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TMI Blog1979 (4) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... iament in respect of Union territories to legislate as to taxes on sale of goods is derived from two sources. Under entry 92A, Parliament has power to legislate about taxes on sale of goods when such sale takes place in the course of inter-State trade or commerce. Under article 246(4), Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List. The result is that even though taxes on sale of goods are included in entry 54 of the State List, Parliament has an independent power to legislate on the said subject under article 246(4). In State of Madras v. Gannon Dunkerley Co. [1958] 9 S.T.C. 353 (S.C.)., the Supreme Court held that the meaning of the words "sale of goods" in entry 48 of the Provincial List in the Government of India Act, 1935, corresponding to entry 54 of the State List of the Seventh Schedule of the Constitution was the same as its meaning in the Sale of Goods Act, 1930, with the result that there can be no sale until property in the goods passes. A State Legislature cannot, therefore, treat as sale any transaction which is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) in the case of specific or ascertained goods, at the time the contract of sale is made; and (ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation." In Instalment Supply (Private) Ltd. v. Union of India[1961] 12 S.T.C. 489 (S.C.)., a Constitution Bench of the Supreme Court took note of the language of both these definitions, old and new, and arrived at the conclusion that under both of them a mere transfer of goods in a hire-purchase contract constituted sale for the purpose of sales tax in a Union territory. The material difference between the two definitions is the omission of the words "notwithstanding that the seller retains a title to any goods as security for payment of the price" contained in explanation 1 of the old definition, while enacting the new definition with effect from 1st October, 1959. At page 499 of the Reports, the Supreme Court held that these words merely emphasised what was already conveyed by the words that a mere transfer of goods in hire-purchase contract would be included in the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also authorised the Parliament to formulate principles for determining when a sale takes place outside the State. To implement the provisions of the amended article 286, Parliament enacted the Central Sales Tax Act, 1956. It is to be noted that the definition of "sale" in section 2(g) thereof has been bodily transported into section 2(g) of the Bengal Finance (Sales Tax) Act with effect from 1st October, 1959. The explanation to the new definition of "sale" in the Act reproduces section 4(2) of the Central Sales Tax Act. The effect is that once the sale of goods takes place inside a State because the goods are there at the time of the contract of sale that sale would be deemed to be outside all other States. Hence it is the State in which the goods are situated at the time of the contract of sale which alone would be able to levy sales tax on the goods, while other States would not be able to do so. On this view, there is no inconsistency between the decisions in Instalment Supply Ltd. v. Sales Tax Officer, Ahmedabad-I[1974] 34 S.T.C. 65 (S.C.)., and Instalment Supply (Private) Ltd. v. Union of India[1961] 12 S.T.C. 489 (S.C.). This construction of these two decisions and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs......in addition to the sum of Rs......so paid on the execution of this agreement as aforesaid and shall also pay to the owners all other sums of money which may become payable to them by the hirer under this agreement, the hiring shall come to an end and the vehicle shall, at the option of the hirer, become his absolute property, but until such payments as aforesaid have been made the vehicle shall remain the property of the owners. The hirer shall also have the option of purchasing the vehicle at any time during the currency of this agreement by paying in one lump sum the balance of all the hire hereinbefore mentioned and any other expenses incurred by the owners relating to the transaction. (c) The owners shall have the right to refuse to transfer the ownership of the vehicle after they have realised their full hire amount under this agreement if the hirer has hired out another vehicle from the owners in respect of which his liability is not fully discharged or the hirer is liable to the owners for any guarantee that he may have given to the owners in respect of another vehicle hired out by the owners on the hirer's guarantee. The owners can also apply the payments against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany has paid to the original dealer, i.e., in reselling the vehicle on the same terms as the original dealer would have sold it. The price of the vehicle being fixed, the original dealer would have sold it for that price, if the price is paid simultaneously or for an enhanced price if the payment of price would be delayed. The extra charge for the delay would be either hire charges or interest on the arrears of the price depending on whether the title to the vehicle is reserved by the original dealer or is transferred to the purchaser. Since this could be done by the original dealer itself, these would not be terms on which the hire-purchase companies would do business. What the hire-purchase company does is to take advantage of the lack of funds with the hirer-cum-purchaser. The hire-purchase contract fixes the total amount payable by the hirer-cum-purchaser which exceeds the original price of the vehicle by an amount which may be called the hire charges. If, in entering into the hire-purchase agreement, a clear distinction is made between the price for which the vehicle is sold and the hire charges which are payable only if the price for the vehicle is not paid at the time of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only when the title to the property passed. The Supreme Court had, therefore, to consider specifically