1956 (5) TMI 27 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutionality of Explanation 1 in the West Bengal Sales Tax Act as extended to Delhi.
2. Definition of "sale" and its applicability to hire-purchase agreements.
3. Jurisdiction and authority of the State Legislature to levy sales tax on hire-purchase transactions.
4. Availability of remedy under Article 226 of the Constitution for infringement of rights due to ultra vires legislation.

Issue-wise Detailed Analysis:

1. Constitutionality of Explanation 1 in the West Bengal Sales Tax Act as extended to Delhi:
The petitioner challenged the constitutionality of Explanation 1 under the West Bengal Sales Tax Act, which deems a transfer of goods on hire-purchase or other installment systems of payment as a sale. The submission was that this explanation is an addition to Entry 54 in the State List (List II) in Schedule VII of the Constitution, which pertains to "Taxes on the sale or purchase of goods other than newspapers." The court emphasized that taxing statutes must be interpreted strictly, and any imposition of tax must be clear and unambiguous. The court cited several precedents, including Maxwell on the Interpretation of Statutes, Attorney-General v. Seccombe, and Cape Brandy Syndicate v. Inland Revenue Commissioners, to support the principle that taxes must be imposed by clear language and not by implication or presumption.

2. Definition of "sale" and its applicability to hire-purchase agreements:
The court examined whether hire-purchase agreements fall within the definition of "sale" as used in Entry 54 of the Constitution. The court referenced English law and several judgments, including Helby v. Matthews and Alexander Knox McEntire v. Crossley Brothers, to distinguish between hire-purchase agreements and credit-sale agreements. The court noted that in a hire-purchase agreement, the hirer has an option to purchase the goods but is not legally obligated to do so, and ownership remains with the owner until all installments are paid and the option is exercised. The court concluded that such agreements do not constitute a "sale" as understood in the legal sense because there is no immediate transfer of property in the goods.

3. Jurisdiction and authority of the State Legislature to levy sales tax on hire-purchase transactions:
The court held that the State Legislature does not have the power to enlarge the meaning of "sale of goods" beyond its definition in the Sale of Goods Act. The court cited the Supreme Court's decision in Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash Jai Prakash, which held that a State Legislature cannot by enlarging the definition of the word "sale" arrogate to itself a power not conferred by the Constitution. The court reiterated that for a transaction to be taxable under Entry 48 of Schedule VII of the Constitution Act of 1935, there must be a completed sale involving the transfer of property in the goods, not merely an agreement to sell.

4. Availability of remedy under Article 226 of the Constitution for infringement of rights due to ultra vires legislation:
The court addressed the preliminary objection that the petitioner should not seek relief under Article 226 but should instead follow the procedure under the Sales Tax Act. The court referenced the Supreme Court's decisions in Himmatlal Harilal Mehta v. The State of Madhya Pradesh and The Bengal Immunity Company Ltd. v. The State of Bihar, which held that a writ under Article 226 is available when there is an infringement of rights under a law that is ultra vires of the Legislature. The court concluded that the petitioner is entitled to seek a remedy under Article 226 for the infringement of its rights due to the ultra vires explanation in the Sales Tax Act.

Conclusion:
The court allowed the petition and issued a mandamus directing the State to forbear from enforcing its notice for the realization of sales tax on the disputed transactions. The petitioner was awarded costs of the proceedings, with counsel fees set at Rs. 300. The judgment emphasized that the State Legislature cannot enlarge the definition of "sale" to include hire-purchase agreements and that such transactions do not constitute a sale under the relevant constitutional entry.

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