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TMI Blog1972 (9) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of hire-purchase agreements executed by intending purchasers to suit their convenience. A specimen copy of the agreement is annexure 1 in both the cases. What seems to have happened in the case of the petitioner-company is that according to the revised return filed by it for the assessment period 1968-69 a gross turnover of Rs. 92,51,290.97 being the amount of sales was shown. During the said period, the petitioner had also delivered pumping sets and tractors worth Rs. 2,39,06,588.65 on hire-purchase basis to the agriculturists on execution of agreements, like the one contained in annexure 1. Respondent 2 assessed the petitioner-company and passed an assessment order dated 18th April, 1972. A copy of the order is annexure 2 in C.W.J.C. 883 of 1972. In this assessment order the learned Assistant Commissioner of Commercial Taxes added the sum of Rs. 2,39,06,588.65, the amount of the hire-purchase transactions, as being the sales during the assessment period 1968-69. The only grievance of the petitioner in this writ application is that respondent 2 has committed an error of law in treating the hire-purchase transactions as sales taxable to sales tax during the period in que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T.C. 102 (S.C.); A.I.R. 1961 S.C. 440. It will be noticed from the report at page 107 of the S.T.C. volume that the Damodar Valley Corporation, the appellant before the Supreme Court, took a new point that the "proviso" to section 2(g) of that Act was ultra vires the Bihar Legislature. But this point being a new point was not allowed to be taken in the Supreme Court. On a consideration of the terms of the agreement in that case, it was held that the effect of the agreement was effecting a sale and, therefore, the transaction was liable to be taxed under the Act. Following this decision, the Kerala High Court did not accept the contention put forward on behalf of the assessee that such an explanation was ultra vires the State Legislature, although it may be noticed that this point had not been allowed to be argued in the case of Damodar Valley Corporation[1961] 12 S.T.C. 102 (S.C.); A.I.R. 1961 S.C. 440. The matter went up to the Supreme Court and by its judgment reported in Marikar (Motors) Ltd. v. Sales Tax Officer[1967] 19 S.T.C. 18 (S.C.)., the Supreme Court struck down the explanation as being ultra vires because by that time the decision of the Supreme Court in K.L. Johar Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchaser. The price may be payable later by instalments; but if the property has passed, the transaction is one of sale. On the other hand, a hire-purchase agreement, as its very name implies, has two aspects: "There is first an aspect of bailment of the goods subjected to the hire-purchase agreement, and there is next an element of sale which fructifies when the option to purchase, which is usually a term of hirepurchase agreements, is exercised by the intending purchaser." 5.. In the case of Sales Tax Officer v. Messrs. Budh Prakash Jai Prakash[1954] 5 S.T.C. 193 (S.C.)., it was held that entry 48 in the Provincial List of the Government of India Act conferred power on the Provincial Legislature to impose a tax only when there had been a completed sale and not when there was only an agreement to sell. This decision was affirmed in the case of State of Madras v. Gannon Dunkerley Co.[1958] 9 S.T.C. 353 (S.C.). In Johar Company's case[1965] 16 S.T.C. 213 (S.C.)., their Lordships were asked to reconsider their decisions in Budh Prakash's case(1) and Gannon Dunkerley's case(2). It was urged that the definition of sale under the Central Sales Tax Act had a wider meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1938 and the judgment says: "It is clear that under the law, as it now stands, which has now been crystallised into the section of the Hire Purchase Act, quoted above, the transaction partakes of the nature of a contract of 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 may be mentioned here that from the quotations made earlier from the Halsbury's Laws of England, Third Edition, Volume 19, a distinction has been pointed out between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be....................... (2) in respect of special sales tax, that part of the gross turnover which remains after deducting therefrom,-.............. (b) subject to the provisions of section 5, sale prices on account of sales to a registered dealer other than a dealer liable to pay tax under sub-section (8) of section 3, of goods specified in his registration certificate as being required- (i) for resale by him inside Bihar or in the course of inter-State trade or commerce or export out of the territory of India, or............ Provided that in the case of such sales a declaration in the prescribed form duly filled up and signed by the registered dealer to whom the goods are sold, or by his manager declared under section 10, is furnished in the prescribed manner by the selling dealer: Provided further that where any goods exempted from the levy of tax by a notification issued by the State Government in this behalf under sub-section (3) of section 4 are purchased by a dealer after furnishing declaration mentioned in the notification or where any goods specified in the certificate of registration of a dealer are purchased by him after furnishing a declaration as provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , utilises the said goods for a purpose other than that for which the goods were so purchased by him; or shall be punishable with imprisonment of either description which may extend to six months or with fine not exceeding one thousand rupees or with both, and when the offence is a continuing one with a daily fine not exceeding fifty rupees during the period of the continuance of the offence. 10.. The question in this case is whether the petitioner-company by entering into transactions of hire-purchase with its customers utilised the goods purchased from its seller, on furnishing of declaration that they are required for resale, for any purpose other than the purpose of resale. If the petitioner-company has done so, not only the sale price of such goods has to be added to its taxable turnover, as has been done by the impugned order (annexure 3) but it would also be liable to be prosecuted under section 38 of the Act. The question is: is it correct to say that the petitioner has utilised the goods for any purpose other than the resale? The learned Assistant Commissioner of Commercial Taxes had held by his order dated 18th April, 1972 (annexure 2 in C. W.J.C. 883 of 1972), that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved by the Supreme Court at pages 228 and 229 in Johar Company's case', consists of two parts-(i) the hire rent and (ii) a part of the price. Of course, the Supreme Court has indicated that the sale price which ultimately can be taxed when a transaction of hire-purchase fructifies into a transaction of completed sale can neither be Re. 1, the price which is mentioned generally in the hire-purchase agreement, nor the full price which was determined at the time of the hire-purchase agreement, but it would be something in between the two. The Legislature has not given any indication as to the determination of the final sale price in such cases. The Supreme Court has given some indications of it. It is not uncommon to find that in such transactions what really happens is that the price of the vehicle to be supplied is fixed at the time of the hire-purchase agreement, say, at Rs. 20,000. The said sum of Rs. 20,000, let us assume, is to be paid by the intending purchaser during the course of 5 years. Then, interest at the said sum of Rs. 20,000 is calculated, say at the rate of 12 per cent. per annum for a period of 2 years, which will come to Rs. 6,000. In the price of Rs. 20,000 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are required for resale; the dealer thereafter uses the tractors for cultivating his own land and then sells them as second-hand tractors after certain period. In such a situation, although the dealer may have finally resold the tractors, but putting them to his own use of cultivation will undoubtedly be utilising them for any purpose other than resale because the said utilisation will have no causal connection with the final transaction of sale of second-hand tractors. While in the case of hire-purchase transaction the property is delivered to the intending purchaser, he utilises it for his own use and ultimately becomes the purchaser by exercising his option of purchase. In such a situation, it will be stultifying the well-known methods of ultimate sales in the commercial world by taking the view that the registered dealer by entering into such transactions utilises the goods for a purpose other than resale. In C. W. J. C. 882 of 1972 also, it has got to be held that inclusion of the sum of Rs. 1,44,76,061.84 in the taxable turnover of the petitioner for the period 1967-68 under proviso 2 of sub-section (2) of section 7 of the Act is unjustified and illegal. The facts are no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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