Warranty replacement parts supplied against credit notes constitute taxable sale when credit notes are treated as valuable consideration.

Supply of spare parts by an authorised dealer during the warranty period was treated as a taxable sale because the replacement parts came from the dealer's stock and were transferred for valuable consideration through credit notes issued by the manufacturer. The Court treated the consumer replacement and the manufacturer's reimbursement as separate commercial transactions, and held that the warranty obligation rested on the manufacturer, not the dealer. On that basis, the transaction fell within the statutory definition of sale under the U.P. VAT Act and was liable to tax; the contention that it was a free service outside the tax net was rejected.

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Issues: Whether the supply of spare parts by an authorised dealer to customers during the warranty period against credit notes issued by the manufacturer constitutes a sale within the meaning of Section 2(ac) of the U.P. VAT Act, 2008 and is liable to tax under Section 3 of that Act.

Analysis: The dealer purchased spare parts from the manufacturer and, when defective parts in vehicles sold to customers were replaced during the warranty period, the dealer supplied replacement parts from its own stock. The manufacturer, not the dealer, bore the warranty obligation to the consumer and reimbursed the dealer through credit notes. The Court held that the transaction of sale of spare parts to consumers and the reimbursement through credit notes were separate commercial transactions, and that the credit notes represented valuable consideration for the transfer of goods. Applying the statutory definition of sale and the binding principle that payment through credit notes can constitute consideration, the Court rejected the contention that the replacement was a free service outside the taxing net.

Conclusion: The transaction was held to be a taxable sale, and the question of law was answered in the affirmative in favour of the Revenue and against the assessee.

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