since, the dealer does not
receive any consideration from the customer who approaches
the dealer during the warranty period for replacement of a
defective part and the dealer does so from his own stock of the
spare parts, he receives a credit note from the manufacturer of
the automobile. In both of the aforesaid situations, there is transfer
of property in the goods from the dealer to the customer.
[Para 35][1329-D-H]
7. The bifurcation of the two transactions i.e., one, between
the dealer and the customer for the sale of the automobile and
the second, between the manufacturer and the dealer, when the
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dealer is discharging his warranty pursuant to the sale of the
automobile, cannot be accepted. [Para 36][1330-A-B]
8. But the issuance of a credit note to a dealer by a
manufacturer is only when the dealer replaces a spare part from
his stock in the automobile to the customer or has purchased the
spare part from the open market for the said purpose and returns
the defective part to the manufacturer which is pursuant to the
warranty appended as a collateral agreement to the earlier sale
of the automobile and the dealer acting on behalf of the
manufacturer. [Para 37][1330-B-C]
9. It is also significant to note that there is transfer of
property in the spare part between the dealer and the customer
on behalf of the manufacturer under a warranty. When the dealer
is acting pursuant to a warranty, he is no doubt discharging his
obligation not as a seller stricto sensu, but as an intermediary or
an agent of the manufacturer as the case may be vis-à-vis the
purchaser of the automobile. But, there is transfer of property
between the dealer and the customer/purchaser of the automobile
on the one hand and receipt of a valuable consideration by the
dealer for the same from the manufacturer on the other in the
form of a credit note. Further, credit note is issued only when a
dealer discharges his obligation under the warranty and may be
required to return the defective part to the manufacturer
while seeking a recompense in the form of a credit note.
[Para 38][1330-D-F]
10. The contention of the revenue is that the credit note is
a valuable consideration in the account of the dealer while the
dealer is discharging his obligation pursuant to the warranty and
therefore exigible to sale tax. This is based on the premise that
the dealer "sells" the part while acting on behalf of the
manufacturer while replacing a defective part under a warranty
and discharging his warranty obligation for which the consideration
flows from the manufacturer to the dealer and therefore is
amenable to sales tax. There are two aspects to be considered
here: firstly, there is transfer of property in the spare part between
the dealer and the customer and secondly, for the said transfer,
the manufacturer issues a credit note to the dealer which is in
M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER
OF COMMERCIAL TAXES (SPL) & ANR.
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substance on behalf of the customer owing to the warranty with
the customer. [Para 39][1330-G-H; 1331-A]
11. When the transaction between the manufacturer and
dealer is viewed in the larger canvas of a dealer discharging his
obligations pursuant to a warranty appended to a sale of an
automobile, the same cannot be narrowly construed.
[Para 40][1331-B-C]
12. Under Section 2(g) of the Central Sales Tax Act or the
Sales Tax Act of the respective states under consideration, sale,
with its grammatical variations and cognate expressions, means
any transfer of property in goods by one person to another for
cash or deferred payment or for any other valuable consideration.
The definition of sale under the Sales Tax legislations are in
consonance with Article 366(29-A) as per the Constitution 46th
Amendment Act, 1982. The expression "dealer" is defined in
Section 2(b) of the Central Sales Tax Act and, accordingly, under
the respective State Acts to mean any person who carries on
(whether regularly or otherwise) the business of buying, selling,
supplying or distributing goods, directly or indirectly, for cash or
for deferred payment, or for commission, remuneration or other
valuable consideration. [Para 43][1333-C-D]
13. The expression "valuable consideration" is not defined
either under the Central Sales Tax or under the respective State
Acts under consideration. "Price" is the amount of consideration
which a seller charges the buyer for parting with the title to the
goods. The price would include not only the price of the goods
but also the expenditure incurred for transporting the goods,
duties levied, etc. The entire amount of consideration including
the sales tax component which the purchaser pays, constitutes
the price of goods. The expression "price" under the Sale of
Goods Act is limited to a money consideration, cash or deferred
payment but under the definition of "sale" under the Sales Tax
legislations, the expression used is not just cash or deferred
payment but also a valuable consideration. The expression
valuable consideration has a wider connotation but must be read
ejusdem generis to cash and deferred payment. The expression
valuable consideration takes colour from the preceding
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expressions cash or deferred payment, therefore, it means
payment in monetary terms i.e. in the nature of cash or deferred
payment such as cheque, bank draft, promissory note, etc. Cash
and deferred payment are relatable to the expression "money".
