1972 (9) TMI 129 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether hire-purchase transactions should be treated as sales for the purpose of sales tax under the Bihar Sales Tax Act, 1959.
2. The validity of explanation (1) appended to the definition of "sale" in clause (p) of section 2 of the Bihar Sales Tax Act, 1959.
3. Whether the petitioner-company utilized the goods for any purpose other than resale under the second proviso to sub-section (2) of section 7 of the Bihar Sales Tax Act, 1959.

Issue-Wise Detailed Analysis:

1. Hire-Purchase Transactions as Sales:
The petitioner-company, a government undertaking, delivered agricultural equipment on a hire-purchase basis. The Assistant Commissioner of Commercial Taxes included the hire-purchase transactions in the company's gross turnover for the assessment period 1968-69, treating them as sales. The petitioner contended that this was an error of law. The Court held that hire-purchase transactions are not sales during the assessment period but become sales when the hirer exercises the option to purchase.

2. Validity of Explanation (1) in Section 2(p):
Explanation (1) to section 2(p) of the Act deems hire-purchase transactions as sales. The Court referenced the Supreme Court's decisions in Damodar Valley Corporation v. The State of Bihar and Johar & Company v. Deputy Commercial Tax Officer, which held that such explanations are ultra vires the State Legislature. The Court concluded that explanation (1) is ultra vires and must be struck down, as it artificially extends the definition of "sale" beyond the legislative competence of the State.

3. Utilization of Goods for Resale:
In C.W.J.C. 882 of 1972, the issue was whether the petitioner utilized the goods for purposes other than resale, thereby justifying the addition to the taxable turnover. The Court noted that hire-purchase transactions are well-known commercial practices aimed at eventual sales. The Court held that entering into hire-purchase agreements does not constitute utilizing goods for purposes other than resale. Therefore, the inclusion of the sum of Rs. 1,44,76,061.84 in the taxable turnover under the second proviso to sub-section (2) of section 7 was unjustified and illegal.

Conclusion:
The Court allowed both writ applications. In C.W.J.C. 883 of 1972, the addition of Rs. 2,39,06,588.65 to the taxable turnover was struck down. In C.W.J.C. 882 of 1972, the addition of Rs. 1,44,76,061.84 was also struck down. Consequently, the revised assessment order was invalidated, and the original assessment order was reinstated. There was no order as to costs in either case.