Levy of Sales Tax on spares replaced under a Warranty claim
The taxability of credit note issued by the manufacturer to the dealer of automobiles, for the price of spare parts replaced under the warranty claim was discussed by the Supreme Court in the case of Mohd. Ekram Khan1 under sales tax and it was ruled that the said transaction will be subject to sales tax. While confirming the taxability, the transaction was equated with the case wherein a anufacturer would have purchased the parts from the open market for a price for the purpose of replacement of the defective parts. It was held that the position is not different because similar to such independent purchase the dealer had supplied the parts and had received the price from the manufacturer by way of a credit note [price adjustment]. Accordingly, it was held that the dealer had supplied the parts to the manufacturer for which it had received the consideration in the form of credit notes and hence, it would be leviable to sales tax.