M/S.
Jay Bharat Credit and Investment Pvt. Ltd. Vs. Commissioner of Sales-Tax &
ANR[2000] INSC 419 (9 August 2000)
B.N.KIRPAL,
J., S.N. PHUKAN. J., & RUMA PAL. J.
KIRPAL,
J.
L.I.T.J
The only question which arises for consideration in all these cases is: Whether
the respondents were justified in holding that hire purchase transactions
entered into by the appellants were liable to imposition of sales tax on the
consolidated proceeds? The appellants carry on the business of hire purchase.
They
enter into agreements with hirers for the purpose of enabling the hirers to
bobtain a vehicle. The normal term of the agreement entered into between a
hirer and the appellant contemplates a vehicle being purchased by the appellant
and the said vehicle is then taken by the hirer on hire purchase basis.
The
terms of the agreement provide that on the execution of the hire purchase
agreement an initial amount is paid by the hirer by way of premium for granting
a lease and thereafter regular instalments are required to be paid. The amount
which is paid by the hirer would include the price of the vehicle and the hire
purchase charges. As and when all the instalments are paid, the hirer is given
an optio to obtain the ownership of the vehicle on the payment of a nominal
amount. On the payment being so made, the vehicle is transferred in the name of
the hirer.
As
already indicated above, the sales tax authorities came to the conclusion that
on the correct interpretation of the provisions of the Bengal Finance (Sales
Tax) Act, as extended to the Union Territory of Delhi (hereinafter referred to
as "the Act"), as in force at the relevant time, the time being
between 1.10.1959 and the coming into force of the Delhi Sales Tax Act in 1975,
the finance charges would be regarded as a part of the sale price. On the
Financial Commissioner coming to the aforesaid conclusion, the question of law
was referred to the High Court who affirmed the decision of the sales tax
authorities. Hence, these appeals by special leave.
It
has been contended by the learned senior counsel for the appellants that with
the amendement in the Bengal Finance (Sales Tax) Act, 1941 with effect from 1st
October, 1959, in the case of hire purchase agreements sales tax can be levied
not on the full amount paid by the hirer which would include the fire charges,
but the sale consideration on which tax can be imposed will only be the price
of the vehicle at the time when the hirer exercises the option to purchase the
same. It was submitted by the learned senior counsel that under the Sale of
Goods Act, the definition of the word "sale" would not include or
take within its ambit a hire purchase agreement. Delhi being a Union Territory,
the Parliament could in exercise of its powers under Entry 97 of List 1 of the
Seventh Schedule of the Constitution regard a hire purchase agreement as a sale
and tax can be levied but with the amendment made in 1959 the tax is leviable
only on the sale and the amount paid towards hire charges cannot be included in
the sale price. In support of this contention, our attention has been drawn to
three decisions of this Court to which we shall presently refer.
In
order to appreciate the contention of the learned senior counsel for the
appellants, we may refer to the definition of the word "sale" as
occurring in the Act before 1.10.1959, after 1.10.1959 and under the Delhi
Sales Tax Act, 1975. The said definition is as follows :
Under
the Bengal Finance (Sales Tax) Act, 1941 as extended to Delhi.
BEFORE
1.10.1959 "2(g) - "Sale" means any transfer of properrty in
goods for money consideration and includes a transfer of property in goods
supplied in the execution of a contract but does not include a mortgage,
hypothecation, charge or pledge; and any grammatical variations of the
expression 'sale' shall be construed accordingly.
Explanation-1.
A transfer of goods on hire-purchase or other instalment system of payment
shall, notwithstanding that the saller retains a title to any goods as security
for payment of the price, be deemed to be a sale;
Explanation-2.
A sale shall be deemed to have tken place in the State of Delhi if the goods
are actually delivered in the State of Delhi as a direct result of such sale
for the purpose of consumption in the State of Delhi, notwithstanding the fact
that under the general law relating to the sale of goods the property in the
goods has by reason of such sale passed in another State." Under the
Bengal Finance (Sales Tax) Act, 1941 as extended to Delhi.
After
1.10.1959.
"2(g)
- "Sale" - with its grammatical variations and cognate expressions,
means any transfer of property in goods by one person to another for case or
for deferred payment or for any other valuable consideration and includes a
transfer of goods on hire-purchase or other system of payment by instalments,
but does not include a mortgage or hypothecation of or a charge or pledge on
goods.
Explanation
- A sale or purchase of goods shall be deemed to take place inside the Union
Territory of Delhi if the goods are within that territory - (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."
