2012 (3) TMI 409 - HC - VAT and Sales Tax

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Summary

Issues Involved
1. Levy of sales tax on the total consideration shown in hire-purchase agreements.
2. Distinction between the definitions of "sale price" in different legislations.
3. Applicability of the Supreme Court's judgment in Jay Bharat Credit And Investment Co. Ltd. case.
4. Inclusion of insurance charges in the sale price for taxing purposes.
5. Validity of Section 2(t) and 2(u) of the Bihar Finance Act, 1981.
6. Application of Section 11 of the Bihar Finance Act, 1981.

Detailed Analysis

1. Levy of Sales Tax on Total Consideration in Hire-Purchase Agreements
The petitioner challenged the levy of sales tax on the total consideration shown in hire-purchase agreements for the assessment years 1994-95, 1995-96, and 1997-98. The petitioner argued that the tax should not include interest and service charges, citing the distinction in the language of the Bihar Finance Act, 1981, compared to other legislations.

2. Distinction in Definitions of "Sale Price"
The petitioner emphasized the difference in the definition of "sale price" under the Bihar Finance Act, 1981, and the Delhi Sales Tax Act, 1975. The petitioner argued that the Bihar Act's definition, which includes "delivery of goods on hire-purchase," should not encompass interest and service charges. However, the court found that the definition in the Bihar Act is consistent with the constitutional provision under Article 366 (29-A), which includes "delivery of goods on hire-purchase."

3. Applicability of Jay Bharat Credit And Investment Co. Ltd. Case
The petitioner sought to distinguish their case from the Jay Bharat Credit And Investment Co. Ltd. case, arguing that the Supreme Court's decision did not consider the specific definitions in the Bihar Finance Act, 1981. The court, however, held that the principles laid down in the Jay Bharat case are applicable, as the definition of "sale" and "sale price" in the Bihar Act includes hire-purchase transactions, making the entire consideration taxable.

4. Inclusion of Insurance Charges in the Sale Price
The petitioner argued that insurance charges collected from the buyer should not be included in the sale price for tax purposes. The court agreed with this argument, stating that insurance charges are separate from the hire-purchase agreement and relate to a separate contract between the insurer and the insured. Thus, the state cannot charge tax on the insurance premium amount.

5. Validity of Section 2(t) and 2(u) of the Bihar Finance Act, 1981
The petitioner initially challenged the validity of Sections 2(t) and 2(u) but later did not press this issue. The court noted that these sections are valid legal provisions, consistent with the constitutional amendment allowing tax on hire-purchase transactions.

6. Application of Section 11 of the Bihar Finance Act, 1981
The petitioner raised a new argument based on Section 11, which deals with the point of levy and rate of tax. The court declined to entertain this new issue, as it was not raised before the lower authorities or in the writ petition. The court emphasized that the petitioner should have pursued this argument in the appropriate forum initially.

Conclusion
The court dismissed the writ petitions, upholding the levy of sales tax on the total consideration in hire-purchase agreements, including interest and service charges. However, the court allowed the petition in part, ruling that insurance charges collected from the buyer should not be included in the sale price for tax purposes. The department was directed to proceed in accordance with these findings.