WHITAKER, Judge.
Plaintiff sues to recover excise taxes paid on the sale of electric refrigerators. It claims in its second cause of action it is entitled to a deduction from the sales price of amounts spent by it to discharge its obligation under the one-year warranty of certain parts of the refrigerators.
For some time prior to 1936 it had been the custom of the trade to warrant all parts of electric refrigerators for a period of one year. This custom continued until after the years here involved as to all parts except the hermetically sealed freezing units; but in 1936, pursuant to a special agreement, which plaintiff called a “protection plan”, these units were warranted for an additional period of four years, for which additional warranty a charge of $5 was made.
Whether this $5 was subject to the excise tax was the question presented in General Motors Corp., etc. v. United States, 121 F.Supp. 932, 128 Ct.Cl. 465. We held that plaintiff was entitled to an “allowance” or rebate of that part of the sales tax that was collected on its service charge in addition to the usual one-year warranty. In the court’s opinion, 128 Ct.Cl. on page 469, 121 F.Supp. on page 935, the following language was used:
“When an article is sold with a warranty, and fulfillment of the warranty costs the seller a certain sum, he has in fact received for the article only the amount by which the sale price exceeded the cost of fulfilling the warranty. He has, in effect, given the purchaser an ‘allowance’ when he has spent money for his benefit.”
On the basis of this holding, plaintiff now claims it is entitled to deduct from the sales price the amount it spent in fulfilling the customary one-year warranty on all parts of the refrigerator. It claims they were “allowances” under section 3443(a) (2) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 3443 (a) (2).
This new claim advanced by plaintiff has caused us to reconsider our holding that plaintiff was entitled to an “allowance” on account of the amount spent in the discharge of its obligation under the extra four-year warranty.
We have come to the conclusion that we were wrong in holding that plaintiff was entitled to this as an “allowance”. We are now of opinion that this charge was not an allowance to be deducted from the sale price, because it was not a part of the sales price, but was an extra charge for an agreement to keep certain parts of the refrigerators in repair beyond the period of the usual manufacturer’s warranty.
We now think we should have held in the former case that an excise tax was not properly assessed on this $5 charge, but with the limitation now to be mentioned.
In the former case some of us were disturbed by the opportunity such a holding offered to a manufacturer to assert that a part of the actual sales price was a charge for services, when in fact it was not, and thus escape the excise tax. In now holding that a manufacturer is entitled to make a charge for an' agreement to render services over and above the usual manufacturer’s warranty, we do so subject to the limitation that this additional agreement must bear a close relationship to the actual cost of rendering the service. When so limited, as of course it must be, the opportunity for evasion of the excise tax practically disappears.
By this, we by no means intend to say that General Motors Corporation’s charge for this extra service was a subterfuge to escape the excise tax. The company’s experience in years prior to putting into effect this $5 charge for the extra service, and its prior handling of repairs to its refrigerators, show that [741]*741this extra charge was not a subterfuge to escape the excise tax.
Prior to 1933 all refrigerators sold by plaintiff were sold with a one-year warranty. If one of their refrigerators became defective after it had been in use for more than a year, it had to be repaired at the expense of the purchaser. Ordinarily, the purchaser had the repair work done by the retail dealer or the distributor, but sometimes it was done by an outside party; but, in any event, it was always done at the purchaser’s expense.
The quality of the repair work thus done, and the cost of it, was causing an unfavorable reaction toward plaintiff’s refrigerators and, partly for this reason, plaintiff decided to make available to a purchaser its own repair facilities. It first offered to a purchaser an agreement to keep the machine in repair for one additional year, over and above the usual warranty for one year, or for two additional years, or for three additional years, as the purchaser might elect; but the purchaser might reject the offer and have the necessary repairs made by any person he chose.
If the purchaser accepted any of the agreements offered by plaintiff, he was required to pay therefor $6 per year. If the purchaser took the three-year agreement, it would have, therefore, cost him $18.
Plaintiff’s experience between 1933 and 1935 showed it that the $18 charge was too high and that it could afford to offer a purchaser an agreement to keep the machine in repair for an additional four years at the price of $10, instead of the former price of $18 for three years. It, accordingly, made such an offer. Some purchasers took advantage of it, and some did not.
In the following year, 1936, plaintiff concluded that if all of its purchasers of refrigerators took its maintenance agreement for an additional four years, it could further reduce its price for this service to $5 for the extra four years. Plaintiff, accordingly, made it obligatory on all purchasers of refrigerators to pay it this $5 for its agreement to keep certain parts of the refrigerators in repair for four years, in addition to the usual one-year warranty. So, from then on, what had before been optional now became obligatory, but the price of the agreement was reduced to $5. The price of this agreement was thus successfully reduced from $18 for a three-year agreement to $10 for a four-year agreement, and then to $5 for a four-year agreement.
We said that the agreement to pay $5 for this agreement to keep the refrigerators in repair for an extra four years was obligatory, but this was true only as to the purchasers of one refrigerator. It was not obligatory on multiple-unit purchasers; they could enter into this agreement or not, as they pleased. But, 93 per cent of the multiple-unit purchasers did take the agreement. They must have thought, therefore, that the amount charged was reasonable.
