S. SANKARASUBBAN J.

These two T.R.Cs. are filed against the common order in T.A. No. 1056 of 1990 of the Kerala Sales Tax Appellate Tribunal, Additional Bench II, Ernakulam. The assessment years are 1984-85 and 1985-86. The assessee is the revision-petitioner and it is the appellant before the Tribunal.

The dispute raised in this case is whether the cost of spares replaced by the petitioner/appellant during the warranty period forms part of the petitioner's turnover and is liable to tax. The petitioner is the agent for automobile manufacturers like Hindustan Motors Limited. The petitioner gets new motor vehicles from the factory and sells the same in the State of Kerala. The new vehicles are covered by warranty for specified period. During the warranty period if any spare parts have to be replaced, the petitioner, as the agent of the manufacturer, makes replacement free of charge to the owners of the vehicles. The value of such spare parts replaced by the petitioner during the warranty period is reimbursed by the manufacturer by issuing credit notes. The spare parts are purchased in bulk and replacement is made from out of such stock held by the petitioner. After replacement, the petitioner makes the claim to the manufacturer, who issues the credit notes.

The petitioner submits that the transaction does not constitute "sales" within the meaning of the Kerala General Sales Tax Act, 1963 (hereinafter referred to as "the Act"). It is only a free replacement for customer. The manufacturer issues credit notes for the value together with excise duty and sales tax thereby cancelling the original sale made to the petitioner in respect of the item replaced. Therefore, there is only a sale cancellation between the manufacturer and the petitioner. Further, it is contended that for the vehicles sold in Kerala, the petitioner has already suffered tax at the point of first sale. Every component part of the car or other vehicles should be taken to have suffered tax at the point of first sale, when replacement is made it is in respect of an item which has already suffered tax at the point of first sale. According to the Revenue, the petitioner has purchased the spare parts from outside the State by issue of C forms. The value of spares used for replacement during the warranty period free of charge cannot be treated as sales and included in the taxable turnover, even if the purchase of such spares was effected from outside the State by issue of C forms.The assessing authority was of the view that the petitioner has been making purchase purely for replacement and the value of the goods replaced are reimbursed by the manufacturer by issue of credit notes. The assessing authority took the view that exemption cannot be allowed. The Appellate Tribunal was of the view that the petitioner has transferred the property in the spare parts replaced to the customer. The transfer was effected in the course of trade or business. The petitioner also received the consideration for the transfer of property in goods by way of reimbursement from M/s. Hindustan Motors. Hence, all the elements of sale are present in the transaction.

We heard learned counsel for the petitioner Sri C. N. Ramachandran Nair and learned Government Pleader Sri V. V. Asokan.

We are of the view that the transaction in question cannot be said to be a sale. The petitioner is the agent of automobile manufacturers and the spare parts are given on the basis of the warranty for replacement. It may be true that the petitioner had purchased the spare parts by giving C forms. But so far as the purchase of spare parts is concerned, it is purely for replacement and not for sale. It is further seen that credit notes are issued by the manufacturer reducing the sale value. Learned counsel for the petitioner brought to our notice a decision of the Delhi High Court reported as Commissioner of Sales Tax v. Prem Nath Motors (P) Ltd. In the above decision, the court observed as follows :

"Now, the wa