M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES

B The Judgment of the Court was delivered by NAGARATHNA, J. Leave granted.

2Copy pinpoint2. These Civil Appeals arise from the judgments of the High Courts C of Karnataka, Rajasthan, Allahabad, Madhya Pradesh, Bombay, Andhra Pradesh, Kerala and Gujarat. Since common questions of law and facts have been raised in these appeals vide Reference Order dated 05.12.2019 made by a Bench of two judges to a Bench comprising of three judges, the reference has been heard and is accordingly answered.

D In some of the civil appeals, the dealers–assessee are the appellants, while in rest of the appeals the respective States are the appellants. Preface:

3Copy pinpoint3. By order dated 05.02.2019, reference has been made to a Bench E of three Judges which shall hereinafter be referred to as the “Reference Order”. The pertinent paragraphs of the Reference Order read as under: “15. We are not delving into the controversy in any further detail as we are of the opinion that the issue raised is required to be looked into by a larger Bench. The crucial point which would arise for consideration, and over which the matter needs to be debated, is as to whether, in the case of such a warranty for the supply of free spare parts; once the replacement is made, and the defective part is returned to the manufacturer, sales tax would be payable on such a transaction relating to the spare part, based on a credit note, which may be issued for the said purpose. This is in the context of the observations discussed aforesaid regarding the price of the car being inclusive of the cost of the spare parts, the latter being supplied for free, upon replacement. Sales tax on the car is paid. Sales tax on the inventory purchased by the dealer is H

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1285 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

paid. Thus, if there is no consideration for these replaced parts, can sales tax be levied at all? The judgment in Mohd. Ekram Khan & Sons case [Mohd. Ekram Khan & Sons v. CTT, (2004) 6 SCC 183] refers to the credit notes received as consideration for the replacement; but it is a moot point whether credit notes can be treated as a mode of payment or not. The judgment in Premier Automobiles Ltd. case [Premier Automobiles Ltd. v. Union of India, (1972) 4 SCC (N) 1: (1972) 1 SCR 526] is stated to contain a different factual situation, as per the observations in Mohd. Ekram Khan & Sons case [Mohd. Ekram Khan & Sons v. CTT, (2004) 6 SCC 183]. There are observations referred to above, again in Mohd. Ekram Khan & Sons C case [Mohd. Ekram Khan & Sons v. CTT, (2004) 6 SCC 183], of the possibility of the manufacturer having purchased, from open markets, the parts for replacement, on which taxes would be paid. In that context, it was observed that “the position is not different because the assessee had supplied the parts and received the D price”. The assessee actually had purchased the parts and paid sales tax on it, but on return of the defective part to the manufacturer, was given a credit note.

16. We have some reservations in respect of the observations and legal propositions laid down in Mohd. Ekram Khan & Sons case [Mohd. Ekram Khan & Sons v. CTT, (2004) 6 SCC 183] E and consider it appropriate that the matter be considered by a larger Bench.”

4Copy pinpoint4. The point for consideration under the Reference Order is, whether, a credit note issued by a manufacturer to a dealer of automobiles in consideration of the replacement of a defective part in the automobile F sold pursuant to a warranty agreement being collateral to the sale of the automobile is exigible to sales tax under the sales tax enactments of the respective States. While considering the said question, the Reference Order doubts the correctness of the observations made in Mohd. Ekram Khan & Sons vs. CTT, (2004) 6 SCC 183 (Mohd. Ekram Khan). G

5Copy pinpoint5. It may be mentioned that in the aforesaid decision three other judgments of the Delhi High Court, Madhya Pradesh High Court and Kerala High Court in Commissioner of Sales Tax vs. Prem Nath Motors, (1979) 43 STC 52 (Delhi), (Prem Nath Motors); Prem Motors, Gwalior vs. Commissioner of Sales Tax, Gwalior 1986 (61) H

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A STC 244 MP (Prem Motors) and Geo Motors vs. State of Kerala (2001) 122 STC 285 (Geo Motors) respectively were considered and the latter two judgments were overruled. Factual Background:

6Copy pinpoint6. Of the thirty-four cases before us, the factual conspectus B involves provisions of the respective Sales Tax Act and similar questions of law. Thus, the facts in Commercial Tax Officer vs. M/s Marudhar Motors, C.A. No. 3856/2013 only are encapsulated for the sake of convenience as under: i. The assessee, M/s Marudhar Motors is a dealer of TATA C Vehicles. Under the dealership agreement, the dealer/ assessee would provide replacement of warranty goods sold to the customer. ii. There exists a separate warranty agreement between the manufacturer and the ultimate customer to whom such vehicles are sold by the assessee. iii. In the normal course of business transactions involving the sale of automobile parts, Tata Motors sells vehicles and spare parts to Marudhara Motors by charging CST against “C” form. Thereupon, Marudhara Motors sells these goods to customers through invoices collecting local sales tax at a price not exceeding the maximum price prescribed by the manufacturer. iv. However, in the case of warranty claims raised by customers due to the emergence of defects in some parts, such parts are replaced free of cost to the customers to avoid delay in first securing such parts from the manufacturer, Tata Motors, and replacing the same. The dealer, on behalf of the manufacturer, collects a defective component or the vehicle itself from the customer and replaces it with part/s or vehicle in his stock purchased from the manufacturer. This defective component/s or vehicle received on exchange by the dealer from the customer is returned back to the manufacturer from whom the dealer had purchased the same in the first place i.e., Tata Motors, who after receiving the parts or the entire vehicle and satisfying themselves H