The record in the former case showed that it actually cost plaintiff $4,628,-797.83 to fulfill its obligation under these agreements; but the total amount collected from purchasers in consideration of this agreement was $10,687,115, which would indicate that the amount charged for the agreement was too high, but not high enough to indicate that some part of the amount charged was in reality a part of the sales price of the machine. If the difference between the amount charged for the agreement and the cost of performing it continued so great in subsequent years, an adjustment in the charge would be necessary to prevent the inference that some part of the charge was in fact a part of the sales price.
We are now of opinion that a manufacturer is entitled to make a reasonable charge for the maintenance of an article sold beyond the warranty period customary in the trade, and that such reasonable charge is no part of the sales price of the article sold.
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WHITAKER, Judge.
Plaintiff sues to recover excise taxes paid on the sale of electric refrigerators. It claims in its second cause of action it is entitled to a deduction from the sales price of amounts spent by it to discharge its obligation under the one-year warranty of certain parts of the refrigerators.
For some time prior to 1936 it had been the custom of the trade to warrant all parts of electric refrigerators for a period of one year. This custom continued until after the years here involved as to all parts except the hermetically sealed freezing units; but in 1936, pursuant to a special agreement, which plaintiff called a “protection plan”, these units were warranted for an additional period of four years, for which additional warranty a charge of $5 was made.
Whether this $5 was subject to the excise tax was the question presented in General Motors Corp., etc. v. United States, 121 F.Supp. 932, 128 Ct.Cl. 465. We held that plaintiff was entitled to an “allowance” or rebate of that part of the sales tax that was collected on its service charge in addition to the usual one-year warranty. In the court’s opinion, 128 Ct.Cl. on page 469, 121 F.Supp. on page 935, the following language was used:
“When an article is sold with a warranty, and fulfillment of the warranty costs the seller a certain sum, he has in fact received for the article only the amount by which the sale price exceeded the cost of fulfilling the warranty. He has, in effect, given the purchaser an ‘allowance’ when he has spent money for his benefit.”
On the basis of this holding, plaintiff now claims it is entitled to deduct from the sales price the amount it spent in fulfilling the customary one-year warranty on all parts of the refrigerator. It claims they were “allowances” under section 3443(a) (2) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 3443 (a) (2).
This new claim advanced by plaintiff has caused us to reconsider our holding that plaintiff was entitled to an “allowance” on account of the amount spent in the discharge of its obligation under the extra four-year warranty.
We have come to the conclusion that we were wrong in holding that plaintiff was entitled to this as an “allowance”. We are now of opinion that this charge was not an allowance to be deducted from the sale price, because it was not a part of the sales price, but was an extra charge for an agreement to keep certain parts of the refrigerators in repair beyond the period of the usual manufacturer’s warranty.
We now think we should have held in the former case that an excise tax was not properly assessed on this $5 charge, but with the limitation now to be mentioned.
In the former case some of us were disturbed by the opportunity such a holding offered to a manufacturer to assert that a part of the actual sales price was a charge for services, when in fact it was not, and thus escape the excise tax. In now holding that a manufacturer is entitled to make a charge for an' agreement to render services over and above the usual manufacturer’s warranty, we do so subject to the limitation that this additional agreement must bear a close relationship to the actual cost of rendering the service. When so limited, as of course it must be, the opportunity for evasion of the excise tax practically disappears.
By this, we by no means intend to say that General Motors Corporation’s charge for this extra service was a subterfuge to escape the excise tax. The company’s experience in years prior to putting into effect this $5 charge for the extra service, and its prior handling of repairs to its refrigerators, show that [741]*741this extra charge was not a subterfuge to escape the excise tax.
Prior to 1933 all refrigerators sold by plaintiff were sold with a one-year warranty. If one of their refrigerators became defective after it had been in use for more than a year, it had to be repaired at the expense of the purchaser. Ordinarily, the purchaser had the repair work done by the retail dealer or the distributor, but sometimes it was done by an outside party; but, in any event, it was always done at the purchaser’s expense.
The quality of the repair work thus done, and the cost of it, was causing an unfavorable reaction toward plaintiff’s refrigerators and, partly for this reason, plaintiff decided to make available to a purchaser its own repair facilities. It first offered to a purchaser an agreement to keep the machine in repair for one additional year, over and above the usual warranty for one year, or for two additional years, or for three additional years, as the purchaser might elect; but the purchaser might reject the offer and have the necessary repairs made by any person he chose.
If the purchaser accepted any of the agreements offered by plaintiff, he was required to pay therefor $6 per year. If the purchaser took the three-year agreement, it would have, therefore, cost him $18.
Plaintiff’s experience between 1933 and 1935 showed it that the $18 charge was too high and that it could afford to offer a purchaser an agreement to keep the machine in repair for an additional four years at the price of $10, instead of the former price of $18 for three years. It, accordingly, made such an offer. Some purchasers took advantage of it, and some did not.
