M/S. Navnit Motors Pvt. Ltd vs The State Of Maharashtra
2011 Latest Caselaw 137 Bom

    PNP                                          1                            STA15-29.11.sxw


          IN THE HIGH COURT OF JUDICATURE AT BOMBAY

                  ORDINARY ORIGNAL CIVIL JURISDICTION




                                                                                  
                   SALES TAX APPLICATION NO.15 OF 2011




                                                          
                                   IN
                   REFERENCE APPLICATION NO.06 OF 2011




                                                         
    M/s. Navnit Motors Pvt. Ltd.                                   ..Applicant.
         versus
    The State of Maharashtra                                       ..Respondent.
                                        .....




                                                    
    Mr. P.C. Joshi with  Mr. Piyush  Shah  for the Applicant.
    Mr. S.K. Nair, A Panel counsel for the Respondent.
                                   ig  ......

                                   CORAM :  DR.D.Y.CHANDRACHUD &
                                 
                                             A. A. SAYED, JJ.

29 November 2011.

ORAL JUDGMENT (Per DR.D.Y.CHANDRACHUD, J.) :

The Sales Tax Tribunal by its impugned order dated 18 April 2011 has declined to make a reference to this Court under Section 61 of the Bombay Sales Tax Act 1959. The Tribunal has held that its

judgment in the present case delivered on 19 November 2010 follows the law laid down by the Supreme Court in Mohd. Ekram Khan & Sons v. Commissioner of Trade Tax1. Hence, according to the

Tribunal no case was made out for making a reference. The Applicant is an authorized dealer of Maruti Udyog Limited and Eicher Motors Limited and engages in the business of selling vehicles and spare parts purchased from both the manufacturers. Under the dealership agreement the Applicant replaces defective parts which

1 (2004) Vol. 136 Sales Tax Cases 515.

PNP 2 STA15-29.11.sxw

cannot be instantly repaired with new onces from the ready stock without any cost consideration or charge to the customer. This

obligation is assumed by the Applicant in respect of vehicles which are under warranty. After the defective parts are replaced with parts

from the ready stock of the Applicant, the Applicant receives a credit note from the manufacturer for the cost of the spare parts purchased

by the Applicant earlier and replaced under the warranty.

2. The Tribunal it its judgment dated 19 November 2010 adverted

to the clauses of the dealership agreement. Upon considering the

terms of the agreement, the Tribunal recorded the salient features of the agreement as follows :

"(i) The appellant is not an agent or representative of M/s. MUL. The relationship of agency is specifically excluded.

(ii) The title and the risk in the goods purchased by the

appellant from M/s. MUL passes to him at the factory gate.

(iii) The warranty that the new vehicle serviced and delivered by the authorized dealer to be free from defects in material and workmanship, is given by the MUL to the customer.

(iv) By virtue of dealership agreement the appellant is liable to settle the warranty claims made by the customers.

(v) Replacement for defective part covered by warranty is

done by the appellant out of his stock of purchased goods.

(vi) Cost of parts incurred by the appellant in carrying out repair, or replacement of defective part is reimbursed by M/s. MUL."

3. The Tribunal held that the present case is directly governed by the decision of the Supreme Court in Mohd. Ekram Khan & Sons v.

PNP 3 STA15-29.11.sxw

Commissioner of Trade Tax (supra).

4. In Mohd. Ekram Khan & Sons v. Commissioner of Trade Tax the Appellant was a registered dealer under the U.P Trade Tax

Act 1948. The question involved in the appeal before the Supreme Court was whether the amounts received by the assessee for supply

of parts to customers as a part of the warranty agreement were liable to tax. The assessee was an agent of an automotive manufacturer. The manufacturer had a warranty agreement with the

purchasers of the vehicles to replace defective parts during the

warranty period. The manufacturer issued credit notes to the assessee in respect of the price of the parts supplied by the assessee

to customers. The Supreme Court held as follows :

"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 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 [2001] 122 STC 285 (Ker) and Prem Motor's case [1986] 61 STC 244 (MP), stand overruled."

5. Counsel appearing on behalf of the Applicant sought to make a distinction by urging that in Mohd. Ekram Khan's case, the relationship between the parties involved an agency whereas in the present case the transaction was on a principal to principal basis. This was based on a sentence in the judgment of the Supreme Court

PNP 4 STA15-29.11.sxw

while recording the facts that the assessee was an agent of the automotive manufacturer. The Tribunal has considered this aspect in

a significant amount of detail and has noted the submission of the Revenue that this expression was used in the judgment of the

Supreme Court in its commercial sense. That apart, the Revenue produced a copy of the dealership agreement between the automotive

manufacturer, Mahindra and Mahindra Ltd. and the assessee in Mohd. Ekram Khan's case which clearly showed that the relationship was not of an agency, but on a principal to principal basis.

6.

In our view, the attempt on the part of the Applicant to distinguish the decision in Mohd. Ekram Khan's case was correctly

rejected by the Tribunal. In the present case, clause 49 of the agreement of dealership which deals with warranty requires the dealer to promptly and effectively deal with any claim made by the

customer of any vehicle under the provisions of the warranty

currently in force. In terms of the warranty, the cost of parts incurred by the dealer in carrying out repairs or replacement of

defective parts is in accordance with the procedure established by the manufacturer reimbursed by the manufacturer to the assessee. The terms of the agreement as noted in the judgment of the Supreme Court in Mohd. Ekram Khan's case were similar. The expression

"sale" in the Bombay Sales Tax Act 1959 is defined in Section 2(28) to mean a sale of goods made within the State for cash or deferred payment or other valuable consideration. The definition of the expression "sale" in Section 2(h) of the U.P. Trade Tax Act 1948 was, insofar as is material, similar. The judgment of the Supreme Court was therefore binding on the Tribunal. Counsel appearing on

PNP 5 STA15-29.11.sxw

behalf of the Applicant submitted that the Supreme Court in that decision did not consider the service aspects involved in the

dealership agreement. That cannot be a ground either for the Tribunal or this Court not to follow the binding principles contained

in the judgment of the Supreme Court. In declining to make a reference the Tribunal has followed a binding precedent of the

Supreme Court. Consequently there is no merit in the application. The application shall accordingly stand dismissed.

(Dr. D.Y. Chandrachud, J.)

(A. A. Sayed, J.)