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1287 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

about it being defective, issues credit notes, thereby crediting the running account of the dealer which is maintained for sale transactions, at the price at which the good was initially sold to the dealer. v. Pursuant to the decision of this Court in Mohd. Ekram Khan, the assessing authority invoked the power of reassessment under Section 30 of the Rajasthan Sales Tax Act, 1994 to impose a tax on assessee’s turnover having escaped assessment for the assessment years 2000-2001 to 2003-2004. However, for the assessment years 2004- 2005 and 2005-2006, regular assessment proceedings were initiated under Section 28 of the Rajasthan Sales Tax Act, 1994. vi. On July 22, 2006, the Deputy Commissioner (Appeals) of Jodhpur passed an order upholding the levy of tax upon an assessee but setting aside the levy of interest and penalty imposed by the assessing authority under Section 65 of the Act. vii. This decision gave rise to six cross-appeals filed by the assessee and another six appeals filed by the Revenue. The assessee was dissatisfied with the decision to uphold the levy of tax and filed six separate appeals for six different assessment years - 2000-2001, 2001-2002, 2002-2003, 2003- 2004, 2004-2005, and 2005-2006. On the other hand, the Revenue was aggrieved by the decision to set aside the levy of interest and penalty and filed another batch of six appeals. F viii. The matter was taken up by the Rajasthan Tax Board in Ajmer, which issued a common judgment on June 18, 2007, disposing of all twelve appeals. The Rajasthan Tax Board set aside the decision of Deputy Commissioner (Appeals) and thereby set aside the imposition of tax. It found the G transaction of replacing the defective parts did not fall within the definition of ‘sale’ as defined under Section 2(38) of the Rajasthan Sales Tax Act. It also concluded that the facts of the case are distinguishable from the facts in Mohd. Ekram Khan. H

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A ix. The Revenue filed revision petitions under Section 86 of the Rajasthan Sales Tax Act, 1994. The Rajasthan High Court, while dismissing these revision petitions and affirming the order of Rajasthan Tax Board, distinguished the facts in the case from the facts and reasoning in Mohd. Ekram Khan by underlining three distinguishing factors. Firstly, it noted that the agreement between the manufacturer and dealer reflected a principal-to-principal relationship, and not a principal-agent relationship. Secondly, it was noted that the transaction between manufacturer and dealer, pertaining to the return of defective parts to the manufacturer and the issue of credit notes to the dealer, is independent of the transaction between manufacturer and customer, pertaining to the discharge of warranty obligation. Thirdly, it was considered that the warranty obligation was being discharged free of cost. It was noted that, Mohd. Ekram Khan was decided on the premise that the dealer assessee had supplied the parts and had received the price. Gist of Cases under consideration:

7Copy pinpoint7. The present appeals assail judgments rendered by eight High Courts. While all fifteen decisions rendered by Rajasthan High Court E are in the favour of the assessee, all decisions rendered by Kerala, Karnataka, Bombay, Andhra Pradesh, Madhya Pradesh, and Gujarat High Courts are in the favour of Revenue. In the case of Allahabad High Court, one decision is in favour of Revenue while the other is in favour of the assessee. A table of cases is drawn up as under:

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1289 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

7.1. As is clear from the table above, fifteen out of the thirty-four A cases before us pertain to revenue’s appeals against the decisions of the Rajasthan High Court, relying upon the decision in C.T.O. (AE), Jodhpur vs. M/s Marudhara Motors, Jodhpur, (2010) 29 VST 114, (Marudhara Motors) dated 16.03.2009. In the aforementioned decision, the Rajasthan High Court distinguished the facts and reasoning in Mohd. B Ekram Khan by underlining three distinguishing factors. Firstly, it noted that the agreement between the manufacturer and dealer reflected a principal-to-principal relationship, and not a principal-agent relationship. Secondly, it was noted that the transaction between manufacturer and dealer, pertaining to the return of defective parts to the manufacturer and the issue of credit notes to the dealer, is independent of the transaction C between manufacturer and customer, pertaining to the discharge of warranty obligation. Thirdly, it was considered that the warranty obligation was being discharged free of cost. It was noted that, Mohd. Ekram Khan was decided on the premise that the dealer assessee had supplied the parts and had received the price. D 7.2. The other decision in favour of the assessee was rendered by Allahabad High Court in M/s. Vikrant Automobiles vs. Commissioner, Commercial Tax, U.P., vide order dated 06.11.2015. The High Court dismissed the revision against the order of Customs, Excise and Service Tax Appellate Tribunal wherein the transaction of replacement of spare parts as part of warranty was held not to be E assessable. The High Court held that it was ‘well recognized that in supply of spare parts to the customer by the dealer during the period of warranty free of charge, no sale consideration passes from the customer to the dealer and therefore the cost of the spare parts cannot be included in the turnover of the sale of the dealer.’ F 7.3. In a later judgment rendered by the same High Court, the above decision was found to be of no assistance to the assessee. Therefore, in The Commissioner, Commercial Tax Lko. vs. S/S Maskat Motors Pvt. Ltd., decided on 08.12.2016, the said Court reversed the finding of the Tribunal that the imposition of the tax was not justified G because defective parts of motor vehicles have been replaced free of cost and the manufacturer had issued credit notes. The High Court found the above conclusion to be perverse, self-contradictory, and ‘contrary to the charging section as well as the definition of “Sale” under the U.P. Act and Central Act.’ Applying Mohd. Ekram Khan, the High Court H

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A found all elements of sale to be completed as the transaction of supply of spare parts to consumers was concluded by the payment of valuable consideration by the manufacturer in the form of credit notes to the dealer. Therefore, the High Court held that the assessee has sold spare parts for valuable consideration attracting liability to tax under the U.P. Act. B 7.4. The assessees have impugned four decisions of the Karnataka High Court. All these decisions have followed the reasoning and conclusions arrived at in the case of Dy. Commissioner of Commercial Taxes (Assessment), Bangalore vs. Prerana Motors (P) Ltd., disposed of on 19.10.2005. In the aforementioned case, an order against the C Revenue, by Customs, Excise and Service Tax Appellate Tribunal was reversed on revision under Section 23(1) of Karnataka Sales Tax Act, 1957, on the ground that the dispute is covered by the decision in Mohd. Ekram Khan. It was reasoned that in Mohd. Ekram Khan, the assessee was a dealer registered under the provisions of the U.P. Trade Tax D Act,1948 and also an agent of M/s. Mahindra and Mahindra (manufacturer). The manufacturer had a warranty agreement with the purchasers of vehicles to replace defective parts during the warranty period. The conclusion of Mohd. Ekram Khan was relied upon to conclude that the transaction was taxable as the manufacturer had made payment to its agent by issuing credit notes for the supply of defective E parts during the warranty period. 7.5. In a similar vein, the five impugned decisions rendered by the High Court of Kerala followed the reasoning and conclusions in the case of M/s TVS and Sons Ltd. vs. State of Kerala, decided on 06.06.2007. Clause 23 of the Dealership Agreement states: F “The Dealer is not and shall not be the agent of the Company for any purpose, and the dealer has no right or authority to assign or create any obligation of any kind, express or implied, on behalf of the Company to bind the Company in any way, to accept any service or process upon the Company or to receive any notice of any nature whatsoever.” 7.6. Also Warranty Policy of Mahindra & Mahindra Ltd. on ‘Warranty Repair Attention’ states that the dealer should not charge the customer for warranty repairs. It emphasizes that the repairs should be carried out absolutely free of charge and the claims should be submitted to the manufacturer for reimbursement.

