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1960 (11) TMI 71 - SC - VAT and Sales TaxWhether the transaction in question in this case amounted to a sale within the meaning of the Act? Held that - Appeal dismissed. The stipulation that the contractors themselves will have to supply the spare parts, as and when needed, for replacements of the worn out parts is also consistent with the case of the respondent that title had passed to the contractors and that they were responsible for the upkeep of the machinery and equipments and for depreciation. If it were a mere contract of hiring, the owner of the goods would have continued to be liable for replacements of worn out parts and for depreciation. Applying those tests to the terms of the agreement between the parties, it is clear that the transaction was a sale on deferred payments with an option to re-purchase and not a mere contract of hiring, as contended on behalf of the appellant.
Issues Involved:
1. Whether the transaction in question amounted to a "sale" within the meaning of the Bihar Sales Tax Act, 1947. 2. Whether the Corporation is a "dealer" within the meaning of the Act. 3. Whether the proviso to section 2(g) of the Act is ultra vires the Bihar Legislature. 4. Whether the Act itself is ultra vires the Bihar Legislature by reason of the legislation being beyond the scope of entry 48 in List II of Schedule VII of the Government of India Act, 1935. Issue-wise Detailed Analysis: 1. Whether the transaction in question amounted to a "sale" within the meaning of the Bihar Sales Tax Act, 1947: The Supreme Court examined the terms of the contract between the Corporation and the contractors. The contract involved the Corporation making available machinery and equipment to the contractors for the construction of the Konar Dam. The machinery was classified into two groups, Group A and Group B. The machinery in Group A was to be taken over by the Corporation at its "residual value" after the completion of the work, while the machinery in Group B was to become the property of the contractors after full payment. The court analyzed whether the transaction for Group A machinery amounted to a sale. The Corporation argued that it was a mere contract of hiring, while the respondent State contended it was a sale or hire-purchase. The court noted that the agreement included conditions such as the contractors being charged the actual price paid by the Corporation, the machinery remaining the property of the Corporation until full payment, and the contractors being responsible for maintenance and spare parts. The court applied two tests to determine the nature of the transaction: (1) whether there was a binding obligation on the hirer to purchase the goods, and (2) whether there was a right reserved to the hirer to return the goods at any time. The court found that the contractors were bound to pay two-thirds of the total price in equal installments and had no right to return the machinery at their convenience. The court concluded that the transaction was a sale on deferred payments with an option to repurchase, not a mere contract of hiring. 2. Whether the Corporation is a "dealer" within the meaning of the Act: The court did not address this issue in detail as it was not raised at any stage of the proceedings before the authorities below or in the High Court. The court noted that the scope of the appeal was limited to the question of whether the transaction amounted to a sale within the meaning of the Act. 3. Whether the proviso to section 2(g) of the Act is ultra vires the Bihar Legislature: The court did not address this issue in detail as it was not raised at any stage of the proceedings before the authorities below or in the High Court. The court noted that the scope of the appeal was limited to the question of whether the transaction amounted to a sale within the meaning of the Act. 4. Whether the Act itself is ultra vires the Bihar Legislature by reason of the legislation being beyond the scope of entry 48 in List II of Schedule VII of the Government of India Act, 1935: The court did not address this issue in detail as it was not raised at any stage of the proceedings before the authorities below or in the High Court. The court noted that the scope of the appeal was limited to the question of whether the transaction amounted to a sale within the meaning of the Act. Conclusion: The Supreme Court upheld the judgment of the High Court, concluding that the transaction in question amounted to a sale within the meaning of the Bihar Sales Tax Act, 1947. The appeal was dismissed with costs.
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