[Opinion] Recent Supreme Court’s Verdict | A Wake up Call to Re-evaluate Warranty Transactions
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- Last Updated on 3 July, 2023
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Shivam Mehta & Tanya Garg – [2023] 152 taxmann.com 2 (Article)
The warranty transactions have always been a contentious issue. The recent decision of the Apex Court in the case of Tata Motors Ltd. v. Dy CIT (SPL) has stirred up the said controversy.
The earlier decision rendered in the case of Mohd. Ekram v. Commissioner Trade Tax has been affirmed and it has been observed by the Hon’ble Supreme Court that a credit note issued by a manufacturer to a dealer of automobiles pursuant to the replacement of a defective part of an automobile by the dealer from its own stock during the warranty period, is exigible to sales tax. On the other side, this decision has narrowed down the scope of Mohd. Ekram decision (though quite evident),by holding it inapplicable to the cases involving part to part replacement, wherein the dealer simply receives a spare part from the manufacturer so as to replace a defective part therein under a warranty collateral to the sale of the automobile.
Regardless of the seemingly uncomplicated and simple verdict of the Apex Court, it may have a larger ripple effect across industries. Through this article, the authors have attempted to highlight the ramifications that the decision may have on the taxpayers.
Pre-GST Regime
One obvious concern which will surface from this decision for the taxpayers would be the fate of earlier sales tax assessments. One will have to dig deep into the specifics of each of the state VAT provisions to find out the precise impact of the decision on earlier sales tax assessments to know if the same can be re-opened. Also, one must be mindful of the implications wherein no demand for warranty cases was raised but the assessments are still pending on other issues. The impact of this decision on other ongoing VAT cases must also be paid attention to.
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