In other words, a transaction could amount to a sale if
consideration is in terms of money. Thus, money is a genus of
which cash or deferred payment in the form of cheque, bank draft,
promissory note, etc. are species. Money has a wider connotation
to include a valuable consideration in the form of money or a
payment in monetary terms which is the price for the transfer of
property paid. Thus, a valuable consideration is also a species of
money which is the consideration for the transfer of goods under
the sales tax enactments. [Para 44][1333-E-H; 1334-A-B]
14. When the dealer uses one of the spare parts from his
stock for the replacement of a defective part in an automobile
under a warranty, he is given a monetary benefit in the form of a
credit note. A perusal of the definition of "credit note" from
various dictionaries and Law Lexicons would clearly indicate that
a credit note issued by a manufacturer in favour of a dealer is a
valuable consideration within the meaning of the definition of
"sale" under both, Central Sales Tax Act as well as the respective
State enactments under consideration. The object and purpose
of including the expression valuable consideration within the
definition of sale apart from cash and deferred payment is to
enlarge the scope of the expression price than what is enunciated
under the Sale of Goods Act which is an enactment of 1930. The
expression is relatable to a money consideration. No doubt, cash
is a money consideration but the definition of "sale" under the
Central Sales Tax Act as well as under the State enactments does
not imply price to mean only a money consideration in a narrower
sense but in a wider sense to include different forms of money
consideration such as deferred payment and also a valuable
consideration which need not be restricted to cash or deferred
payment only but a valuable consideration which would include a
credit note which is to be read within the definition of "price".
[Para 46][1334-H; 1335-A-D]
M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER
OF COMMERCIAL TAXES (SPL) & ANR.
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15. Benjamin's Sale of Goods, Eighth Edition, states that
the consideration in a contract of sale of goods must in English
law, be a price in money, either paid of promised. By money is
meant legal tender; it does not mean money's worth. Payment
need not, however, be made in cash: a method of payment that
enables the seller to obtain money such as the use by the buyer
of a credit card or a debit card or digital cash or cheque or banker's
draft or trading cheque also comes within the expression "payment
of price". It is only a method of payment or a form of payment. It
is also irrelevant that the money payment comes, not from the
buyer of the goods or to whom the property in the goods are
transferred, but from the card issuer. Thus, there can be various
methods of payment i.e., by cash, by negotiable instrument, by
credit or charge card or by stored value card or sometimes
referred to as digital cash card or electronic purses, internet
payments on which that "value" is stored electronically. There
can also be payment by direct debits to effect payment of goods
supplied particularly when there are recurring payments of
variable amounts. The seller can obtain through the banking
system in direct debit forms to the buyer's bank. A converse to
the system of direct debit is the credit note issued by a buyer in
favour of a seller which is a recompense or monetary benefit
showed in the buyer's accounts. Thus, the use of the banking
system by instructing the bank to transfer of balance from the
buyer's account to the credit of a seller is a form of transmission
of a valuable consideration. [Para 47][1335-E-H]
16. A credit note is a valuable consideration which is
essentially a document to inform a buyer that the buyer's account
is being credited because of errors, returns or allowances. On
discharging his obligation under the warranty appended to a sale
of an automobile, a dealer receives a credit note. This would be a
receipt in the account of the dealer and a liability in the returns of
the manufacturer which may ultimately enable the manufacturer
to decrease his tax liability. Consequently, the dealer of the
automobile in whose account a credit is shown would be ultimately a
recipient of a valuable consideration on account of a transfer of goods,
namely, spare part by a dealer to a customer while discharging his
obligation under a warranty and thereby receiving a valuable
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consideration for the spare part used by the dealer from his stock
from the manufacturer in the form of a credit note. When the
entire transaction is viewed in the aforesaid perspective and in
juxtaposition with the expression "sale" under the Central Sales
Tax Act as well as the respective State enactments under
consideration which is of a wider connotation than the definition
of sale under the Sale of Goods Act, the amount shown in the
account of the dealer in the form of a credit note is nothing but a
price received for a sale of a spare part by the dealer which is
from his stock and which belongs to him. Where there is transfer
of property by the dealer to the customer while acting under a