Under Delhi Sales Tax Act, 1975 "2(1) - "Sale", with its
grammatical variations and cognate expressions, means any transfer of property
in goods by one person to another for case or for deferred payment or for any
other valuable consideration, and includes:- (i) a transfer of goods on
hire-purchase or other system of payment by instalments, but does not include a
mortgage or hypothecation of or a charge or pledge on goods;
(ii)
supply of goods by a society (including a co-operative society), club, firm or
any association to its members for case or for deferred payment, or for
commission, remuneration or other valuable consideration, whether or not in the
course if business; and (iii) transfer of goods by an auctioneer referred to in
sub-clause (iv) of clause (e);
It
would also be relevant to refer to the definition of the expression "sale
price" occurring in Section 2(h) of the Act which reads as follows :
"Sale
price", means the amount payable to a dealer as consideration for the sale
of any goods, less any sum allowed as cash discount according to the practice
normally prevailing in the trade, but inclusive of any sum charged for anything
done by the dealer in respect of the goods at the time of or before the
delivery thereof other than the cost of freight or deliverry or the cost of
installation in cases where such cost is separately charged." In
Instalment Supply (p) Ltd. and Another vs. The Union of India and Others, 1962
(2) SCR 644, the challenge was to the levy of sales tax on hire purchase
transactions, similar to the ones in the present case. M/s. Instalmentt Supply
(P) Ltd., which is also an appellant in one of these appeals, was carrying on
the business of hire purchase and had entered into hire purchase agreements
with different hirers. It was sought to be contended in a petition underr
Article 32 of the constitution that sales tax could not be levied on hire
purchase transactions because hire purchase was not 'sale' within the meaning
of that expresion under the Sale of Goods Act. While upholding the validity of
Explanation I, this Court first considered what is the true nature and
character of a hire purchase agreement.
After
adverting to definition of the word "sale" this court observed that
the transaction in question partakes of the nature of a contract of bailment
with an element of sale. It held that the definition in Section 2(g) included
not only what was compendiously described as a sale under the Sale of Goods
Act, but also transactions, which, strictly speaking, are not sales, not even
contracts of sale but only contain an element of sale which is the option to
purchase and that is why the Explanation to Section 2(g) ended with the words
"be deemed to be a sale", thereby indicating that a legal fiction has
been introduced into the concept of sale as ordinarily understood. It was
clarified that the Explanattion included within its amplitude a mere transfer
of goods without the transfer of title to the goods if it was in the course of
an agreement of the nature of hire purchase.
While
explaining the nature of the hire purchase agreement, the Court took note of
the fact that in such an agreement, the hirer may not be bound to purchase the
thing hired. It was observed as follows :
"It
is clear, therefore, that in addition to the contract of hiring an option has
been given to the hirer to purchase or not to purchase. The more serious
question on this part of the petitioners, contention is whether the non
obstante clause in the explanation "notwithstanding that the seller
retains a title to any goods as security for payment of the price" governs
the main clause of the explanation. In our opinion it does not. The non
obstante clause has been added only to emphasise the categorical statement of
the law contained in the main clause to the effect that a transfer of goods on
hire-purchase, etc., shall be deemed to be a 'sale' even though there may be a
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, complettion of title at the option of the hirer." The Court
then concluded, on interpreting the said provisions, that the agreement in
question contained not only a contract of bailment simplicitor 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.
Another
ground of attack in that case was based on Article 14 of the Constitution. It
was submitted that though the Parliament may have had the power to tax
something which was not strictly speaking a sale, the said law was
discriminatory against the traders in Delhi as such a law has not been made
applicable to whole of India. This contention was rejected firstly on the
ground that it had not been averred that other Part 'C' States had not been
similarly treated, but what is important for our purposes in the present case,
the Court took note of the fact that under the Central Sales Tax Act, the
definition of the word "sale" contained the extended definition as in
the Delhi Act without the non obstante clause. Section 2(g) of the Central Sales Tax Act,
1956 to which reference was made reads as follows :
"Sale'
with its grammatical variations and cognate expressions, means any transfer of
property in goods by one person to another for case or for deferred payment or
for any other valuable consideration, and includes a transfer of goods on the
hire purchase or other system of payment by instalments, but does not include a
mortgage or hypothecation of or a charge or pledge on goods".
