1961 (5) TMI 53 - SC - VAT and Sales Tax

Levy, charge or collect any sales tax on transactions of what the petitioners characterised as hire-purchase agreements Held that - Appeal dismissed. There is no doubt that the agreement in question does contain not only a contract of bailment simpliciter but also an element of sale, which element has been seized upon by the legislature for the purpose of subjecting a transaction like that to the sales tax. To consider the contention under head (3), namely, that though the Parliament may have had the power to tax something which was not strictly speaking a sale , the law is open to the attack that it discriminates against traders in Delhi inasmuch as, it is further contended, such a law has not been made applicable to the whole of India. In our opinion, there is no substance in this contention because no proper foundation was laid in the pleadings for supporting such a contention. Hire-purchase transactions have been included within the definition of sale for the purpose of Central sales tax, and this definition has become applicable throughout India, and it cannot, therefore, be said that the State of Delhi, and now the Union Territory of Delhi, has been selected for hostile discrimination,therefore, there is no substance in the contention that the extended definition of sale in the main statute infringes Article 14 of the Constitution.

Issues Involved:
1. Nature of the transactions under hire-purchase agreements.
2. Constitutionality of the explanation extending the concept of "sale."
3. Alleged infringement of Article 14 of the Constitution.
4. Finality and conclusiveness of the judgment by the Punjab High Court.
5. Retrospective operation of the Supreme Court judgment in Mithan Lal's case.
6. Binding nature of the settlement between the department and hire-purchase companies.

Issue-wise Detailed Analysis:

1. Nature of the Transactions under Hire-Purchase Agreements:
The primary issue is whether the transactions under the hire-purchase agreements constitute a mere agreement of hiring or a contract of hire-purchase within the meaning of the explanation to the definition of "sale" in the Bengal Finance (Sales Tax) Act, 1941. The Court examined the terms and conditions of the agreement, which included an initial deposit, instalment payments, and an option for the hirer to purchase the vehicle upon completion of payments. The Court concluded that the agreement contained elements of both bailment and sale, thus falling within the extended definition of "sale" under the Act. The definition includes "any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of a contract," and the explanation deems a transfer of goods on hire-purchase or other instalment systems of payment as a sale.

2. Constitutionality of the Explanation Extending the Concept of "Sale":
The petitioners contended that the explanation extending the concept of "sale" to hire-purchase transactions was unconstitutional. However, this contention was dismissed based on the precedent set in Mithan Lal's case, where the Supreme Court had already upheld the validity of such an extended definition. The Court reiterated that the legal fiction introduced by the explanation was within the legislative competence and did not render the law unconstitutional.

3. Alleged Infringement of Article 14 of the Constitution:
The petitioners argued that the law infringed Article 14 by discriminating against traders in Delhi. The Court found no substance in this contention, noting that there was no proper foundation laid in the pleadings to support such a claim. Furthermore, the Court observed that the Central Sales Tax Act, 1956, which applies throughout India, also includes hire-purchase transactions within the definition of "sale." Therefore, there was no hostile discrimination against the State of Delhi.

4. Finality and Conclusiveness of the Judgment by the Punjab High Court:
The petitioners argued that the judgment of the Punjab High Court in Instalment Supply Ltd., New Delhi v. State of Delhi was final and conclusive. The Court dismissed this argument, stating that in matters of taxation, each year's assessment is final only for that year and does not govern later years. Therefore, the principle of res judicata did not apply.

5. Retrospective Operation of the Supreme Court Judgment in Mithan Lal's Case:
The petitioners contended that the judgment in Mithan Lal's case should not have retrospective operation. The Court rejected this argument, stating that the law laid down by the Supreme Court in Mithan Lal's case was authoritative and binding, and the Sales Tax Department was required to follow it. The Court emphasized that the department's instructions could not change the law.

6. Binding Nature of the Settlement Between the Department and Hire-Purchase Companies:
The petitioners claimed that the settlement between the department and the hire-purchase companies was binding until the decision in Mithan Lal's case. The Court dismissed this contention, stating that departmental instructions issued in conformity with the Punjab High Court's judgment were superseded by the Supreme Court's decision in Mithan Lal's case. The Court held that the department was not estopped from following the Supreme Court's authoritative ruling.

Conclusion:
All the contentions raised by the petitioners were dismissed, and the petition was dismissed with costs. The Court upheld the validity of the extended definition of "sale" to include hire-purchase transactions and found no constitutional infirmity in the law as applied to the petitioners.

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