warranty and the dealer being paid by the manufacturer, when
viewed in the aforesaid prism, the credit note shown in the account
of the dealer is a valuable consideration pursuant to the sale that
has taken place of a spare part from his stock. The aforesaid
transaction may be juxtaposed with the transaction of sale which
the customer who would buy a spare part de hors a warranty. In
such an event, the dealer would have collected the sales tax along
with the price of the spare part and would have remitted the same
to the revenue. Merely because the dealer is acting as an
intermediary or on behalf of the manufacturer pursuant to a
warranty and receives a recompense in the form of a credit note,
the same cannot escape liability of tax under the Sales Tax Acts
under consideration. [Para 48][1336-B-G]
17. It is necessary to take into consideration that all the
credit notes received by the dealer are not indicative of the value
of the spare part supplied by the dealer from his own stock or
when he buys it from the open market, to the customer under a
warranty. It could be for rendering a service under a dealership
agreement which can cover a situation when the manufacturer
sends the spare part to the dealer to replace a defective part and
receives a consideration for the said service. In such a case, there
is no recompense for spare part. It is only when a credit note is
issued for a spare part used by a dealer from his own stock or
when he has purchased it from the open market or from another
manufacturer of a spare part that it becomes a sale within the
meaning of the sales tax enactments under consideration.
[Para 53][1338-A-C]
M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER
OF COMMERCIAL TAXES (SPL) & ANR.
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18. The manufacturer gives the warranty to the consumer
by making a representation with regard to the automobile. It is
in the nature of a promise which the dealer assessee carries out
on behalf of the manufacturer. There is transfer of property in
the spare part from the stock of the dealer to the customer for
which the manufacturer pays by way of a credit note. The said
promise is carried out and a valuable consideration is received
by the dealer through credit notes. In substance, when the dealer
receives a credit note, it is a sale within the meaning of the
definition under the respective sales tax legislation under
consideration, pursuant to the warranty for which the manufacturer
compensates the dealer by issuance of a credit note. The value
of the credit note is a valuable consideration received which is in
the nature of a benefit from the manufacturer which is exigible to
tax. If the dealer had sold a spare part of the automobile from his
stock to any other consumer across the counter, he would have
collected the requisite sales tax along with the price from that
consumer but in the instant case, the consideration is received
in the form of a credit note from the manufacturer which is subject
to sales tax. The person who pays the valuable consideration in a
sale transaction is irrelevant so long as it is paid. [Para 65]
[1343-B-E]
19.1. Applying the definitions of the Indian Contract Act,
1872 to the facts of the present case, it would mean that as
between the manufacturer of the automobile, the dealer and the
customer, the manufacturer is the promisor who makes the
proposal to recompensate the dealer when pursuant to a warranty
clause, the dealer replaces a spare part from out of his own stock
or by buying the same from the open market or from the
manufacturer of the spare part. Thus, the dealer is the promisee.
The occasion to replace the spare part is when the customer
brings to the notice of the dealer a defect in a part of the
automobile, pursuant to a warranty which has been given by the
manufacturer to the customer. [Para 67][1344-B-C]
19.2. Section 2(d) of the said Act in fact enables the promisee
(the dealer) to provide consideration by conferring a benefit on a
third party (customer) at the promisor's (the manufacturer's)
request pursuant to a warranty between the manufacturer and
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customer. Thus, a contract could arise even though the promise
is for doing or abstaining from doing something for the benefit of
a third party. In other words, if the promisee (the dealer) replaces
a defective part of an automobile sold to a third party, i.e., the
customer, he would receive a credit note from the manufacturer.
This is because the manufacturer would have proposed to the
dealer to recompensate the dealer for the above act which
proposal would have been accepted by the dealer and, thus, the
manufacturer who has made the proposal is the promisor and the
dealer who has accepted the proposal is the promisee. Further,
when at the desire of the promisor (the manufacturer), the promise
(the dealer) does some act or promises to do an act, such act or
promise is called consideration for the promise. Therefore, the
dealer (promisee) agrees to replace a defective part which is a
consideration for the promise and in turn, receives a recompense
in the form of a credit note from the manufacturer. Thus, there is
an agreement between the manufacturer and the dealer, and it
would be in an instance of there being reciprocal promises.