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1291 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

7.7. The High Court affirmed the decision of the Kerala Sales A Tax Appellate Tribunal wherein the decision in Mohd. Ekram Khan was applied to confirm the assessment order passed by the Revenue against the dealer who had replaced defective parts of automobiles for free, in the discharge of his obligations under the dealership agreement. The Tribunal had rejected the argument that the dealer was merely B discharging the obligations of the manufacturer in so far as the warranty was concerned and therefore, the transaction was not taxable. 7.8. The three impugned decisions, emanating from the Bombay High Court, follow the decision in M/s Navnit Motors Pvt Ltd. vs. State of Maharashtra, decided on 29.11.2011. The High Court recorded that the Sales Tax Tribunal had declined to refer the matter to the High Court C under Section 61 of the Bombay Sales Tax Act, 1959. It further noted that the Tribunal, while following the law laid down in Mohd. Ekram Khan found that the dealer was not an agent of the manufacturer, i.e., Maruti Udyog Ltd. Furthermore, it was observed that the title and risk in the goods pass to the dealer once it is purchased from Maruti Udyog D Ltd. and the delivered goods pass to him at the factory gate. Moreover, the replacement for defective parts covered by warranty is done by the dealer out of his stock of purchased goods. Also, the cost of parts incurred by the dealer in carrying out a repair, or replacement of the defective part is reimbursed by the manufacturer. The High Court rejected the attempt of the assessee to distinguish the facts in Mohd. Ekram Khan E as the attempt was premised on the assertion that in Mohd. Ekram Khan, the relationship between the dealer and manufacturer involved an agency whereas in the present case, the transaction was on a principal- to-principal basis. The High Court affirmed the reasoning of the Tribunal on this question by recording that the nature of the relationship as found in the dealership agreement contested in Mohd. Ekram Khan was the same as that in the case at hand: principal-to-principal relationship. Therefore, the assessee cannot seek to take benefit of a sentence recorded in the judgment in Mohd. Ekram Khan that the dealer was an agent of the manufacturer. The High Court further reasoned that the terms of agreement in Mohd. Ekram Khan was similar to the case being considered as clause 49 of the Agreement of Dealership required the dealer to promptly and effectively deal with any claim made by the customer of any vehicle under the provisions of the warranty currently in force. In terms of the warranty, the cost of parts incurred by the dealer in carrying out repairs or replacement of defective parts is in H

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A accordance with the procedure established by the manufacturer and reimbursed by the manufacturer to the assessee. 7.9. Two decisions of the Madhya Pradesh High Court are assailed in the present case by the assessees. Both orders follow the reasoning of court in M/s. Harsh Automobiles Private Limited vs. The B Commissioner of Commercial Tax, Indore, decided on 25.01.2018. The High Court relied upon the dictum in Mohd. Ekram Khan and rejected the assessee’s contention that the replacement of motor vehicle part during the warranty period was not covered in sale and, therefore, is not liable to tax. C 7.10. The sole impugned decision from the Gujarat High Court, M/s Kataria Automobiles Pvt Ltd. vs. State of Gujarat, was decided on 20.03.2015. The High Court applied the decision of this Court in Mohd. Ekram Khan and concluded that the transaction of replacement of defective parts was taxable as the dealer had received payment in the form of credit notes for the discharge of the manufacturer’s warranty D obligation. The High Court observed that it was admitted that the dealer was purchasing the spare parts from the open market and replacing the defective parts during the warranty period. It also noted that the dealer was being compensated by way of credit notes. Moreover, the manufacturer has received the defective parts from the dealer. The High E Court reasoned that if the said defective parts were purchased from the open market, the manufacturer would have been obliged to pay sales tax. 7.11. Two decisions of the Andhra Pradesh High Court are assailed in the present case by the assessees. These cases pertain to M/s Jasper F Industries (P) Ltd. vs. State of Andhra Pradesh, decided vide common order dated 11.02.2011. The High Court applied the dictum in Mohd. Ekram Khan and reasoned that it was not open to the High Court to distinguish the judgment of the Supreme Court on a microscopic examination of the different facts situation. Therefore, the High Court refused to entertain the view of the Rajasthan High Court, as enunciated G in Marudhara Motors. Triology of Cases considered/overruled in Mohd. Ekram Khan:

8Copy pinpoint8. The three cases considered in Mohd. Ekram Khan shall be discussed at this stage. H

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1293 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

