9911796707
TMI Blog1954 (2) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... and never carried on in the past, nor do they carry on now, within the State of Madhya Pradesh any business of buying, selling, supplying or distributing goods to anyone in Madhya Pradesh, directly or otherwise, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration; that the transactions of hire purchase of motor vehicles that have been entered into between them and some persons do not amount to sale of goods according to the meaning of "sale" in the Sale of Goods Act, 1930; that those transactions are merely contracts of hire, the hirer having an option to return goods and an option to purchase, which he may exercise or not according to his desire; that so long as the hirer does not exercise the option of purchase he does not become the owner of the vehicle which remains the property of the petitioners; and that thus the transactions effected by them are not sale transactions. Thus the petitioners contend that they are not "dealers" as defined in section 2(d) of the Act; that the transactions entered into by them with some persons desiring to purchase motor vehicles on hire-purchase system are not "sale " transactions within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the petitioners amount to sales liable to tax under the Act still remains to be decided; that it was for the purpose of finding out whether the petitioners were dealers and whether the transactions effected by them amounted to sales liable to tax under the Act; that notices under section 29 of the Act were issued to them; and that under that provision a notice can be issued even before the initiation of any assessment proceedings. The respondents further say that Explanation I to section 2(n) of the Act only treats those transactions as sale transactions where there is not only a transfer of goods on hire-purchase or other instalment system of payment but also a transfer of property and that, therefore, it cannot be said that the State Legislature has by enlarging the definition of "sale", as including transactions mentioned in Explanation I, taken to itself a legislative power not conferred upon it by Entry 54, List II of the Seventh Schedule to the Constitution. The further objection of the respondents is that all these petitions are premature as no order of any kind has been passed against any of the petitioners and that they have an alternative remedy of appeal if and when a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, then notices under section 17 of the Act should have been issued to the petitioners, and that it was only after the issue of notices under section 17 that they could be called upon to produce their accounts, registers or documents relevant to their financial transactions sought to be taxed. 7.. In connection with the petitioners' challenge to the vires of Explanation I to section 2(n), it is first necessary to distinguish between (i) contracts to buy and pay by instalments, and (ii) contracts to hire, the hirer having an option to return the goods, with a provision that on payment of certain number of instalments the article shall belong absolutely to the hirer. In a contract of sale for a price payable by instalments the purchaser has no option of terminating the contract and returning the goods, whereas in a contract of hire-purchase the hirer has such an option and has also the option to purchase the chattel which he may or may not exercise according to his sweet will and pleasure. This distinction has been pointed out by the Supreme Court in Damodar Valley Corporation v. State of Bihar [1961] 2 S.C.R. 522; 12 S.T.C. 102; A.I.R. 1961 S.C. 440. and Instalment Supply (Privat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bailment with an element of sale, as aforesaid, added to it. In such an agreement, the hirer may not be bound to purchase the thing hired; he may or may not be. But in either case, if there is an obligation to buy, or an option to buy, the goods delivered to the hirer by the owner on the terms that the hirer, on payment of a premium as also of a number of instalments, shall enjoy the use of the goods, which ultimately may become his property, the transaction amounts to one of hire-purchase, even though the title to the goods has remained with the owner and shall not pass to the hirer until a certain event has happened, namely, that all the stipulated instalments have been paid, or that the hirer has exercised his option to finalise the purchase on payment of a sum, nominal or otherwise." It is thus plain that a hire-purchase agreement is not a contract of sale but a bailment. While the bailment continues, the property remains in the owner. Again, it is not a conditional contract of sale as the hirer is not under any obligation to pay the whole price, though he may exercise the option and purchase the chattel hired by him. As under such an agreement, the property does not pass to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant was in exactly the same position as if he had made an offer to sell on certain terms, and had undertaken to keep it open for a definite period. Until acceptance by the person to whom the offer is made, there can be no contract to buy. So long as the agreement stood unaltered there could, in this case, be no contract to purchase by Brewster until he had complied with the terms of the option given him, and had duly made the thirty-six monthly payments which it prescribes as the condition of his becoming owner of the piano. (Underlining is ours.