SC for larger bench for issue of sale on spare parts

The Supreme Court on Tuesday decided to refer to a larger bench to determine if sales tax was to be levied on defective spare parts of a motor vehicle, which were replaced free of cost.

A bench of Justices L Nageswara Rao and Sanjay Kishan Kaul ordered for placing the matter before the Chief Justice of India for setting up the larger bench.

"The crucial point which would arise for consideration, and over which the matter needs to be debated, is as to whether, in the case of such a warranty for the supply of free spare parts; once the replacement is made, and the defective part is returned to the manufacturer, sales tax would be payable on such a transaction relating to the spare part, based on a credit note, which may be issued for the said purpose," the bench said.

The court noted that the issue arose in the context when the price of the car being inclusive of the cost of the spare parts, the latter being supplied

for free, upon replacement.

"Sales tax on the car is paid. Sales tax on the inventory purchased by the dealer is paid. Thus, if there is no consideration for these replaced parts, can sales tax be levied at all," the bench asked, leaving the issue to be decided by a larger bench.

The court expresses its reservations with the legal proposition settled in a previous judgement on the subject.

The issue before the top court came up for consideration on a petition filed by Tata Motors Ltd.