Introduction
Various types of
transactions take place in a commercial world. A peculiar issue, which
arises is about the status of a transaction where the dealer receives
goods for repair, replaces the same with his own goods and receives his
charges for repair. The old one received from the customer is retained
with him for further replacement after repair. The issue is whether, on
receipt of money from the customer towards the repair charges, the
dealer can be liable to tax under Sales Tax Laws or it can be considered
as transaction of exchange thereby, not liable to Sales Tax or whether
it falls in the category of Works Contract.
Judgment of Hon. M. S. T. Tribunal
The above issue was dealt with by M. S. T. Tribunal in case of Kirloskar Copeland Ltd. (S. A. No. 428 of 2009 dt.18.04.2011).
In
this case, the appellant M/s. Kirloskar Copeland Ltd. was the
manufacturer and seller of compressors used in air-conditioners. It
accepted defective compressors outside the warranty period with certain
fixed repair charges from the customer and replaced them at the option
of the customer with another repaired compressor off the shelf. The
defective compressor was then sent for repairs. The said repaired
compressor was then available for replacement in lieu of the defective
compressor of another customer. The cycle continues on. The repairs
charges received were mentioned in the books as ‘repair charges.’ This
was treated by the Assessing Officer as ‘sale’ of old repaired
compressors under the BST Act, 1959 and levied tax on the same.
The
Tribunal held that in a transaction of cross transfer of property in
the defective compressor received from customer and giving the repaired
compressor off the shelf, there is no consensual agreement of sale
supported by the price or money consideration. Holding this as not a
‘sale’ transaction, the Tribunal set aside tax. Thus, the situation
developed is that such receipt of money is not liable to tax under the
Sales Tax Laws.
The Madras High Court
The Madras High Court had an occasion to deal with a similar issue in Sriram Refrigeration Industries Ltd. vs. State of Tamil Nadu (53 VST 382)(Mad).
The
assessee received defective compressors in its Tamil Nadu office. The
assessee gave him another repaired compressor and also charged repair
charges. The defective compressor was then transferred to the Hydrabad
workshop to repair and keep it in its rolling stock.
The Tamil
Nadu Sales Tax Authorities levied Sales Tax on the same, considering the
transaction as Works Contract. The Tribunal was of the same view and
the Hon. Madras High Court confirmed the above view of the Tribunal.
Thus, confirmed the levy of tax on above transaction as “Works
Contract”.
Recent judgment of the Hon. Bombay High Court
Kirloskar
Copeland Ltd. (S. A. No. 428 of 2009 dt.18.04.2011) A Reference
application was filed before the Tribunal by the Department to refer the
question of law to the Hon. Bombay High Court. The Hon. Tribunal
rejected the said application on the ground that no question of law
arises as the issue is decided based on precedent. The Department
thereafter filed a Reference Application before the Hon. Bombay High
Court. The said application has now been decided. (Sales Tax application No. 10 of 2012 dated 8th May, 2014). The Hon. Bombay High Court has confirmed the view of the Tribunal that in the given circumstances there is no sale.
The
reasoning of the Hon. Bombay High court is as under: “11. In the
present case, we find that there is no sale at all. As stated earlier, a
defective compressor is brought by the customer of the Respondent to
its Sales and Service Office. Thereafter, the customer is informed about
the normal time of repairs which is approximately 60 days. At that
time, on payment of the repair charges, the customer is given an option
either to wait for 60 days or to take another repaired compressor off
the shelf of the Respondent. If the customer opts for the latter, then a
delivery note cum debit advice as well as a repaired compressor is
handed over to the customer. It is therefore evident that there is no
sale of the repaired compressor. All that is done is that on payment of
repair charges, the customer is given an option not to wait for 60 days
and instead take another second hand repaired compressor immediately in
lieu of the defective compressor.
12. The MSTT, after
considering all the evidence in this regard, came to the conclusion that
in the present case, there was a transaction of cross transfer of
property between the defective compressor and the repaired compressor
and therefore, there was no consensual agreement of sale supported by
price or other monetary consideration. We are in full agreement with the
findings of the MSTT on this aspect. What is paid is only the repair
charges and not the price for purchasing the repaired compressor. This
is clear from the fact that even if the customer opted not to take a
repaired compressor off the shelf of the Respondent, it would still have
to pay the same repair charges for repairing its own compressor and
wait for 60 days to receive the same from the Respondent, after repairs.
This puts it beyond the realm of doubt that what is charged to the
customer by the Respondent is only repair charges and not a price for
the sale of the repaired compressor.
13. Ms. Helekar, learned
counsel appearing on behalf of the applicant submitted that repair
charges are fixed and uniform all over India. According to her,
therefore, that was the price at which the repaired compressor was being
sold by the Respondent to the customer.
14. We do not agree. If
the repair charges were really the price of the sale of the repaired
compressor, there would be no question of the customer having to return
his defective compressor and thereafter take the repaired compressor off
the shelf of the Respondent. In the scenario suggested by Ms. Helekar,
all that the customer has to do is simply pay the repair charges and
take the repaired compressor off the shelf of the Respondent. That is
not the case. It is an admitted position that the defective compressor
is handed over to the Respondent along with the repair charges and in
lieu thereof the customer is handed over a repaired compressor. We
therefore find no merit in this contention.”
Thus, the situation
which arises now is that, though in Tamil Nadu, a similar transaction
may be Works Contract in Maharashtra. It will not be liable to tax.
Conclusion
In light of different judgments of two different high courts, the issue will remain debatable.
As
per the reasoning given by the Hon. Bombay High Court, the judgment of
the Tribunal cited above will be correct to the extent that it is not a
‘sale.’ However, the position still remains is that whether it may be
liable to tax as ‘Works Contract’ as per the Madras High Court judgment.
It may be noted that before the Hon. Bombay High Court, the above
Madras High Court judgment was not cited as well as this was not a point
of argument. Therefore, so far as the MVAT Act is concerned, the issue
will still remain open, as Works Contract sale is also covered in the
MVAT Act, 2002.