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A warranty. It was further observed that the replacement of parts of the car provided free of cost by the dealer in terms of the warranty was part of the consolidated price realised at the time of the initial transfer and on which sales tax was paid and the replacement of the parts would deem to be a ‘sale’ not liable to imposition of further sales tax. B (iii) The precise question considered in the said case was, whether, transfer of the parts replaced in pursuance of the warranty amounted to a sale within the meaning of the Sales Tax Act and whether the sale price of the car which had been subjected to the sales tax could be regarded as having included the cost or value of spare parts used in the replacement, in compliance with the stipulations in the warranty. On considering the warranty clause, it was noted that the sale of cars was along with the warranty to replace defective parts free of cost and the price was fixed at the time of the sale. After noting the distinction between the condition and warranty in a contract of sale of goods, it was observed that the consideration on the defective part, that might be replaced under the warranty was not separately specified because it was included in the price fixed at the time of sale of the car. In other words, the transfer of property and the part replaced in pursuance of stipulation of warranty is part of the original sale of the car for the price fixed and received from the buyer or consumer. The price so fixed and received was a consolidated price for the car and the parts that may have been supplied by way of replacement in pursuance of the warranty. Accordingly, it was observed that the Financial Commissioner was right in holding that the price for the replaced part was already charged and paid, on which sales tax was already levied and collected and hence, there was no liability to the imposition of further sales tax. G II. Prem Motors, Gwalior vs. Commissioner of Sales Tax, Gwalior, 1986 (61) STC 244 MP: (Prem Motors) (i) The question considered in the said case under Section 44 (1) of the M.P. General Sales Tax Act, 1958 is extracted as under:

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1295 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

“Whether in the facts and circumstances of the case, the Tribunal was justified in holding that the reimbursement of Rs.33,263/- received from the principals will not form part of the sale price as defined under section 2 (o) of the M. P. General Sales Tax Act, 1958?” B (Underlining by us) In the said case, the revenue contended that when the spare parts are replaced by the assessee (dealer) to the customer free of charge, being the condition of warranty, he recovers the price from the manufacturer and in C substance it is the sale of the spare parts to the customer and therefore, it is liable to tax payable by the dealer. (ii) The Division Bench of the Madhya Pradesh High Court, however, held that the aforesaid contention of the revenue suffered from a basic policy issue. That the warranty for a D sale of car is from the manufacturer and therefore, if during the warranty period any part is found to be defective and is to be replaced, the responsibility of replacement is that of the manufacturer. Therefore, when the assessee (dealer) replaces parts to the customers and either gets those parts from the manufacturer or gets it reimbursed, it is neither a E sale of those parts by the dealer to the customer nor to the manufacturer, what it does only is to pass on the part from the manufacturer to the customer but in order to avoid delay and inconvenience to the customer, he replaces the parts first and gets them from the manufacturer later and thus, it F does not fall within the ambit of the definition of sale as provided under the Act. III. Geo Motors vs. State of Kerala, (2001) 122 STC 285: (Geo Motors) (i) The facts in the said case were that the petitioner (Geo G Motors) was an agent for automobile manufacturers like Hindustan Motors Ltd. in the State of Kerala. The new vehicles were covered by a warranty for a specified period. During the warranty period if spare parts had to be replaced, the petitioner therein as the agent of the manufacture, made H

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A the replacement free of charge to the owners of the vehicle. The value of such spare parts replaced by the petitioner therein during the warranty period was reimbursed by the manufacturer by issuing credit notes. The spare parts were purchased in bulk and replacement was made from out of such stock held by the petitioner. After replacement, the petitioner therein would make a claim to the manufacturer who would issue the credit notes. The manufacturer would issue 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, it was contended that there was only a sale cancellation between the manufacturer and the petitioner and that the petitioner therein had already suffered tax at the point of a sale and therefore, every component part of the car would have to be taken to have suffered tax at the point of a sale and when replacement was made it is in respect of an item which has suffered a tax at the point of a sale. According to the revenue, the replacement of the spare parts was by purchase made from outside the State by issue of C-forms. E (ii) The Division Bench of the Kerala High Court held that the transaction in question cannot be said to be a sale. That the purchase of spare parts may have been by giving C-forms but it was used purely for replacement and not for sale. That credit notes are issued by the manufacturer by reducing the sale value. In this regard, reliance was placed on Prem F Nath Motors. Hence, a direction was issued to exempt the turnover of the spare parts which were used for replacement. Mohd. Ekram Khan:

9Copy pinpoint9. The aforesaid two cases, namely, Prem Motors and Geo Motors were overruled in Mohd. Ekram Khan. Further, the question considered therein was, whether, the amount received by the assessee therein for supply of parts to the customers as a part of the warranty agreement was liable to tax. The assessee therein was an agent of M/s Mahindra and Mahindra (manufacturer). The manufacturer had a warranty H

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1297 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

agreement with the purchasers of vehicles (the customers) to replace defective parts during the warranty period. The manufacturer would make payment of a certain price on account of parts supplied by the assessee to the customer by way of replacement of the defective part obviously without charging the customer for the same. Credit notes were issued by the manufacturer to the assessee as the price of the parts supplied to the customers. The assessing officer was of the view that the payment received through credit notes amounted to a sale in terms of Section 2 (h) of the Uttar Pradesh Trade Tax Act, 1948. The Trade Tax Tribunal, Varanasi held in favour of the assessee by stating that there was no sale. The revenue had carried the matter before the High Court which had held that the transactions constituted sale thereby, attracting levy of tax. 9.1. In the said case, reliance was placed on Prem Nath Motors, Prem Motors and Geo Motors by the assessee. It was contended that as part of a warranty agreement, replacement of the defective agreement was made by the dealer and there was no sale involved. As opposed to this, the revenue contended that the transaction between the assessee and manufacturer was a separate transaction. It was not the case of the assessee therein that the manufacturer had supplied the goods to the customers. If it had supplied parts to the customers through the assessee, the position may have been different. The manufacturer was obligated to make the replacement. If he did not possess the parts to meet the contractual obligation, he would have purchased the part from any seller of the part and would have paid the sales tax. In the said case, the assessee had supplied the goods for which it had received the consideration by way of credit notes and/or other mode of payment. This Court observed that the factual position in Prem Nath Motors F case was different. That in Geo Motors and Prem Motors, the nature of the transaction between the assessee and manufacturer was lost sight of. It was observed that when the manufacturer may have purchased from the open market, parts for the purpose of replacement of the defective parts, it would have paid taxes. But the position is not different because the assessee had supplied the parts and had received the price. G That the assessee had received the payment of the price supplied to the customer. Therefore, the transaction is subject to levy of tax. The decisions in Geo Motors and Prem Motors were overruled. It is in the above context that the Reference Order has been passed doubting the aforesaid observations. H