After
referring to the same, the Court observed as follows:
"It
would, thus appear that hire-purchase transactions have been included within
the definition of 'sale' for the purpose of Central Salex 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. In our opinion, therefore, there in no
substance in the contention that the extended definition of 'sale' in the main
statute infringes Art.
14
of the Constitution." Definition of "sale" in the Central Sales Tax
Act is similar to that which was applicable in Delhi with effect from
1.10.1959.
After
reading the aforesaid judgment, it leaves no manner of doubt that this Court in
unequivocal terms came to to the conclusion that as far as Delhi was concerned,
it being a Part 'C' State at that point of time, the Parliament could enact a
law which had the effect regarding a hire purchase agreement as a sale even
though under the Sale of Goods Act it could have been so regarded. The
definition of the word "sale" under Section 2(g) had been expanded
and was to include a hire purchase agreement. The hire purchase agreement had
two elements : one being the element of bailment and the other being the
element of sale at the option of the hirer. By referring to the Central Sales Tax Act,
the contention based on Article 14 was rejected, the implication clearly being
that even without the non-obstante clause the position was similar to that
which was there in the Delhi Act, namely, a hire purchase transaction could be
regarded as a sale for the purpose of Sales Tax Act.
After
the amendement of the Act on 1st October, 1959, the words "transfer of
goods on hire-purchase or other system of payment by instalments" occurring
in Explanation I in the original Section 2(g) were incorporated in the main
part of Section 2(g). The non obstante words occurring in Explanation I in the
unamended Section were excluded. It is because of this change that the learned
senior counsel for the appellants have contended that now with the amendment on
1st October, 1959 there can be sale in a hire purchase agreement only when the
hirer exercised the option and the transfer of property takes place and the
effect of that would be that it is only the price of the article, namely, the
vehicle, which can be subjected to sales tax hire charges cannot be included
therein.
In
support of this contention, learned senior counsel has sought to place reliance
on the second case of the Instalment Supply Co. entitled Instalment Supply Ltd.
vs. The Sales Tax Officer, Ahmedabad-I & Ors, 1975 (1) SCR 386, That was a
case where the State of Gujarat in the case of a hire purchase agreement
between the hirer and the Instalment Supply Co. sought to tax the sale of the vehicle
when the hirer exercised his option to purchase the same. At that time the
goods were inside the State of Gujarat. The Gujarat Act being a State
enactment, did not enable that State to tax transfer of goods on hire purchase
but tax was sought to be levied at the time when the hirer had exercised his
option to obtain the ownership of the vehicle. This Court dealt at length with
the meaning of a hire purchase agreement. It observed that at common law the
term hire purchase properly applied to contracts of hire conferring an option
to purchase, but it was often used to describe the contracts which were in
reality agreements to purchase chattels by instalments subject to a condition
that the property in them is not to pass until all instalments have been paid.
It recongnised the difference between two types of agreements - first where, as
in the case of a hire purchase contract, the hirer is not obliged to buy. In
both the cases, however, the property remains with the financier and the
ownership passes only when the hirer exercises the option in the case of hire
purchase agreement, or in the second type of agreement when all the instalments
are paid. Even though in the Gujarat Act sales tax could not be imposed on a
contract of hire purchase but this Court held that at the time when the sale
fructifies, with the hirer exercising thee option to purchase, tax could be
levied on that event. It was also obseved that there in no rule that any goods
could be subjected to tax only once, the implication clearly being that whereas
under the Delhi Act the contract of hiree purchase would attract sales tax at
the time when the contract is entered into but under the Gujarat Sales Tax Act
the value of the vehicle could be taxed att the time when option to purchase
was exercised under the same contract.
Mr.
Vellapally, however, placed strong reliance on the following observations of
this Court in the second case of Instalment Supply Ltd. (supra) when at page
393 it was observed as follows:
"We
may however point out that the definition of "sale" in the Bengal
Finance (Sales Tax) Act applicable to the State of Delhi has been amended in
1959 by Act 20 of 1959 and reads as follows:
"Sale",
with its grammatical variations and cognate expressions means any transfer of
property in goods by one person to another for case or for deferred payment or
for any other valuable consideration, and includes a transfer of goods on
hire-purchase or other system of payment by instalments, but does not include a
mortgage or hypothecation of or a charge or pledge on goods.
Explanation.
- A sale or purchase of goods shall be deemed to take place inside the Union
Territory of Delhi if the goods are within that territory - (i) in the case of
specific or ascertained goods, at the time the contract of sale is made; and
(ii) in thee 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."
