Recent SC Judgement In Case of M/S TATA MOTORS
UNDERLYING TRANSACTION
- Tata Motors sells vehicles and spare parts to Marudhara Motors with CST charged against “C” form.
- Marudhara Motors has responsibility to replaces defective parts under warranty at no cost to customers, from its own stock to ensure prompt services.
- The defective goods collected from the customer are returned to Tata Motors, who issues financial Credit Note to the dealer’s account at the original sale price.
- The question here is whether the parts given by the dealer to customer under warranty claim free of cost is considered as sales, where no consideration is flow from the customer.
GOODS SUPPLIED UNDER WARRANTY AMOUNT TO SALE ?
- Contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.
- Since the property in Goods transfer to the buyer, hence its amount to sale.
WHETHER CREDIT NOTE IS IN THE NATURE OF A VALUABLE CONSIDERATION?
- The definition of “sale” under the CST Act and State enactments encompasses various forms of money consideration, including deferred payment.
- The definition of “price” is not limited to cash or deferred payment, but also includes valuable considerations.
- A credit note is considered a valuable consideration and falls within the definition of “price.”
- A credit note represents the price received by a dealer for the sale of a spare part from their own stock.
Supreme Court-Decision YES, IT’S SALE
The Supreme Court hold the decision good made in case of Mohd. Ekram Khan –
- The dealer replaces a defective part of the automobile by a spare part maintained in the stock of the dealer supplied by the manufacturer or when the same is purchased by the dealer from the open market.
- 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.
- This transaction qualifies as a sale and is subject to sales tax under the relevant sales tax Act.
WAY FORWARD IN GST
- Under GST the term, “Supply” is used instead of Sales which is wider and covers services too. Therefore, transaction with similar modus operandi shall be liable to GST and lead to enhance the cost of the transaction.
- However, such transaction can be framed alternatively to neutralized the impact of GST