1988 (12) TMI 311 - SC - VAT and Sales Tax

Refund of sales tax paid on the ground that the sale was completed only when the last instalment stood paid and the option to purchase - Held that - Appeal allowed in part. HC was right in so far as it quashed the notice for imposition of penalty for infraction of section 46(2) of the Act. Whether the Revenue was entitled to forfeit the money paid on account of sales tax, or whether the assessee/dealer was entitled to claim refund, would be gone into in the said assessment/refund proceedings. We direct that the said proceedings should be completed as expeditiously as possible.

Summary

Issues:
1. Interpretation of sales tax liability on hire-purchase transactions.
2. Validity of notices issued for penalty and forfeiture under the Bombay Sales Tax Act, 1959.
3. Decision on the entitlement to claim refund for sales tax paid before completion of sale.

Analysis:

1. The Supreme Court addressed the issue of sales tax liability on hire-purchase transactions, citing the case law precedent set in K.L. Johar and Co. v. Deputy Commercial Tax Officer [1965] 16 STC 213. The Court emphasized that the taxable event under the Madras General Sales Tax Act was the actual sale of goods, indicating that tax liability only arose upon the completion of the sale, not at the time of entering into the hire-purchase agreement. The Court clarified that hire-purchase agreements involve both a bailment element and a sale element, with the sale aspect crystallizing when the option to purchase is exercised by the buyer after fulfilling the agreement terms.

2. The Court examined the validity of notices issued by the Sales Tax Officer under section 37 of the Bombay Sales Tax Act, 1959, alleging that the respondent had collected amounts in violation of the Act. The respondent had paid sales tax based on the assumption that the sale occurred at the agreement's inception and later sought a refund. The High Court quashed the notices for penalty and forfeiture. The Supreme Court upheld the High Court's decision to quash the penalty notice under section 46(2) of the Act but refrained from making a definitive ruling on the forfeiture issue. The Court directed that the question of forfeiture versus refund entitlement should be determined in the assessment and refund proceedings, urging expeditious resolution of the matter.

3. The Court highlighted the distinction between penalty imposition and the question of forfeiture or refund of sales tax amounts paid prematurely. While affirming the High Court's decision on the penalty notice, the Court deferred the determination of the forfeiture issue to the assessment and refund proceedings. The Court emphasized the need for a thorough examination of the entitlement to claim a refund for sales tax paid before the completion of the sale, emphasizing that this aspect should be addressed in the appropriate proceedings. The Court allowed the appeal in part, indicating its decision to uphold the quashing of the penalty notice but leaving the forfeiture issue for further assessment.