SC ruling on warranty replacement has multiple facets - Key Takeaways..

 

Though the issue before the Hon’ble SC was the one on warranty sale made by dealers on behalf of the manufacturer if subject to sales tax, key observations were made which to me seems important and be explored in different cases.

Some of these are as follows;

— Hon’ble SC while discussing the meaning of ‘consideration’ and ‘price’’ has made the below interesting observation;

“By money is meant legal tender; it does not mean money’s worth. Payment need not, however, be made in cash: a method of payment that enables the seller to obtain money such as the use by the buyer of a credit card or a debit card or digital cash or cheque or banker’s draft or trading cheque also comes within the expression “payment of price”. It is only a method of payment or a form of payment. It is also irrelevant that the money payment comes, not from the buyer of the goods or to whom the property in the goods are transferred, but from the card issuer. Thus, there can be various methods of payment i.e., by cash, by negotiable instrument, by credit or charge card or by stored value card or sometimes referred to as digital cash card or electronic purses, internet payments on which that “value” is stored electronically.”

Notable point is the Court held that there can be various methods of payments in addition to cash such as credit or charge card, stored value card referred to as digital cash card, electronic purses, internet payments on which that “value” is stored electronically.

This is important in all those cases where ‘vouchers’ are used as a payment method. A doubt arises if such vouchers are goods/services and exigible to GST because a confusion looms over the fact if vouchers are legal tender. I think the way the SC has dealt with this manifest that the payment method can be any if the same leads in settling the obligation between the parties.

— Alike a few recent rulings where a stress is made on the dominant intention of the parties, here too, an important observation is made;

“the entire controversy must be viewed in the perspective of a composite transaction and not in isolation as the dealer (assessee) would be acting under a warranty with there being a manufacturer on one end and the purchaser or customer of an automobile at the other end and the dealer acting on behalf of the manufacturer or an intermediary between the said customer and manufacturer. The said transaction cannot be viewed in a myopic sense by truncating or excluding the role or action of a dealer under the warranty and viewing it only from the perspective of a transaction simpliciter between manufacturer and a dealer.”

The key point is that a condition or a warranty attached to a main transaction cannot be viewed in isolation and can be implied even from the conduct of the parties.

So an indivisible contract purposely divided into multiple parts may still be viewed as composite basis the facts of the whole case.