1988 (3) TMI 425 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the petitioner collected sales tax in violation of Section 46 of the Bombay Sales Tax Act, 1959.
2. Applicability of Sections 37 and 46 of the Bombay Sales Tax Act, 1959 to hire-purchase transactions.
3. The legality of double levy of tax and forfeiture in respect of the same transaction.
4. The discretionary nature of penalty imposition under Section 37(2) of the Bombay Sales Tax Act, 1959.

Issue-wise Detailed Analysis:

1. Collection of Sales Tax in Violation of Section 46:
The petitioner, a partnership firm dealing in trucks and chassis on a hire-purchase basis, was issued three show cause notices alleging collection of sales tax in violation of Section 46 of the Bombay Sales Tax Act, 1959. The petitioner argued that although the bills mentioned "including the sales tax," no sales tax was actually collected from the parties. The High Court noted that the entire amounts were debited to the parties' accounts without separating the sales tax component, indicating that no sales tax was recovered. Therefore, the court concluded that the petitioner did not collect sales tax in violation of Section 46.

2. Applicability of Sections 37 and 46 to Hire-Purchase Transactions:
The court examined whether Sections 37 and 46 applied to hire-purchase transactions. The petitioner contended that hire-purchase agreements are not sales until the final installment is paid and the option to purchase is exercised. The court agreed, stating that the hire-purchase agreement cannot be construed as a sale, and thus, the provisions of Sections 37 and 46 were not applicable. The court cited previous judgments, including [1979] 44 STC 117 (Ramkrishan Kulwantrai v. Commissioner of Sales Tax), which held that amounts collected in transactions that are not sales cannot be forfeited under Section 37(1)(a).

3. Legality of Double Levy of Tax and Forfeiture:
The petitioner argued that there should not be a double levy of tax and forfeiture for the same transaction. The court agreed, stating that imposing both forfeiture and regular sales tax on the same transaction would lead to a travesty of justice. The court emphasized that a proper approach should have been taken by the authorities to avoid such an outcome.

4. Discretionary Nature of Penalty Imposition:
The petitioner contended that the imposition of a penalty under Section 37(2) is a matter of discretion and not automatic. The court noted that the authorities must be doubly sure of the legal permissibility and their authority before enforcing any forfeiture clause or imposing a penalty. The court found that the show cause notices were issued without proper jurisdiction and quashed them.

Conclusion:
The court quashed the impugned show cause notices and restrained the respondents from taking any further action pursuant to the notices. The court emphasized the need for tax authorities to adopt a proper approach and be sure of their legal authority before enforcing penalties or forfeiture. The rule was made absolute with no order as to costs.