[Para 68][1344-D-G]
20. In view of the above, the transaction between the
manufacturer and dealer while acting pursuant to a warranty in
the circumstances explained above has to be construed as sale
within the meaning and definition of sale under the Sales Tax
Acts under consideration. [Para 69][1344-H]
21. 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
M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER
OF COMMERCIAL TAXES (SPL) & ANR.
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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. On the above
understanding of the judgment of this Court in Mohd. Ekram
Khan, the same does not call for any interference. In light of the
above, overruling of the judgments in the case of Prem Motors
and Geo Motors in Mohd. Ekram Khan, is just and proper.
(iii) A credit note issued by a manufacturer to the dealer, in
the situations explained above, is a valuable consideration within
the meaning of the definition of sale and hence, exigible to sales
tax under the respective State enactments of the States under
consideration. In the result, appellants-dealer/assessee are liable
to pay sales tax under the respective State enactments under
consideration. [Para 70][1345-A-H; 1346-A]
Devi Dass Gopal Krishnan v. State of Punjab (1967) 3
SCR 557; CIT v. Motor & General Stores Pvt. Ltd. AIR
1968 SC 200 : [1967] 3 SCR 876 - held inapplicable.
M/s Navnit Motors Pvt Ltd. v. State of Maharashtra,
decided on 29.11.2011 of Bombay High Court -
approved.
Mohd. Ekram Khan & Sons v. CTT, (2004) 6 SCC 183
: [2004] 3 Suppl. SCR 116 - affirmed.
State of T.N. v. Sri Srinivasa Sales Circulation (1996)
10 SCC 648 : [1996] 7 Suppl. SCR 185; Govind Saran
Ganga Saran v. Commissioner of Sales Tax, AIR 1985
SC 1041 : [1985] 3 SCR 985; Dhampur Sugar Mills
Ltd. v. Commissioner of Trade Tax, U.P., (2006) 5 SCC
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B
C
D
E
F
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1281
624 : [2006] 2 Suppl. SCR 673; Commissioner of
Central Excise, Mumbai v. Fiat India Private Limited,
(2012) 9 SCC 332 : [2012] 12 SCR 975; Assistant
Collector of Central Excise v. Madras Rubber Factory
Ltd., 1986 Supp SCC 751 : [1987] 1 SCR 846 and
Government of India v. Madras Rubber Factory Ltd.
(1995) 4 SCC 349 : [1995] 3 SCR 1143 - relied on.
State of Madras v. Gannon Dunkerley & Co. (1959)
SCR 379; Government of India v. Madras Rubber
Factory Limited (1995) 4 SCC 349: [1995]
3 SCR 1143; Kone Elevators Pvt. Ltd. v. State of Tamil
Nadu (2014) 7 SCC 1:[2014] 5 SCR 912; Builders'
Association of India v. Union of India (1989) 2 SCC
645:[1989] 2 SCR 320; Commissioner of Customs v.
Dilip Kumar & Co. (2018) 9 SCC 1:[2018] 7 SCR 1191;
Nabha Power Ltd. v. Punjab State Power Corporation
Ltd. (2018) 11 SCC 508:[2017] 14 SCR 301; M/s
Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officers
(1978) 1 SCC 520:[ 1978] 2 SCR 433 (12.7) M/s New
India Sugar Mills Ltd. v. Commissioner of Sales Tax
AIR 1963 SC 1207: [1963] 2 Suppl. SCR 459; Sunrise
Associates v. Govt. of NCT of Delhi (2006) 5 SCC 603:
[2006] 1 Suppl. SCR 421; H. Anraj v. Govt. of T.N.
(1986) 1 SCC 414: [1985] 3 Suppl. SCR 342; Shanklin
Pier Ltd. v. Detel Products Ltd. (1951) 2 KV 854; Rotork
Controls India Pvt. Ltd. v. Commissioner of Income Tax,
Chennai (2009) 13 SCC 283: [2009] 8 SCR 1152;
Medley Pharmaceuticals Ltd. v. Commissioner of
Central Excise and Customs, Daman (2011) 2 SCC 601:
[2011] 1 SCR 741; Firm Ram Krishna Ramnath Agarwal
v. Municipal Committee, Kamptee AIR 1950 SC 11:
[1950] SCR 15; Province of Madras v. Boddu Paidanna
and Sons AIR 1942 FC 33; Bharat Heavy Electricals
Ltd. v. Commissioner of Customs and Central Excise,
Indore (2003) 9 SCC 185: [2002] 4 Suppl. SCR 150;
Commissioner of Sales Tax v. Prem Nath Motors (1979)