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A Submissions:

10Copy pinpoint10. We have heard learned senior counsel and learned counsel for the respective parties at length and shall proceed to answer the reference. Arguments on Behalf of Assessees in the present Appeals/ B SLPs: I. Submissions of Sri Kavin Gulati, senior counsel for the appellant in Civil Appeal No.1822/2007: (i) Learned senior counsel Sri Gulati submitted that the Tata C Motors dealership agreement, particularly clauses 1(a), 1(b), 1(e), 9, 10, 11(a), 12, 13(c), 25, and 33 indicate that the transaction between the manufacturer and the dealer is one of Principal and Principal. Tata Motors has already collected and paid Sales Tax while selling the automobiles in question to the dealers. The dealer is contractually bound to service D the warranty obligations undertaken by the manufacturer at the time of the sale. It was brought to our attention that in the present appeals, the respective State’s Sales Tax authorities had adopted varying interpretations of the allegedly taxable transactions. While the Assessing Officer E in Karnataka had characterized the sale as between dealer and manufacturer; the authorities in Kerala deemed it to be a sale by the dealer without specifying to whom the sale was made. He clarified that during the course of the hearing, the counsel for the State of Kerala adopted the stand that the sale was between dealer and manufacturer. F (ii) On the question of law referred to this Court, it was contended that, Mohd. Ekram Khan struck a discordant note against the well-established principle, enunciated in Premier Automobiles, Prem Nath Motors, Prem Motors and Geo Motors, that the cost of warranty was included in G the initial transaction of sale and was not taxable separately. Therefore, it was contended that all transfers are not sales, as a sale has a definitive connotation in sale tax law. Sales tax is not applicable to all transfers which may happen by means of transactions other than sale, such as gift, barter, or exchange. Relying upon State of Madras vs. Gannon H

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1299 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

Dunkerley & Co, (1959) SCR 379, [Gannon Dunkerley A (I)], it was submitted that crucial elements of a tax-eligible sale transaction are: i) the existence of buyer and seller, ii) existence of an agreement between parties for transferring title of goods, iii) such transfer should be supported by monetary consideration, and iv) property in goods must pass B or be transferred. It was contended that the present facts do not present a taxable sale because: a. firstly, spare parts are supplied to the customers by the dealers completely free of charge by way of replacement of goods already sold. C b. secondly, customer receives the new spare part as installed in his vehicle and returns the defective part. c. thirdly, the substance of the transaction remains the discharge of a warranty obligation assumed by the manufacturer, and through him, the dealer, while D selling the original goods. As the spare parts are deducted from the stock of the dealer due to convenience, credit is deservedly given by the manufacturer to the dealer to account for the value of the goods supplied on behalf of the manufacturer. E d. fourthly, any dealer of the manufacturer herein can be approached for discharging the warranty obligation free of charge. e. fifthly, the department has wrongly assumed that the supply of spare parts to the customer is a sale made F to the manufacturer albeit the title is being transferred to the customer on account of the dealership agreement. (iii) Learned senior counsel further submitted that replacement of spare parts during the warranty period does not constitute G a sale. This proposition is supported by Section 12(3) of the Sale of Goods Act, 1930 (“the Act”, for short) which states that a warranty is a stipulation collateral to the main purpose of the contract. Reliance was also placed upon the decision of the Canadian Supreme Court in General Motors Products of Canada Ltd. vs. Leo Krabvitz, (1979) SCC H

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A Online CAN SC 2, wherein it was clarified that the warranty claim by a purchaser was connected to his title over the product which was acquired through the original sale. Therefore, it was contended that the old parts were returned to the manufacturer through the dealer for the B reason that it was crucial to servicing of the warranty obligation. The decision of this Court in Government of India vs. Madras Rubber Factory Limited, (1995) 4 SCC 349, not validating the treatment of warranty as a trade discount under excise law was also relied upon. Reliance was also placed on Devi Dass Gopal Krishnan vs. State C of Punjab, (1967) 3 SCR 557, (Devi Dass Gopal Krishnan).

(iv) Learned senior counsel, Sri Gulati submitted that the enforcement of the warranty obligation presented the opposite of the contract of sale, which involves the volitional transfer of goods. A case of discharge of a warranty is the exact opposite as both the buyer and seller agree to subsist within the existing sale to facilitate the seller to compensate the buyer for a breach or damage or defect caused to them. Reliance was also placed upon Section 59 of the Act, which clearly stipulates that enforcement of the remedy for breach of warranty could be actualized in diminution or extinction of the sale price, and if he is not compensated, he may sue for the breach of warranty. Therefore, it was contended that a credit note is issued by the manufacturer to the dealer as an acknowledgment of the diminution of the original sale price. Axiomatically, credit note is not a sale price or valuable consideration, as the character of credit is not towards the price of the newly replaced part, but a credit that embodies the diminution of the price already paid for the car. Therefore, it was submitted that, Mohd. Ekram Khan does not correctly conceive and appreciate the nature of a warranty transaction, i.e., an undertaking to ensure defect- free functioning of the sold product for the stipulated period of time. Therefore, the said judgment ought to be overruled was the submission. H

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1301 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

II. Submissions of Sri S.K. Bagaria, senior counsel for the petitioner, M/s TVS and Sons Ltd., in SLP (C) No. 14260 of 2007: (i) Sri Bagaria, learned senior counsel submitted that the nature of the transaction was not that of a sale, as the service was provided free of cost to the customer by a dealer pursuant to a warranty clause. The property in the replaced part passed merely as an incident of the performance of the manufacturer’s warranty obligation, which forms a part of the original sale of the automobile. Sri Bagaria referred to the relevant clauses of the Dealership Agreement and Warranty Policy to highlight two facts: (a) dealers are contractually obligated to provide free-of-cost warranty services for warranty parts to the customer and (b) defective parts are returned by the customers and become the property of the manufacturer. (ii) Learned senior counsel clarified that the nature of the transaction was as a compensation to the buyer, and the measure thereof was equivalent to the cost of exchange of defective parts. He cited Benjamin’s Sale of Goods Act (10th edn., para 16.032) to underline the compensatory principle, following which the manufacturer compensates the buyer for the breach that occurred by way of the defect in the part covered by way of a warranty. Citing para 1.069, learned senior counsel asserted that a transaction involving contractual compensation would not amount to the sale of a thing as the property passes merely as an incident of performance of a contract of indemnity. F

