Both the above revisions relate to the same assessee/ opposite-party and arise from a common assessment order, appellate order and the order of the tribunal. They are based on identical facts and the same questions of law are proposed to be raised in both of them and, as such, with the consent of the parties, they have been heard together and are being decided by a common judgment and order.
The opposite party Godrej & Wires Manufacturing Co. Ltd., Kanpur is a dealer carrying on business of steel furnitures, refrigerators etc. In these revisions, I am only concerned with the business of sale of refrigerators by the aforesaid opposite-party/dealer.
The opposite-party/dealer gets refrigerators from Mumbai for sale in U.P. The refrigerators from Mumbai come in a packing which is in two parts; primary and secondary. The primary packing is generally of paper with a outer cover of card-board. This in trade practice is called primary packing. The refrigerators after primary packing are further packed in temporary wooden cases which is called secondary packing. This secondary packing is necessary for protecting refrigerators from any kind of damage during transportation from Mumbai to Kanpur. On reaching Kanpur, secondary packing is removed and the refrigerators are ordinarily sold in primary packing only unless the customer insists for the secondary packing as well, which occurs normally in cases where the refrigerators sold are to be carried out of station. The primary packing is of no use and value and, as such, no extra cost for it is either added in the price of the refrigerator or is otherwise charged.
The refrigerators are sold with one year warranty and a further contract of service for four years thereafter, which is optional and is dependent upon the wishes of the customer. A sum of Rs.450/- as service charges for the optional contract of service for four years is charged from the customer, if the customer opts for the same.
The assessing authority vide order dated 27.12.1989 declined to accept the claim of the opposite-party/dealer with regard to exclusion of the amount of Rs.450/- per refrigerator from the taxable turnover. The assessing authority further added the cost of secondary packing in taxable turnover and imposed tax on it also at the rate of 12% which was leviable on refrigerators.
The first appellate authority, on appeals being preferred by the opposite-party/dealer, partly allowed the appeals vide order dated 31.7.1991. The appellate authority accepted Forms 3-D submitted on behalf of the opposite-party/dealer in additional evidence in exercise of its power under Section 12-B of the Trade Tax Act. It directed for exclusion of Rs.450/- from the taxable turnover on the ground that it related to service charges and, as such, was not part of the price of the refrigerator. On the value of the secondary packing tax at a lower rate of 6% was directed to be paid in view of notification dated 7.9.1981.
Aggrieved by the order of the first appellate authority, the Commissioner, Trade Tax preferred appeals to the tribunal. The appeals have been dismissed vide order dated 23.10.2003 affirming the order of the first appellate authority. Hence, the Commissioner, Trade Tax has preferred these revisions.
I have heard Sri U.K. Pandey, learned Standing Counsel for the revisionist and Sri Ashok Kumar, learned counsel for the opposite-party/dealer.
The revisionists propose to raise the following questions of law:
(i) Whether on the facts and in the circumstances of the case the Tribunal is legally justified to hold that the amount of Rs.395/- (correct amount is Rs.450/-) in bills, is not part of turnover?
(ii) Whether on the facts and in the circumstances of the case the Tribunal is legally justified to hold that packing material of refrigerator is taxable @ 6% ?
(iii) Whether on the facts and in the circumstances of the case the Tribunal is legally justified to allow the acceptance of form-3D as additional evidence, without giving opportunity to department for verification or rebuttal ?
The first argument of Sri Pandey is that the first appellate authority was not justified in taking additional evidence on record without giving opportunity to the assessing authority to rebut the same, which is mandatory under Section 12-B of the Act.
The tribunal in its order has recorded that for producing Forms 3-D in additional evidence the opposite-party/dealer has given sufficient good reasons for not producing the same before the assessing authority despite due diligence. The first appellate authority gave opportunity to the department but the department could neither point out any defect in the same nor could say that the said forms were factious in nature. No additional evidence in rebuttal was also produced by the department. As such, the first appellate authority had not committed any error of law or jurisdiction in accepting the same as part of the evidence.
The order of the first appellate authority also records that the representative of the Trade Tax Commissioner had not produced any evidence in rebuttal to the aforesaid additional evidence of the opposite-party/dealer and at the same time had failed to take any objection against its admission.
The above factual position recorded by the two authorities below clearly indicates that the representative of the Trade Tax Commissioner was given opportunity to rebut the additional evidence produced by the opposite-party/dealer and to take objection against the same. It, therefore, cannot be said that the additional evidence was taken on record without affording opportunity of hearing to the Commissioner of Trade Tax.
The other limb of the argument is that before accepting additional evidence opportunity ought to have been given to the assessing authority and not to the department.
The submission has no force. Section 12-B of the Act authorises the appellate authority to take additional evidence on record but after affording reasonable opportunity for challenging or rebutting the same. Previously such opportunity was required to be given to the Commissioner. However, vide Trade Tax (Amendment and Valuation) Act, 2001, the word 'Commissioner' has been replaced by the words "assessing authority" w.e.f. 5.3.2001. Prior to 5.3.2001 opportunity was required to be given to the Commissioner of the Department and if opportunity is given to the representative of the Commissioner it would be deemed to be sufficient opportunity to the Commissioner.
