1956 (7) TMI 44 - HC - VAT and Sales Tax

Summary

Issues Involved
1. Whether the transaction involving the supply of machinery in Group A amounted to a "sale" under the Bihar Sales Tax Act, 1947.
2. Whether the property in the goods included in Schedule A passed to the contractors.

Issue-Wise Detailed Analysis

1. Whether the transaction involving the supply of machinery in Group A amounted to a "sale" under the Bihar Sales Tax Act, 1947.
The primary issue revolves around the interpretation of the term "sale" as defined in section 2(g) of the Bihar Sales Tax Act, 1947. The definition includes any transfer of property in goods for cash, deferred payment, or other valuable consideration and extends to transactions under hire-purchase or other installment systems. The assessee contended that the machinery in Group A was only hired to the contractor, not sold, and thus did not constitute a "sale" under the Act. The Sales Tax Department argued that the transaction was a sale under an installment system of payment, making it taxable.

The court examined the nature of the agreement between the Corporation and the contractors, noting that the actual prices paid by the Corporation for the equipment were charged to the contractor, and the equipment remained the Corporation's property until full payment was realized. The court found that this arrangement indicated a hire-purchase system where the title to the goods would pass to the contractor upon full payment. The court concluded that the transaction amounted to a "sale" within the meaning of the Act.

2. Whether the property in the goods included in Schedule A passed to the contractors.
The court analyzed the specific terms of the agreement, particularly clause (8) and its sub-clauses, which detailed the conditions under which the machinery was supplied and the responsibilities of the contractor. The agreement stipulated that the contractor was liable to pay the total actual price of the equipment and maintain it in good condition, indicating a transfer of ownership upon full payment. The court noted that even though the Corporation agreed to take over the equipment at its residual value upon completion of the work, this did not negate the fact that the equipment was sold to the contractor initially.

The court referenced the case of Bhimji N. Dalal v. Bombay Trust Corporation Ltd., emphasizing the importance of the substance of the agreement over its form. It concluded that the transaction involved a hire-purchase system, where the property in the goods passed to the contractor upon full payment, thus constituting a sale under the Act.

Conclusion
The court answered the reference in the affirmative, holding that the property in the goods included in Group A did pass to the contractor, and the transaction amounted to a sale within the meaning of section 2(g) of the Bihar Sales Tax Act, 1947. Consequently, the petitioner was liable to pay sales tax on this transaction, and the assessment against him was correct. The State of Bihar was entitled to costs from the petitioner, with a hearing fee of Rs. 250.

Separate Judgments
RAMASWAMI, C.J. concurred with the judgment delivered by RAJ KISHORE PRASAD, J., and the reference was answered in the affirmative.