In the case of Kataria Automobiles (P.) Ltd. Vs. State of Gujarat, {(2015) 57 taxmann.com 244 (Gujarat)} on 20th March 2015, the High Court of Gujarat held that the transaction of replacement of spare parts amounts to sale and levy of tax on said sale is justified.

In the said case, the Assessee was a motor car dealer, who purchased spare parts from market and replaced the same in place of defective spare parts during warranty period of motor cars for which manufacturer issued credit notes. The point of consideration was whether transaction of replacement of spare parts amounted to sale and levy of tax on sale of spare parts was justified? The Assessing Authority held that the replacement of spare parts amounts to sale and accordingly levied the tax and the Tribunal too confirmed the order. Assessee further made an appeal to the high court of Gujarat, wherein it was held that the Tribunal is justified in conforming the levy of tax on sale of parts during the warranty period.

Further, the case of Mohd. Ekram Khan & Sons v. CTT 2004 taxmann.com 1806, was relied on wherein the Hon’ble Supreme Court has confirmed the levy of tax on replacement of defective parts of vehicle during the warranty period dismissing the appeal against the order passed by the High Court holding that such transactions constitute sale attracting levy of tax. The Court has held that since the assessee had received the payment of parts supplied to customers, transactions were subject to levy of tax.