2014 (7) TMI 660 - HC - VAT and Sales Tax

Court rules repair charges on compressors not sales under Bombay Sales Tax Act.

The Additional Commissioner of Sales Tax, VAT-III, Mumbai Versus M/s. Kirloskar Copeland Ltd.

The High Court upheld the MSTT's decision, ruling that the transactions in question did not constitute sales under the Bombay Sales Tax Act. The court ... Levy of tax on gross turnover - replacement of old / defective parts - Barter transactions - Respondent claimed that there was no sale of old repaired compressors but an exchange of the same for the defective compressors at the option of the customer - Held that:- The section 2(28) clearly stipulates that a sale means a sale of goods within the State for cash or deferred payment or other valuable consideration. Therefore, in order to constitute a sale, it is necessary that there should be an agreement between the parties for the purpose of transferring title to the goods which pre-supposes the capacity to contract; supported by monetary consideration; and the title in the property actually passes in the goods. Unless all these elements are present, there can be no sale. - 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. 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 montetary 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. - order of the MSTT rejecting the reference application of the Applicant does not suffer from any error whatsoever. The matter does not raise any substantive question of law. - Decided against Revenue. Issues Involved:1. Interpretation of the term 'sales' under section 2(28) of the Bombay Sales Tax Act, 1959.2. Determination of whether the transfer of compressors constitutes a sale under the BST Act.3. Consideration of whether the transaction involves a cross transfer of property or a sale of goods.4. Classification of the amount received as repair charges or sale price.Detailed Analysis:Issue 1: Interpretation of the term 'sales' under section 2(28) of the Bombay Sales Tax Act, 1959The term 'sale' as defined in section 2(28) of the BST Act includes a sale of goods within the State for cash, deferred payment, or other valuable consideration. The definition excludes transactions like mortgage, hypothecation, charge, or pledge. The court emphasized that for a transaction to be considered a sale, there must be an agreement to transfer the title of goods supported by monetary consideration, and the title must actually pass to the buyer. This interpretation is consistent with the Supreme Court's ruling in State of Madras v/s Gannon, Dunkerley and Co. (Madras) Ltd., where it was held that a sale involves the transfer of ownership for a money price.Issue 2: Determination of whether the transfer of compressors constitutes a sale under the BST ActIn this case, the Respondent, engaged in manufacturing and selling compressors, offers customers the option to exchange defective compressors for repaired ones after paying repair charges. The Assessing Officer initially treated these repair charges as the sale price of the repaired compressors and levied sales tax. However, the MSTT found that these transactions did not constitute a sale since there was no consensual agreement supported by monetary consideration for transferring the title of the repaired compressors.Issue 3: Consideration of whether the transaction involves a cross transfer of property or a sale of goodsThe MSTT concluded that the transactions were cross transfers of property between defective and repaired compressors, not sales. The court agreed, noting that customers had the option to either wait for their compressors to be repaired or immediately take a repaired one off the shelf in exchange for the defective compressor and repair charges. This arrangement did not involve selling the repaired compressor but merely provided an option to avoid the repair wait time.Issue 4: Classification of the amount received as repair charges or sale priceThe court found that the amount received by the Respondent was indeed repair charges and not the sale price of the repaired compressors. This conclusion was based on the fact that customers paid the same repair charges whether they chose to wait for their compressor to be repaired or took a repaired one immediately. The court dismissed the argument that uniform repair charges across India indicated a sale price, reiterating that the transactions were for repair services, not sales.Conclusion:The High Court upheld the MSTT's decision, stating that the transactions in question did not constitute sales under the BST Act. The court dismissed the Sales Tax Application, finding no substantive question of law and confirming that the amounts received were for repair services, not for the sale of goods. The application was dismissed with no order as to costs.