In the following year, 1936, plaintiff concluded that if all of its purchasers of refrigerators took its maintenance agreement for an additional four years, it could further reduce its price for this service to $5 for the extra four years. Plaintiff, accordingly, made it obligatory on all purchasers of refrigerators to pay it this $5 for its agreement to keep certain parts of the refrigerators in repair for four years, in addition to the usual one-year warranty. So, from then on, what had before been optional now became obligatory, but the price of the agreement was reduced to $5. The price of this agreement was thus successfully reduced from $18 for a three-year agreement to $10 for a four-year agreement, and then to $5 for a four-year agreement.
We said that the agreement to pay $5 for this agreement to keep the refrigerators in repair for an extra four years was obligatory, but this was true only as to the purchasers of one refrigerator. It was not obligatory on multiple-unit purchasers; they could enter into this agreement or not, as they pleased. But, 93 per cent of the multiple-unit purchasers did take the agreement. They must have thought, therefore, that the amount charged was reasonable.
The record in the former case showed that it actually cost plaintiff $4,628,-797.83 to fulfill its obligation under these agreements; but the total amount collected from purchasers in consideration of this agreement was $10,687,115, which would indicate that the amount charged for the agreement was too high, but not high enough to indicate that some part of the amount charged was in reality a part of the sales price of the machine. If the difference between the amount charged for the agreement and the cost of performing it continued so great in subsequent years, an adjustment in the charge would be necessary to prevent the inference that some part of the charge was in fact a part of the sales price.
We are now of opinion that a manufacturer is entitled to make a reasonable charge for the maintenance of an article sold beyond the warranty period customary in the trade, and that such reasonable charge is no part of the sales price of the article sold.
This opinion is in line with rulings of the Internal Revenue Service in comparable cases.
[742]*742In S.T. 943, 1952 — 1 C.B. 221, pencils subject' to tax “were sold by the manufacturer as a unit,” with spring loaded reels; or notebooks not subject to tax. The Bureau ruled that the tax attached only to “that portion of the manufacturer’s sales price of the unit which is properly allocable to the taxable article.”
In Rev.Rul. 204, 1953 — 20 I.R.B. 25, a retailer of taxable silverware gave to the purchaser a non-taxable article as a sales incentive. It was ruled that the transaction constituted a sale of the silverware and a non-taxable article at a lump sum price, and that the tax should be measured only by the portion of the total amount received that was attributable to the silverware. Clearly the purchaser here had to pay the full amount to get the silverware and could not obtain the non-taxable article separately. But the tax was not imposed upon the full amount paid by the purchaser because, for that amount, the purchaser received something other than the taxable article.
In Rev.Rul. 224, 1953 — 21 I.R.B. 16, phonograph mechanisms, which are taxable under section 3404(b) of the Internal Revenue Code, were combined with player attachments, which were not taxable, and w;ere sold as a unit for a single price. The tax was ruled to apply only to the portion of the price attributable to the mechanism, notwithstanding the mechanism and the attachment were intended to be used together and the particular mechanism could be obtained only through payment of an amount that included the price of the non-taxable attachment.
See also S.T. 572, XI-2 C.B. 469, 1932; and Rev.Rul. 54-100, 1954 — 11 I.R.B. 12.
So much for the charge for the “protection plan.” We are also of the opinion that a manufacturer is not entitled to an “allowance” for the cost of discharging its obligation under the customary manufacturer’s warranty of the article sold. There is an implied warranty of any article sold by a manufacturer that it is in good working condition and free from defective parts. Many times these defects can be discovered only from use of the article, and, in the custom of the various trades, certain periods of time are allowed for these defects to show up. If they show up within the time allowed, the manufacturer must remedy them at his own expense, in order to make good his representation that the article sold was free from defects.
The sales price was for an article free of defects. The cost of remedying defects that later appeared, therefore, cannot be an “allowance” to the purchaser to be deducted from the sales price. It was not an “allowance”, but a sum spent to give to the purchaser what the manufacturer had represented it was selling him, to wit, a sound article.
No extra charge was made for this one-year warranty.
We are, therefore, of opinion that plaintiff is not entitled to an allowance for the amount spent to remedy defects appearing within the usual one-year warranty.
In its first cause of action plaintiff sues for the taxes assessed and collected on the $5 charge for services it agreed to render under the additional four-year warranty, known as the “Protection Plan.” These taxes were on sales made from January 1, 1945 to August 31, 1951. These - sales were made subsequently to the sales involved in General Motors Corporation, etc. v. United States, 121 F.Supp. 932, 128 Ct.Cl. 465.
As we said above, we think plaintiff was entitled to make a reasonable charge for these services, and to the extent that it was reasonable, it cannot be considered as a part of the sales price of the refrigerator. Its reasonableness is to be determined by the relationship to the charge of the cost of rendering the service. However, the present record does not disclose the cost to plaintiff of rendering these services during the period now involved. The case must be referred to a Commissioner to take proof on this question only, [743]*743unless the parties are able to stipulate the amount.
Plaintiff’s motion for summary judgment must, therefore, be denied.
It is so ordered.
JONES, Chief Judge, and LARAMORE, Judge, concur.