In the present case, undoubtedly, opportunity was given to the representative of the Commissioner, Trade Tax which is sufficient compliance of Section 12-B of the Act as it stood prior to 5.3.2001. The order was passed by the appellate authority on 31.7.1991 when opportunity was required to be given to the Commissioner/its representative and not to the assessing authority. The words assessing authority have been substituted in the above provision subsequently.
In view of above, no illegality has been committed by the first appellate authority in accepting the additional evidence adduced by the opposite-party/dealer and the tribunal has rightly affirmed the same.
The question of law no.(iii) as proposed is without substance and stands rejected accordingly.
The second argument of learned counsel for the revisionist is that secondary packing material of the refrigerator was taxable as part of the turnover at the same rate as refrigerators at the rate of 12%.
It is admitted on record that the opposite-party/dealer had sold some refrigerators with secondary packing and most of them with only primary packing, which had no value. The value of the secondary packing so transferred along with the refrigerators had been added in turnover and tax at the rate of 6% has been paid treating it to be part of the turnover.
It is admitted legal position that in view of Explanation II(i) of Section 2(i) of the Act 'turnover' means the aggregate amount for which goods are supplied by way of sale by the dealer and include the price of the packing material in which they are packed.
In view of above, the cost of the secondary packing transferred along with the refrigerators is part of the turnover and is taxable.
Now the question arises about the rate at which it would be taxable. Generally, as packing material is part of the turnover, it is taxable at the same rate as the refrigerator. However, the position is different in view of Notification No.S.T.-II-5785/X-10(1)-80-U.P. Act XV/48 Order - 81 dated 07.09.81 as published in the Gazette of U.P. The aforesaid notification issued under Section 3-A of the Act read with Section 21 of the General Clauses Act in entry No.35 specifically provides that packing cases of wood or timber are chargeable to tax at the rate of 6%.
On the basis of the aforesaid notification the first appellate authority rightly directed for levying tax on the cost of the secondary packing material at the rate of 6% instead of 12% which is chargeable on refrigerators. The tribunal committed no error in affirming the same.
In view of above, question No.(ii) of law is answered in favour of the opposite party/dealer and it is held that the secondary packing material of refrigerator is taxable at the rate of 6% only.
This lead me to the next argument of learned Standing Counsel that a sum of Rs.450/- charged by the opposite party/dealer towards warranty for the refrigerators is also liable to tax as part of the turnover and the first appellate authority and the tribunal erred in holding otherwise.
In the present case the findings of the first appellate authority and the tribunal are to the effect that on the sale of the refrigerators the customers were extended warranty for a period of one year whether the sale happens to be in bulk or in retail. Thereafter an option used to be given to the customers for entering into a service/maintenance contract for another period of four years after the expiry of one year warranty. The said service contract was not mandatory in nature and was dependent upon the wishes of the customers.
In view of above finding the sum of Rs.450/- per refrigerator charged by the opposite party/dealer in effect is not towards warranty which may be included in the turnover. The said amount is realisable separately at the option of the customer towards service/maintenance charges for the next four years after expiry of one year warranty.
In an identical case 2004 NTN (25) 681 Commissioner Sales Tax, Lucknow Vs. S/s. Kelvinator of India Ltd., relating to sale of refrigerators, where warranty charges for subsequent years were found to be optional, Single Judge of this Court held that in view of the fact that the said warranty was optional the amount realised in that respect cannot be added in turnover.
Earlier to the above decision, even the Apex Court in Collector, Central Excise, Delhi Vs. Kelvinator of India Ltd. 1988 UPTC 780 in connection with the sale of refrigerators held that a contract for four year warranty/service which was optional and entered into later on is clearly an after sale facility and cannot be included in the taxable value of the turnover.
The above view was followed by the learned Single Judge of this Court in Commissioner of Trade Tax,U.P., Lucknow Vs. M/s Hyderabad Allwyn Metal Works, Unnao 2005 NTN (26) 415. In the said case it was clearly held that service charges for maintenance and repair of refrigerators under the optional scheme after the expiry of warranty period are not part of the turnover under Section 2(i) of the Act.
The above case law squarely covers the question No.(i) proposed to be raised by the learned Standing Counsel and the same is no longer res integra.
The decision of the Supreme Court in the case of Mohd. Eqram Khan and sons Vs. Commissioner of Trade Tax 2004 UPTC 1198 relied upon by the learned Standing Counsel is distinguishable and is not applicable to the facts and circumstances of the case. In the said case the dealer had made supply of parts to the customers under an agreement of warranty between the manufacturer and customers and, therefore, it was held that the transaction was subject to tax. It was not a case of after sales service or maintenance at the option of the customer that too beyond the period of warranty.
Similarly, the Division Bench judgment of this Court in M/s Bansal Motors Vs. State of U.P. and others2010 UPTC 539 has not application to the facts of this case as therein the amount received towards the warranty alone was held liable to be tax as part of the turnover.
Accordingly, I am of the view that the first appellate authority and the tribunal are legally justified in excluding the amount realised as warranty charges towards after sales service for the period of four years, after expiry of initial one year warranty from the taxable turnover of the sale of refrigerators.
In view of above, all the three points raised and argued fail and the revisions are dismissed with no order as to costs.
Dt: 17.5.2011 brizesh