1979 (4) TMI 147 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether "hire charges" received by finance companies form part of the "sale price" under the Bengal Finance (Sales Tax) Act, 1941, and are liable to sales tax.
2. The constitutional distinction between legislative powers of Parliament and State Legislatures regarding sales tax.
3. The definition and scope of "sale" under the Bengal Finance (Sales Tax) Act, 1941.
4. The impact of hire-purchase agreements on the determination of "sale price."
5. The applicability of sales tax to hire-purchase transactions in different periods and under different legislative frameworks.
6. The jurisdiction of the Sales Tax Tribunal and the High Court under Article 226 of the Constitution.

Detailed Analysis:

1. Whether "hire charges" form part of the "sale price" under the Bengal Finance (Sales Tax) Act, 1941:
The primary issue is whether hire charges received by finance companies are part of the "sale price" under the Bengal Finance (Sales Tax) Act, 1941, thereby becoming liable to sales tax. The Court concluded that the total consideration for the hire-purchase contract, including what are termed as hire charges, constitutes the sale price. This conclusion was drawn from the definition of "sale" in Section 2(g) and the interpretation that the entire amount agreed to be paid in a hire-purchase contract is the consideration for the transfer of goods.

2. Constitutional distinction between legislative powers:
The judgment discusses the constitutional background, highlighting the different legislative powers exercised by Parliament under Article 246(4) and State Legislatures under Article 246(3). Parliament, under Article 246(4), has the power to legislate on sales tax in Union territories independently of the definition of "sale" in the Sale of Goods Act, 1930. This distinction allows Parliament to treat hire-purchase transactions as sales, even if the property in goods does not pass immediately.

3. Definition and scope of "sale" under the Bengal Finance (Sales Tax) Act, 1941:
The definition of "sale" under Section 2(g) of the Act was amended on October 1, 1959, to include transfers of goods on hire-purchase or other installment systems. The Supreme Court in Instalment Supply (Private) Ltd. v. Union of India held that under both the old and new definitions, a mere transfer of goods in a hire-purchase contract constituted a sale for the purpose of sales tax in a Union territory.

4. Impact of hire-purchase agreements on the determination of "sale price":
The Court analyzed the terms of hire-purchase agreements, noting that the total amount payable under such agreements includes both the price and hire charges. It was determined that the entire amount is the consideration for the transfer of goods and thus forms the sale price. This interpretation was consistent with the Supreme Court's decisions in similar cases, which did not distinguish between the price and hire charges once the hire-purchase contract was executed.

5. Applicability of sales tax to hire-purchase transactions:
The Court addressed the applicability of sales tax to hire-purchase transactions for different periods. It was held that receipts from hire-purchase transactions during 1958-59 were liable to tax, even if the contracts were entered into before April 1, 1958. The Court also confirmed that the rate of sales tax applicable would be the rate prevalent at the time the transfer of goods in the hire-purchase contract took place.

6. Jurisdiction of the Sales Tax Tribunal and High Court under Article 226:
The Court examined the jurisdiction of the Sales Tax Tribunal and the High Court's power under Article 226 of the Constitution. It was held that the Tribunal's decision, which followed an incorrect interpretation of the law, was without jurisdiction. The High Court decided to entertain the writ petitions despite the availability of an alternative remedy, citing the fundamental jurisdictional error in the Tribunal's orders.

Conclusion:
The Court affirmed that the total consideration for hire-purchase contracts, including hire charges, forms part of the sale price and is liable to sales tax under the Bengal Finance (Sales Tax) Act, 1941. The judgment clarified the constitutional distinction between legislative powers and upheld the applicability of sales tax to hire-purchase transactions based on the total consideration agreed upon. The High Court exercised its jurisdiction under Article 226 to correct the fundamental jurisdictional errors made by the Sales Tax Tribunal.