43 STC 52 (Delhi); Prem Motors, Gwalior v.
Commissioner of Sales Tax, Gwalior 1986 (61) STC
244 MP; Geo Motors v. State of Kerala (2001) 122
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STC 285; Jodhpur v. M/s Marudhara Motors, Jodhpur
(2010) 29 VST 114 and State of Madras v. Gannon
Dunkerley and Co. (Madras) Ltd. 1958 (9) STC 353 -
referred to.
Rainy Sky SA & Orad v. Kookmin Bank (2011) UKSC
50; Suzuki New Zealand Ltd. v. Commissioner of Inland
Revenue (2001) 20 NZTC 17; Digital Satellite Warranty
Cover Limited v. Financial Services Authority (2013)
UKSC 7 - referred to.
Case Law Reference
[2004] 3 Suppl. SCR 116
affirmed
Para 4
[1959] SCR 379
referred to
Para 10(1)(ii)
[1995] 3 SCR 1143
referred to
Para 10(I)(iii)
(1967) 3 SCR 557
held inapplicable
Para 10(I)(iii)
[2014] 5 SCR 912
referred to
Para 10(II)(iii)
[1989] 2 SCR 320
referred to
Para 10(II)(iii)
[2018] 7 SCR 1191
referred to
Para 10(II)(iv)
[1967] 3 SCR 876
held inapplicable
Para10(II)(iv)
[2017] 14 SCR 301
referred to
Para 10(III)(ii)
[1978] 2 SCR 433
referred to
Para 12.7
[1963] 2 Suppl. SCR 459
referred to
Para 12.7
[2006] 1 Suppl. SCR 421
referred to
Para 12.8
[1985] 3 Suppl. SCR 342
referred to
Para 12.8
[2009] 8 SCR 1152
referred to
Para 13.6
[2011] 1 SCR 741
referred to
Para 13.7
[1950] SCR 15
referred to
Para 13.7
[2002] 4 Suppl. SCR 150
referred to
Para 13.8
[1996] 7 Suppl. SCR 185
relied on
Para 45
[1985] 3 SCR 985
relied on
Para 58
[2006] 2 Suppl. SCR 673
relied on
Para 59
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[2012] 12 SCR 975
relied on
Para 61
[1987] 1 SCR 846
relied on
Para 63
[1995] 3 SCR 1143
relied on
Para 64
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1822
of 2007.
From the Judgment and Order dated 19.10.2005 of the High Court
of Karnataka at Bangalore in Sales Tax Revision Petition No. 69 of
2004.
With
Civil Appeal Nos. 1446/2010, 3733, 3734/2023, 11724/2018, 3827/
2011, 3856/2013, 5815, 2756/2012, 3718/2023, 5969, 5967/2011, 37163717/2023, 3821, 4019, 3822, 4021/2011, 3719-3723, 3735/2023, 4516,
10924/2018, 1821/2007, 9979/2018, 3004-3006/2017, 3730-3732, 3740,
3725-3727, 3724/2023, 3825-3826, 3823/2011, 6172/2009, 3824, 3820/
2011 and 3715/2023.
Nikhil Goel, Saurabh Mishra, A.A.Gs., Ms. Ankita Chaudhary,
Dy. A.G., Santosh Kumar Bagaria, Kavin Gulati, R. K. Raizada, Dr.
Manish Singhvi, V Sridharan, S. K. Upadhayay, Pallav Sisodia, Sr. Advs.,
Punit Dutt Tyagi, P. K. Manohar, K. K. Mani, Ms. T. Archana, Rajeev
Gupta, Vinay Rajput, Kumar Ajit Singh, Ms. Subasri Jaganathan, Amar
Dave, Ms. Ruby Singh Ahuja, Nikhil Rohatgi, Vishal Gehrana, Ms. Hancy
Maini, Jappanpreet Hura, Ms. Meghna Mishra, M/s. Karanjawala &
Co., M. P. Devanath, Ms. Pragati Neekhra, Sonal Jain, Udayan Jain,
Ms. Kajal Sharma, Bhakti Vardhan Singh, Ankit, Rahul Kaushik, Mrs.