the question as to what would be the sale price for the purpose of taking the sale thereunder. The court expressed the view that the sale price would neither be the total amount payable under the hire-purchase contract nor the amount of Re. 1 payable by the hirer-cum-purchaser at the time of exercising the option after having paid all the instalments under the hire-purchase contract. The sale price would rather be arrived at by splitting the total amount payable under the hirepurchase contract into two parts, namely, (a) price, and (b) hire charges, and then deducting the depreciation from the price and arriving at what would be the real price of the vehicle at the time the property passes to the hirer-cum-purchaser. Under a State legislation, this solution of the problem would have also another advantage. It would allow the hirer-cum-purchaser to claim a deduction of the payment of hire charges as a deductible expenditure and treat the payment of the price as capital expenditure for the purpose of income-tax. The distinction between the concept of sale for the purpose of State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is totally irrelevant. It cannot, therefore, be the basis for the determination of the sale price. The sale price must be determined to be the consideration for the transfer of goods when the transfer of goods takes place. It was not disputed either in Instalment Supply (Private) Ltd[1961] 12 S.T.C. 489 (S.C.). or K.L. Johar and Co. [1965] 16 S.T.C. 213 (S.C.). that the total consideration for the hire-purchase contract has to be paid by the hirer-cum-purchaser once he enters into that contract. It does not matter when he pays the whole amount due thereunder in instalments or in lump sum. The amount remains the same. These terms of the hire-purchase contract take away the very basis of the argument by Shri Randhir Chawla that the total consideration in a hirepurchase contract consists of two distinct parts, namely, the price and the hire charges. Even though these two are separately mentioned in the computation sheet in the proposal form they are merged together in the agreement and no distinction is made after the merger in payment of the whole of the amount. The consideration for the sale of goods must, therefore, be the total amount which has to be agreed to be paid before the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise. Our answer to question No. (1) is that the full amount of the consideration for the hire-purchase contract which has to be agreed to be paid for the transfer of goods is the sale price even if it includes the amount recovered as interest or whatever other name given to it. In S.T.R. No. 5 of 1977, the answer to question No. (1) is that the total consideration for the hire-purchase contract is the sale price. The answer to the second question is that the rate of sales tax to be charged would be the rate which would be prevalent on the date of the sale, namely, the date on which the goods are transferred in a hire-purchase contract. In S.T.R. No. 16 of 1974 also, the answer is that the rate of sales tax would be the rate which was prevalent at the time the transfer of goods in the hirepurchase contract took place. In S.T.R. No. 27 of 1974, the question of which reference was called for by this Court is also whether mere delivery of the vehicle under the terms of the hire-purchase agreement amounted to a sale under section 2(g) of the Act. The answer is in the affirmative. In S.T.R. No. 32 of 1973, the question relates to the period from 1st April, 1958, to 30th September ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . v. Union of India[1961] 12 S.T.C. 489 (S.C.). We have also stated that the taxability of a hire-purchase transaction to sales tax by deeming the transfer of goods itself as a sale is legal only in a parliamentary legislation like the amended section 2(g) of the Act, as applied to Delhi, while in a State legislation such a definition of "sale" would be unconstitutional. just as the imposition of sales tax on transfer of goods in a hire-purchase contract was held to be unconstitutional in a State legislation in the K.L. Johar Co.'s case[1965] 16 S.T.C. 213 (S.C.). , it must be held that the refusal to allow the imposition of sales tax on the transfer of goods in a hire-purchase contract under the amended section 2(g) of the Act would also be contrary to the provisions of the Constitution. The decision of the Tribunal attacked in these three writ petitions, therefore, is not an error within jurisdiction but is totally without jurisdiction. The test of jurisdiction laid down in Dhulabhai v. State of Madhya Pradesh[1968] 22 S.T.C. 416 at 434 (S.C.); is at page 679 of the Reports (S.C.R.). Basing this on the previous decision in Firm of Illuri Subbayya Chetty Sons v. State of And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitions were admitted and were ordered to be heard together. At first, notice to show cause why the writ petitions be not admitted were issued. The counter-affidavits were filed showing cause why they should not be admitted. After hearing the parties, the court admitted these writ petitions, apparently after considering the merits of each case. Once this is done it would not be fair according to the observations of the Supreme Court in the above-mentioned decisions to dismiss these cases at this late stage on the preliminary ground that the petitioners have not availed themselves of the alternative remedy. In our view, an order admitting the writ petition means that the court will decide the case on merits. If the preliminary objection of law had to be considered, it should have been considered at the time of admitting the writ petitions. In the L. Hirday Narain's case(3), the Supreme Court also observed that if the High Court had not entertained the writ petition, the petitioner would have resorted to the statutory remedy before it was barred by time. Hence, in such circumstances, the High Court cannot dismiss the writ petition on the ground that it is not maintainable, because ..... 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