( 1. ) THIS is a reference made by the President of the Board of Revenue under Section 44 (1) of the M. P. General Sales Tax Act for answering the question :

Whether, under the facts and circumstances of the case, the Board of Revenue was justified in holding that the amounts reimbursed by the manufacturing company on account of replacement of parts during the warranty period and against pre-delivery charges incurred during the warranty period for which no consideration was received from customers are transactions of sale under the provisions of the M. P. General Sales Tax Act, 1958 ?

( 2. ) THE facts stated in the reference are that the assessee, M/s. Prem Motors, deals in cars, tractors, motor-cycles and their spare parts. The assessee was assessed to tax for a period 1st April, 1978, to 31st March, 1979. The disputed question as has been stated by the learned President is as to whether the replacement made free of cost during the warranty period of the customers was liable to tax or otherwise. It is stated that the assessee in a number of cases received spare parts from the principal, i. e. , the manufacturer, in lieu of the spare parts supplied by him to the customers during the warranty period and in some cases whether the manufacturer probably was not able to supply the spare parts reimbursed the cost of the material supplied free of cost to the customers.

( 3. ) THERE is also a dispute about pre-delivery expenditure incurred on account of damage to the parts of vehicles during transit to Gwalior which has been reimbursed by the principals, i. e. , the manufacturers. This reimbursement of the costs of spare parts or supply of spare parts by the manufacturer in lieu of their supply by the assessee to the customers free during the warranty period and reimbursement of pre-delivery charges were assessed to tax by the assessing authorities. The assessees contention, according to the learned President of the Board, is that these things will not fall within the sale price which the assessee received from the customers and therefore tax on these items assessed is not in accordance with law. It appears the order of assessment was affirmed by the first appellate authority and the second appeal also was rejected and therefore at the instance of the assessee the learned President of the Board has made this reference to answer the question referred to above.

( 4. ) LEARNED counsel appearing for the assessee contended that the assessee is a dealer of automobiles and he sells to the customers cars, motor-cycles and tractors. It was contended that the assessee had to replace the spare parts during the warranty period and these spare parts which were replaced to the customers during the warranty period are replaced by the dealer and in case they are replaced, their cost is reimbursed by the manufacturer. It was contended that this warranty was considered by their Lordships of the Supreme Court in the decision in Premier Automobiles v. Union of India AIR 1972 SC 1690 where it has clearly been held that this is included in the sale price of the vehicle. Learned counsel, therefore, contended that tax has already been charged on the sale price of the vehicle and therefore when the principal, i. e. , the manufacturer, replaces the part, or reimburses its cost, it could not be contended that there is a sale of these spare parts and therefore the assessee could not be taxed on them. Learned counsel referring to the definition of "sale" contended that this does not amount to sale but it is just the replacement of the spare parts from the manufacturer to the customer and as the dealer is an intermediary he only does it on behalf of the manufacturer and is reimbursed by the manufacturer. Learned counsel contended that a similar question was considered by a Division Bench of this Court sitting at Indore in Commissioner of Sales Tax v. Rita Salts Coporation [1984] 17 VKN 299 and it was held that the assessee could not be held liable.

( 5. ) AS