(iii) Therefore, learned senior counsel submitted that enforcement of a contractual right for getting a free replacement in exchange for a defective part was neither any purchase by the buyer nor a sale to him. According to learned senior counsel, this proposition was crystallized in G Gannon Dunkerley (I), Devi Dass Gopal Krishnan, Gannon Dunkerley (II), and Kone Elevators Pvt. Ltd. vs. State of Tamil Nadu, (2014) 7 SCC 1. Relying upon Builders’ Association of India vs. Union of India, (1989) 2 SCC 645, it was stressed that the H

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A constitutional position post-46th Amendment of the Indian Constitution whereby the States’ legislative competence to tax the sale of goods was circumscribed by Entry 54, List II, Schedule VII of the Constitution. That taxation under this entry, being limited to “sale and purchase of goods” cannot be extended to activities that are not a sale. B (iv) Reliance was also placed upon Commissioner of Customs vs. Dilip Kumar & Co., (2018) 9 SCC 1 and CIT vs. Motor & General Stores Pvt. Ltd., AIR 1968 SC 200 to emphasize that taxing statutes ought to be specific and must be interpreted strictly, as taxation on citizens should not be subject to the whims and fancies of the government. Learned senior counsel adopted the arguments with respect to Mohd. Ekram Khan. That the case did not apply to facts of the present case where the warranty obligation was being discharged free of cost and the defective goods were being returned to the manufacturer. Alternatively, it was contended that the said case was not correctly decided as the essential elements of a sale were not considered in the said judgment. III. Submissions of Sri V. Sridharan, learned senior counsel for the petitioner in SLP (C) Nos. 12806-12808/ 2016: (i) Learned senior counsel Sri Sridharan submitted that the petitioner in the aforementioned cases being a dealer of M/ s Maruti Suzuki India Ltd., merely fulfilled the manufacturer’s warranty obligation. It was urged that the dealership agreement was a framework agreement. Taking note of the chain of transactions, the customer is compensated for the consideration of purchase of an automobile from the petitioner. Therefore, there is no contract of sale either between the petitioner and the customer for the replacement of defective parts or between the petitioner and manufacturer as sale of parts replaced for the defective parts. (ii) Challenging the applicability of the Central Sales Tax Act, 1956 to the present case, learned counsel maintained that there is no inter-state movement of replacement parts as they are fitted at the dealer’s location. There is only the

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1303 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

movement of defective parts from the dealer’s location to the manufacturer if located in another State. (iii) Learned senior counsel stressed the importance of keeping prudent commercial sense in mind while construing the contractual obligations in the present case. In this regard, the decision of the United Kingdom Supreme Court in Rainy B Sky SA & Orad vs. Kookmin Bank, (2011) UKSC 50 was cited wherein it was held that the Court was entitled to prefer the construction which is consistent with business common sense. Therefore, it was submitted that the contract of warranty cannot be equated with a contingent contract of sale, with the contingency being the occurrence of a C defect in the parts covered under the warranty. Moreover, the construction preferred by the Revenue that there is an agreement to sell an unspecified good in the future for which the manufacturer will pay the consideration is an unreasonable one. On the other hand, the decision of this D Court in Nabha Power Ltd. vs. Punjab State Power Corporation Ltd., (2018) 11 SCC 508was relied upon as it laid a five-fold test for constructing a contract of warranty as a sale. Therein, it was held that to imply a term in a contract, the same must be (i) reasonable and equitable; (ii) necessary to give business efficacy; (iii) passes officious E bystander test; (iv) be capable of clear expression; and (v) must not contradict express term of the contract. Thus, it was contended that the construction preferred by the Revenue was contradicting the express terms of the contract of warranty. F (iv) Learned senior counsel further submitted that even if the present transaction is assumed to be that of a sale between manufacturer and dealer, the same has to be treated as purchase return and not be eligible to sales tax. There is no scope for entertaining any doubt that a purchase return G would be relevant only when a purchase tax is levied on the purchaser. Furthermore, the present transaction where manufacturer-issued credits are accounted as sales return which is a recognized accounting practice and not a tax avoidance strategy. Therefore, it was argued that sales return beyond statutory time limit does not lose its character H

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A of return. The only consequence could be that selling dealer may not be able to claim the deduction from gross turnover. (v) Learned senior counsel also relied upon the judgment of the Court of Appeal, New Zealand, in the case of Suzuki New Zealand Ltd. vs. Commissioner of Inland Revenue, B (2001) 20 NZTC 17.The said case pertained to supply of spare parts by the car manufacturer to the purchaser directly or through the dealer under the terms of a warranty. Here, the parts were transferred from the overseas Suzuki Motor Corporation to Suzuki New Zealand. Rejecting the claim for imposition of Goods and Services Tax, the Court of C Appeal held that there was no export of service for GST purposes. Arguments on Behalf of Revenue in the present Appeals/SLPs: Submissions of Sri Pallav Sisodia, senior counsel for the State D of Kerala in SLP (C) No.14260/2007: (i) Learned senior counsel, Sri Pallav Sisodia submitted that the presence of a manufacturer’s or dealer’s warranty on the car sold by the dealer does not make any difference to whether the transaction of replacement of defective goods satisfies the elements of sale or not. The learned senior counsel listed various instances by way of illustrations when a customer purchases a car and reasoned that even when a customer did not purchase a car with a warranty but had taken an insurance, his expenses on the replacement of defective parts are reimbursed. Yet, the transaction is understood as a component of the taxable turnover of the dealer as per Explanation (5) to Section 2 (xxi) of the Kerala General Sales Tax Act, 1963. Even when the customer enforces the warranty, the dealer obtains a discharge of warranty obligation as a valuable consideration for the transfer of fresh parts from the dealer to the customer. The car dealer gets the replacement of parts as co-warrantor from the manufacturer towards the discharge of warranty obligation either on a principal-to- principal basis or as an agent of the manufacturer. Moreover, there exists a form of recompense from the manufacturer to the dealer. It makes no difference if the