Learned senior counsel submits that by equating the two provisions of the Acts,
we must give to the Sales Tax Act applicable in Delhi after 1st October, 1959 the same meaning as was given to the Gujarat Act.
It
appears to us that the aforesaid observations were by way of an obiterr. This
court was not called upon to consider the effect of the amendment made to the
Delhi Act in 1959. This court was only concerned with a question whether the
State of Gujarat could levy any sales tax at the time when the hirer exercises
his option to purchase the vehicle which happened to be in Gujarat at the time
when the option was so exercised and despite the fact that sales tax had
already been paid on the hire purchase transaction in Delhi earlier. The
observations quoted above were merely to the effect that after the amendment
there would be no case of taxation at two stages. The aforesaid decisions can
be of no assistance to the appellants.
Our
attention was also drawn to K.L. Johar and Company vs. Deputy Commercial Tax
Officer, 1965 (2) SCR 112. We are unable to see how that case can be of any
assistance. The Court there was concerned with the validity of Explanation I to
Section 2(h) of the Madras General Sales Tax Act which purported to include a
hire purchase transacttion within the meaning of the term "sale".
This court held that explanation I was beyond the competence of the State
Legislature and the same was acordingly struck down. The Court then dealtt with
the question as to whether a hire purchase agreement ever ripened into a sale
and if so when. It took note of the fact that a hire purchase agreement had two
elements, namely, the element of bailment and the element of sale, in the sense
that it contemplates an eventual sale. The Court came to the conclusion that a
sale does take place and the same could be taxed when the hirer exercises the
option to purchase the vehicle. With regard to the price at which the
transaction would be regarded as having been entered into, the Court observed
that the hire charges have to be excluded and the price of the vehicle worked
out. The said decision, as we have already observed, can be ofno assistance
because the State of Madras, as it then was, had no legislative competence to
seek to tax a hirepurchase agreement to sales tax whereas in Delhi such a
transaction could be subjected to tax and the same had been specifically upheld
by this Court in the first case of Instalment Supply (P) Ltd. (supra).
It
appears to us that the amendment of the Act on 1st October, 1959 has, in effect, not altered the position from what existed prior to that date and even
after the amendment the principle laid down by this Court in the first case of
Instalment Supply Co. (supra) would continue to hold goods.
We
would like to point out that Section 2(g) uses two expressions, namely,
"transfer of property in goods" and "transfer of goods on
hire-purchase". If the latter part relating to hire purchase had not been
there, there can be little doubt that the principle enunciated by this Court in
K.L.
Johar's
case (supra) would have clearly been applicable, the hire purchase agreement
itself would have been taxable and tax could have been levied only at that time
when the option was exercised.
This
definition of the word "sale", the first part of which is in pari
materia with the Sale of Goods Act, was expanded so as to include a transfer of
goods on hire purchase or other system of payment by instalments. In the latter
portion, in order that the tax is levied there is no requirement that the
property in goods should be transferred. What is required is transfer of goods,
unlike the first part of this definition which requires transfer of property in
goods. The reason for this is very obvious. In the case of hire purchase, there
are two elements, namely, that of bailment and an element of sale and when a
hire purchase agreement is entered into there is transfer of goods on hire
purchase which would not include, at that point of time, any transfer of
property in the said goods. If the contention of the learned senior counsel for
the appellants is accepted, the effect of that would be that the latter portion
of the definition could be otiose. If the definition of Section 2(g) was to
include within its ambit only that transfer which takes place at the time of
purchase when the option is exercised, then it would nott have been necessary
to widen the scope of the definition to include transfer of goods on hire
purchase and to provide for it separately.
Coming
to the definition of the expression "sale price" we find that if we
substitute the defined meaning of the word "sale" occuring in Section
2(g) into the said Section 2(h), it would in effect read as follows : sale
price means the amount payable to a dealer as consideration for transfer of
goods on hire purchase". The word "sale" occurring in Sec. 2(h)
must have the meaning ascribed to it as in Section 2(g) when the word
"sale" includes transfer of goods on hire purchase, then whatever is
the amount which is paid/payable to the dealer on such a transfer would be
included within the meaning of the expression "sale price" in Section
2(h). This being so, the sales tax authorities in the present cases were
justified in including in the turnover of the appellants the hire charges as
provided for in the hire purchase agreements.
For
the aforesaid reasons, we affirm the decision of the High Court and dismiss
these appeals. There will, however, be no order as to costs.
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