Manik Karanjawala, Arpit Parkash, Ms. Shubhangi Agarwal, Irshad
Ahmad, Yashraj Singh Deora, Siddhant Singh, Abhishek Singh, Priyesh
Mohan Srivastava, Ms. Apeksha Mehta, Ms. Neha Choudhary, Ms.
Falguni Gupta, Sahil Parghi, Ms. Charanya Lakshmikumaran, Vishal
Meghwal, Ms. Yashka Bum, Milind Kumar, Sanjay Jain, Rajeev Kumar
Dubey, Kamlendra Mishra, G. N. Reddy, Hitesh Kumar Sharma,
Akhileshar Jha, Chaman Sharma, Saurabh Kumar Solanki, Amit Kumar
Chawla, Ravish Kumar Goyal, Nitin Sharma, Naresh Kumar, V. N.
Raghupathy, Manendra Pal Gupta, Md. Apzal Ansari, Adithya Roy, Nishe
Rajen Shonker, C. K. Sasi, Abdulla Naseeh V T, Ms. Meena K Poulose,
Rahul Kaushik, Ms. Deepanwita Priyanka, Bhakti Vardhan Singh,
Aniruddha Joshi, Aniruddha Deshmukh, Siddharth Dharmadhikari,
M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER
OF COMMERCIAL TAXES (SPL) & ANR.
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Aaditya Aniruddha Pande, Bharat Bagla, Sourav Singh, Yashraj Singh
Bundela, Pashupathi Nath Razdan, Tarun Gulia, Puneet Jain, Sarad Kumar
Singhania, Ms. Rashmi Singhania, Abhinav Shrivastava, Sunny
Choudhary, Shivang Rawat, Ms. Radhika Jalan, Ms. Deepti Gupta, Arun
Adlakha, Naman Gupta, D. K. Sinha, Advs. for the appearing parties.
The Judgment of the Court was delivered by
NAGARATHNA, J.
Leave granted.
2. These Civil Appeals arise from the judgments of the High Courts
of Karnataka, Rajasthan, Allahabad, Madhya Pradesh, Bombay, Andhra
Pradesh, Kerala and Gujarat. Since common questions of law and facts
have been raised in these appeals vide Reference Order dated 05.12.2019
made by a Bench of two judges to a Bench comprising of three judges,
the reference has been heard and is accordingly answered.
 In some of the civil appeals, the dealers-assessee are the
appellants, while in rest of the appeals the respective States are the
appellants.
Preface:
3. By order dated 05.02.2019, reference has been made to a Bench
of three Judges which shall hereinafter be referred to as the "Reference
Order".
The pertinent paragraphs of the Reference Order read as under:
"15. 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
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paid. Thus, if there is no consideration for these replaced parts,
can sales tax be levied at all? The judgment in Mohd. Ekram
Khan & Sons case [Mohd. Ekram Khan & Sons v. CTT, (2004)
6 SCC 183] 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 judgment
in Premier Automobiles Ltd. case [Premier Automobiles
Ltd. v. Union of India, (1972) 4 SCC (N) 1: (1972) 1 SCR 526]
is stated to contain a different factual situation, as per the
observations in Mohd. Ekram Khan & Sons case [Mohd. Ekram
Khan & Sons v. CTT, (2004) 6 SCC 183]. There are observations
referred to above, again in Mohd. Ekram Khan & Sons
case [Mohd. Ekram Khan & Sons v. CTT, (2004) 6 SCC 183],
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
manufacturer, was given a credit note.
16. We have some reservations in respect of the observations
and legal propositions laid down in Mohd. Ekram Khan & Sons
case [Mohd. Ekram Khan & Sons v. CTT, (2004) 6 SCC 183]
and consider it appropriate that the matter be considered by a
larger Bench."
4. The point for consideration under the Reference Order is,
whether, a credit note issued by a manufacturer to a dealer of automobiles
in consideration of the replacement of a defective part in the automobile
sold pursuant to a warranty agreement being collateral to the sale of the
automobile is exigible to sales tax under the sales tax enactments of the
respective States. While considering the said question, the Reference
Order doubts the correctness of the observations made in Mohd. Ekram
Khan & Sons vs. CTT, (2004) 6 SCC 183 (Mohd. Ekram Khan).
5.