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1305 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

recompense is in the form of a credit note or cheque or cash. Irrespective of the nature of the transfer of goods between manufacturer and dealer, it is a sale for the purposes of sales tax laws. (ii) It was submitted that the Prem Nath Motors line of cases was decided on fallacious reasons, and the decision in Mohd. B Ekram Khan deserves affirmation. Therefore, the idea of ‘continuous sale’, ‘credit note as not a valuable consideration’, or ‘sales return’ are all red herrings not supported by facts on record. Submissions of Sri Ravindra K. Raizada, senior counsel for C Commissioner, Commercial Tax, State of U.P. in SLP(C) Nos. 12119/2017 and 11509/2017: (i) Sri Raizada, learned senior counsel submitted that the Dealership Agreement between Tata Motors and M/s Vikrant Automobiles was on a principal-to-principal basis. D Furthermore, the case did not involve an exchange of the manufacturer’s spare parts with customer’s defective parts. Instead, the dealer purchased the parts from the manufacturer. It is clearly not a stock transfer from the manufacturer to the dealer. The ingredients of sale in the present case ought to be considered complete when goods E i.e. new spare parts, are transferred to the customers and payment is received from the manufacturer who is fulfilling the warranty obligation as per established trade practice. He asserted that the manufacturer maintaining a running account of the dealer, through a credit note in respect of such sale of spare parts by dealer, has acknowledged such adjustment to be made in Sale and Purchase Account of the dealer. Thus, the warranty claims ought to be taxable as elucidated in Mohd. Ekram Khan. On the issue of warranty obligation emanating from the original sale, learned senior counsel submitted that the performance of warranty obligations is determined through actual damage to the defective part at the relevant time a claim is made. Therefore, it cannot be said to have been totally accounted for and debited in manufacturer’s Taxable Turnover of Sales and Purchase under VAT/Trade Tax. H

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A (ii) Accordingly, he prayed that the case of the revenue ought to succeed in both SLPs, therefore, SLP(C) No. 12119/ 2017 should be allowed, and SLP(C) No. 11509/2017, filed by a dealer, M/s Maskat Pvt Ltd, ought to be dismissed. Submissions of Dr. Manish Singhvi, senior counsel for the B State of Rajasthan in Civil Appeal No. 3856/2013: (i) Dr. Singhvi, learned senior counsel, instructed by Sri Milind Kumar, submitted that the exact nature of the transaction has to be seen to determine whether sales tax was leviable or not. It was stressed that the crucial issue pertains to the C misuse or misdeclaration of C-Forms which are issued at concessional rate under Section 8(4) of Central Sales Tax Act, 1956 read with Rule 12 of Central Sales Tax Rules,

1957. Any internal adjustment qua accounts or even contracts is alien for the charging section to operate. Thus, in the case at hand, all spare parts were sold against C- D Forms, and have been sold again, in violation of conditions pertaining to resale. That, spare parts were fitted during the warranty period for a consideration given by way of credit notes by the manufacturer. Therefore, the penalty is bound to be imposed on Dealer/Manufacturer company. E Submissions of Sri Nikhil Goel, Counsel for the State of Karnataka in Civil Appeal Nos. 1822/2007, 1821/2007 and SLP (C) Nos. 5449-5451/2014, 5447/2014: (i) Sri Goel, learned counsel submitted that the Karnataka Value Added Tax Act, 2003 specifically excludes those transactions which are not sales. Since the transaction under dispute is not specifically excluded, the assessees have sought to canvass that it does not satisfy the definition of sale under Section 2(t) of the Karnataka Value Added Tax Act, 2003. It was further submitted that the four elements of the sale are completed in the transaction under dispute. The State seeks to tax sales and it does not matter if there is an element of profit involved. The cost of the car does not include the cost of the warranty. Therefore, he submitted that the argument made by assessee is incorrect, when seen in light of the decision of this court in Premier Automobiles. H That the Supreme Court of England in Digital Satellite

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1307 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

Warranty Cover Limited vs. Financial Services A Authority, (2013) UKSC 7 held that warranty is in the nature of insurance. Even without such warranty, the Act binds the manufacturer to provide working goods, failure of which would invite an action in damages. (ii) Learned counsel, Sri Goel, also underlined that in the B accounting entries, the assessee was not accounting for the sale occasioned by a warranty to be a sales return. The concept of sale and purchase return applies to the same good, whereas the present facts pertain to a defective good. Furthermore, the transactions of sale occasioned by warranty are separate from the sale of a car by the manufacturer. C Both transactions ought to be tested independently. Therefore, the discharge of a larger obligation by the dealer to sell motor vehicles on which tax is already paid, does not render the separate transaction of return of defective parts to the manufacturer against a credit note, as not a sale. D Submissions of Sri Aniruddha Joshi, learned counsel for State of Maharashtra in Civil Appeal Nos. 2756/2012, 10924/2018 and 9979/2018: (i) Sri Joshi submitted that the elements of sale for the imposition of sales tax were satisfied in the present transaction. It E was urged that the real nature of the transaction and the substance thereof had to be deciphered to distinguish between a contract of sale between the dealer and manufacturer with that of an agency. It was submitted that the Dealership Agreement between the dealer-assessee and the manufacturer is a composite document that includes multiple contracts of sale, as understood from Section 4(1) of the Act. These include: a. Agreement to sell the car to the dealer; b. Agreement to sell spare parts by manufacturer to the dealer; c. Conditional Agreement to sell the spare parts by the dealer to the manufacturer if such a condition is fulfilled. The condition is a warranty claim being raised by a purchaser. H

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A d. Agreement to purchase wherein the dealer undertakes to purchase spare parts from the manufacturer. (ii) The counsel further submitted that all elements of sale are complete because there is a seller and a buyer, i.e. dealer and manufacturer; valuable consideration was paid by the manufacturer in the form of credit notes and the transfer of the property of goods is taking place to the nominee of the manufacturer, i.e. car purchaser. It was also contended that there is no question of the delivery of spare parts and the consequent payment by way of credit note being an instance of sales return. The sale of the car is separate from the sale of spare parts, the sales in question would be specifically applicable to the latter. Submissions of Ms. Deepanwita Priyanka, Counsel for the State of Gujarat in SLP (Civil) Nos. 12806-12808/ 2016: D (i) Learned counsel submitted that the assessee’s claim for exemption from payment of sales tax is not covered by the exemption notification issued under Section 8(4) of Central Sales Tax Act, 1956 on 13.05.2002. It was submitted that the burden of proving exemption was on the assessee and that the benefit of any ambiguity ought to go to the State.

