Warranty replacements paid through credit notes can still be a taxable sale where consideration is received for the supplied parts.

Where a dealer supplies replacement goods during a warranty period and receives consideration through manufacturer-issued credit notes, the transaction is a sale exigible to tax. The warranty arrangement does not alter tax character where factual findings show that the supplier was paid for the parts supplied; the authorities and HC had so found, and that finding was accepted. Arguments based on contrary warranty cases were rejected as factually distinguishable, and the inter-State contention failed for want of supporting material and in light of the findings below. The supply was therefore taxable as a sale under the U.P. Trade Tax Act, 1948.

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Issues: Whether the supply of defective parts by the assessee to customers during the warranty period, against credit notes issued by the manufacturer, constituted a sale exigible to tax under the U.P. Trade Tax Act, 1948.

Analysis: The warranty arrangement did not determine the tax character of the transaction by itself. The decisive factor was that the assessee supplied the parts and received the price therefor through credit notes, and the factual findings of the taxing authorities and the High Court established payment for the parts supplied. The earlier authorities dealing with warranty obligations in different factual settings were held inapplicable, and the decisions supporting the assessee were overruled. The additional contention regarding the inter-State nature of the transaction was rejected in view of the factual findings below and the absence of a plea supported by material.

Conclusion: The transaction amounted to a sale within the meaning of section 2(h) of the U.P. Trade Tax Act, 1948 and was taxable.

Ratio Decidendi: Where the dealer supplies goods and receives consideration for them, the transaction is a sale exigible to tax notwithstanding that the supply is made pursuant to a warranty arrangement.

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