1989 (2) TMI 399 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Computation of sale price including interest for late payment.
2. Determination of the rate of interest without market enquiry.
3. Inclusion of initial payment, registration fee, and insurance charges in the sale price calculation.
4. Interpretation of the Supreme Court decision in K.L. Johar regarding hire-purchase transactions.

Issue-Wise Detailed Analysis:

1. Computation of Sale Price Including Interest for Late Payment:
The Tribunal held that in computing the sale price, interest for late payment should be added to the basic price, and depreciation should be calculated thereon. The assessee contended that the extra charges recovered were not interest but hire charges. The High Court concluded that the Tribunal misconstrued the Supreme Court's decision in Johar's case and held that interest on account of late payment should not be considered a relevant factor for arriving at the sale price when the second sale took place. The Court emphasized that in a hire-purchase agreement, the property does not pass at the time of the agreement but only when the option is exercised, making the addition of interest for late payment unjustifiable.

2. Determination of the Rate of Interest Without Market Enquiry:
The Tribunal was questioned on whether it was justified in taking the rate of interest on the same basis adopted by the assessing authority without making an enquiry into the actual market rate of interest. The High Court declined to answer this question, deeming it unnecessary in light of their conclusions on other issues.

3. Inclusion of Initial Payment, Registration Fee, and Insurance Charges in the Sale Price Calculation:
The Tribunal directed that the initial payment should be included in the amount on which depreciation is to be allowed, and that the registration fee and insurance charges should not be included in the basic price for the calculation of taxable turnover. The High Court upheld this direction, agreeing that the initial payment should be considered for depreciation purposes and that registration and insurance fees should not be part of the basic price.

4. Interpretation of the Supreme Court Decision in K.L. Johar Regarding Hire-Purchase Transactions:
The Tribunal interpreted the Supreme Court decision in K.L. Johar to mean that the sale price in hire-purchase transactions should include the original price plus interest for half the period of delayed payment. The High Court disagreed, stating that the Tribunal was not justified in this interpretation. The Court clarified that the hire-purchase value should not consist of amounts of interest on the real price, finance service commission, or extra interest for late payment. Depreciation should be deducted from the original price of the vehicle, not from the entire hire price agreed upon in the hire-purchase agreement.

Conclusion:
The High Court answered the reference in favor of the assessee and against the Revenue, except for the declined answer on the second issue. The Tribunal's conclusions on the computation of sale price and interpretation of the Supreme Court decision were overturned, while the directions on initial payment and exclusion of registration and insurance charges were upheld. No costs were ordered for the reference.