*) It is on the basis of the authority of Helby v. Matthews [1895] A.C. 471. that it has been stated in Chitty on Contracts (Vol. II, Specific Contracts), 22nd Edn., page 1356, that "there is no sale because the property has not passed; and there is no agreement to sell because, in legal analysis, the owner makes an irrevocable offer to sell which only becomes a contract of sale when the option is exercised." Learned counsel for the petitioners was, therefore, right in his contention that in a contract of hirepurchase, where the hirer has an option to return the goods and an option to purchase, which he may or may not exercise, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity; and that there was manifestly no offer to purchase the sugar by the Province of Madras and no acceptance of any offer by the manufacturer. If, therefore, a liability to be assessed to sales tax in respect of a transaction of transfer of goods can arise only if there is a transfer of the property in the goods under a contract of sale, as understood in the Sale of Goods Act, 1930, then it is clear that a transaction of hire-purchase, which is not a contract of sale but a bailment, cannot be assessed to sales tax at the time the agreement is entered into and till the bailment lasts. It is only when the hirer exercises his option of purchasing the goods and a contract of sale comes into existence that the liability to pay sales tax in respect of the sale transaction can arise. 9.. Turning now to Explanation I to section 2(n) of the Act, it would be otiose if it were to be construed as meaning only those transactions of hire-purchase where contracts of sale of goods have come into existence as a result of the exercise of option by the hirer of purchasing the goods. Such ripened sale transactions would by their very nature be "sales" under the Sale of Goods Act, 1930, and fall wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(n) of the local Act. The Supreme Court held that the Explanation contained the categorical statement that "...............a transfer of goods on hire-purchase etc. shall be deemed to be a sale even though there may be stipulation to the effect that in spite of the transfer of goods to the hirer the owner retains title to those goods until the happening of the ultimate event, namely, completion of title at the option of the hirer." Thus the Supreme Court regarded Explanation I to section 2(g) of the Bengal Act as extending the concept of "sale" to what, in law, is not a real sale. Explanation I to section 2(n) of the Act and Explanation I to section 2(g) of the Bengal Act being similar in terms, it must be held that Explanation I to section 2(n) of the Act enlarges the concept of "sale" to what under the Sale of Goods Act is not a real sale. There is no reason at all for construing Explanation I to section 2(n) of the Act differently. The question of the validity of Explanation I to section 2(g) of the Bengal Act arose in the context of the applicability of the Bengal Act to Delhi. It was in this context that the Supreme Court, following the decision in Mithan Lal's case (1) held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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." It was said that these observations indicated that there was a contract of sale in a hire-purchase agreement. Having regard to what has been said by the Supreme Court earlier in the judgment in Instalment Supply (Private) Ltd. case [1962] 2 S.C.R. 644; 12 S.T.C. 489., it is impossible to read the above observations in the manner suggested by the learned Government Advocate. The observations only embody the comment of the Supreme Court that as under a hire-purchase contract a contract of sale may come into existence if the hirer exercises his option of purchasing the goods, the Legislature had "seized upon" the element of this possible sale for subjecting the hire-purchase transactions to sales tax. There is no warrant for reading those observations as meaning that a hirepurchase contract is a contract of sale. 13.. Learned Government Advocate relied on Commercial Credit Corporation v. Deputy Commercial Tax Officer [1958] 9 S.T.C. 599. and Kishan Prasad Co. v. Assessing Authority [1961] 12 S.T.C. 711. to support his contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom this course and expressed our opinion on the contentions advanced on behalf of the petitioners solely for the reason that on the arguments advanced at the Bar it appeared to us that there was some misconception in the minds both of the petitioners as well as of the taxing authorities on the question of the nature and effect of a hire-purchase agreement and of Explanation I to section 2(n) of the Act, and that in view of the authoritative pronouncements of the Supreme Court there was no justification for this misconception and the removal of the misconception was necessary for guiding both the petitioners as well as the taxing authorities in the matters of assessments of hire-purchase transactions. 15.. The petitioners' further contention that as they were not dealers, no notice under section 29 of the Act could be issued to them requiring them to produce accounts, documents, registers etc. and that the Sales Tax Officer should have proceeded against them under section 17 of the Act, is altogether unsubstantial. The argument of learned counsel for the applicants was that under section 29 a notice could be issued only to a dealer and the petitioners were not dealers. The Act no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were dealers under the Act showed that the Sales Tax Officer had already decided the question of the nature and effect of the petitioners' transactions and their being dealers without giving a hearing to them. In regard to this, it is sufficient to say that the Sales Tax Officer was no doubt not right in deciding by correspondence with the petitioners the questions which were required to be decided under the Act and the rules made thereunder according to the prescribed procedure. The opinion expressed by the Sales Tax Officer in the letters addressed by him to the petitioners does not and cannot, however, relieve him of the duty of adjudicating upon the above points in accordance with law. We have no doubt that the Sales Tax Officer will determine all the points that may arise in connection with the petitioners' liability to assessment to tax in respect of the transactions effected by them in the light of this decision and uninfluenced by the opinion expressed by him in his replies to the petitioners. 17.. For the foregoing reasons, all these petitions are dismissed with costs. Counsel's fee in each case is fixed at Rs. 100. The outstanding amounts of security deposits, after ..... 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