11Copy pinpoint11. Points for consideration: (i) Whether the judgment of this Court in Mohd. Ekram Khan calls for reconsideration in terms of the Reference Order dated 05.12.2019? In other words, whether the aforesaid case has been correctly decided or not? (ii) What Order?

12Copy pinpoint12. At the outset, it is necessary to read the relevant provisions of the Act: G Sections 4 and 5 of the said Act read as under: “4. Sale and agreement to sell. – (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a H contract of sale between one part-owner and another.

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1309 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

(2) A contract of sale may be absolute or conditional. A (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or is subject to some condition thereafter to be B fulfilled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. C

5. Contract of sale how made. – (1) A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed. (2) Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the parties.” 12.1. Section 4 defines the expression sale. In order to apply the said definition, four essential elements are necessary, namely, (i) parties competent to contract; (ii) mutual assent; (iii) passing of property; and (iv) price to be paid. 12.2. While understanding the said Section, the terms defined under Section 2, clauses (7), (13), (11), (1) and (10) respectively are necessary as the said clauses define the terms “goods”, “seller”, “property”, “buyer” G and “Price”. Thus, to constitute a sale, in the legal sense, there must be a contract in pursuance of which the transfer of property, which transfer need not necessarily be by the owner himself, takes place on payment of a price, though there are exceptions to this rule enshrined under Sections 19 to 24 of the Act. The contract may be oral or in writing, or it H

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A may be inferred even from the conduct of the parties, but it must originate from an offer and its acceptance. A sale must not be distinguished from a mere agreement to sell. If under the contract of sale, title to goods has not passed, then there is an agreement to sell and not a completed sale. An agreement to sell becomes a sale when the time lapses, or the conditions are fulfilled, subject to which the property in the goods are transferred. Thus, under the common law as well as the statute law, relating to sale of goods, it is of the essence that there must be an agreement, express or implied, relating to goods, to be completed by passing of title therein and also the agreement and the sale should relate to the same subject-matter. Thus, existence of a contract to sell is sine qua non for the coming into existence of a sale. 12.3. Therefore, the following elements must be present to constitute a valid contract of sale, namely, - (1) a contract (as required by the Act and the Contract Act); D (2) between two parties, (the one called the “seller” and the other called the “buyer”); (3) to transfer or agree to transfer the property; (4) in goods; E (5) from the seller to the buyer; (6) for a price, that is, money consideration. 12.4. It is also necessary to differentiate a contract of sale from other contracts, as the question whether a given contract is one of sale or a contract of any other description is one of substance and not of form. It depends on the real meaning and nature of the contract as to whether it is a contract of sale or – (i) a mere guarantee for the price, or (ii) a barter or exchange, or (iii) a bailment on trust, or (iv) a contract of sale or return, or (v) a contract of del credere agency, or (vi) a contract of sale on commission, or (vii) a contract for loan on security, or (viii) a mere wagering contract, or (ix) a contract for work and materials, or (x) a contract for hiring, or (xi) a contract to do work as an agent, or (xii) a licence to get mineral products from land, or (xiii) a pledge, or (xiv) a gift. H

M/s TATA MOTORS LTD. v. THE DEPUTY COMMISSIONER OF 1311 COMMERCIAL TAXES (SPL) & ANR. [B. V. NAGARATHNA, J.]

12.5. In State of Madras vs. Gannon Dunkerley and Co. A (Madras) Ltd., 1958 (9) STC 353 SC (Gannon Dunkerley and Co.- I), it was observed that the expression sale of goods in Entry 48, List II of Schedule VII of the Government of India Act, 1935, cannot be construed in its popular sense but must be interpreted in its legal sense and should be given the same meaning which it has in the Act. It was further observed that in order to constitute a sale, it is necessary that there should be an agreement between the parties for the purpose of transferring title in the goods, which presupposes capacity to contract, that it should be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. Unless all these elements are present, there can be no sale. Thus, if merely title to the goods passes but not as a result of any contract between the parties, express or implied, there is no sale. So also, if the consideration for the transfer is not a money consideration but other valuable consideration, it may then be an exchange or barter but not a sale under the Act. Also if, under the contract of sale, title to the goods has not passed, then there is an agreement to sell and not a completed sale. Moreover under the law there cannot be an agreement relating to one kind of property and a sale as regards another. There must be an agreement between the parties for the sale of the very goods in which eventually the property passes. It was further observed in the aforesaid case that both under the common law and the statute law relating to sale of goods in England and in India, to constitute a transaction of sale, there should be an agreement, express or implied, relating to goods to be completed by passing of title in those goods. It is of the essence of this concept that both the agreement and the sale should relate to the same subject matter. Where the goods delivered under the contract are not the goods contracted for, the purchaser has got a right to reject them, or to accept them and claim damages for breach of warranty. Under the law, therefore, there cannot be an agreement relating to one kind of property and a sale as regards another. Thus, the expression sale of goods must relate to an agreement between the parties for the sale of the very goods in which eventually the property passes. 12.6. It was further observed that the interpretation to the expression sale of goods in Gannon Dunkerley and Co.-I was made on the basis of the common law definition contained in Blackstone, Benjamin on Sale, Halsbury’s Law of England, Chalmer’s Sale of Goods H

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