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Report No. 61

Point 5-Hire-Purchase

The question of taxation of hire-purchase agreements not resulting in sale has been raised before the Commission. The present position and possible alternatives may be briefly stated thus:-

Hire-purchase not resulting in sale

(i) The Union has the power to tax hire-purchase not resulting in sale, inter-State or within the State, under the Union List, entry 97.

(ii) The power to tax inter-State hire-purchase (not resulting in sale) under the Union List, entry 97, seems to have been exercised by the Union, vide the definition of 'sale' in the Central Sales Tax Act.

(iii) The power to tax hire-purchase not resulting in sale, within the State also vests in the Union, under Union List, entry 97 (as interpreted in the judgments of the Supreme Court).

The question whether the power should or should not be transferred to the States, is one of policy. But, for the reasons given in the Report the Commission prefers its transfer to the States. If this alternative is adopted, there are several drafting devices open, e.g.

(a) amending State List, entry 54, or

(b) adding a fresh entry in the State List, or

(c) inserting in Article 366, a wide definition of sale.

The Commission prefers the last one (amendment of Article 366), as it avoids multiple amendments. If, however, State List, entry 54 (to add hire-purchase) is amended, it is necessary also to amend Union List, entry 92A so that inter-State hire-purchase (not resulting in sale) may continue to be excluded from the purview of the States, notwithstanding the addition of hire-purchase to the State List. In case this alternative is adopted, the following could be added in the Constitution, 7th Schedule, both at the end of Union List, entry 92A and at the end of State List, entry 54 (after converting the existing full-stop into a semi-colon);

"transfer of goods on the hire-purchase or other system of payment by instalments,1 hire-purchase resulting in sale."

(iv) Whether the course at (iii) should be adopted or not, is a matter of policy, involving financial and political considerations.

(v) In the alternative, the power to tax intra-State hire-purchase could (if a policy decision to that effect is taken by the Union) be exercised by the Union, and the necessary law passed. The proceeds of the tax imposed thereunder could, then, be distributed to the States. Article 269 of the Constitution will have to be amended for the latter purpose.

This will, however, require separate legislation, as the Central Sales Tax Act is confined to tax on inter-State transactions. If this alternative is adopted, it is suggested that it will be desirable to transfer the entire power to the Union, i.e., the power to tax hire-purchase resulting or not resulting in sale (intra-State), by amending Union List, entry 92A. This will be practically convenient and check evasion.

(vi) Whether the course referred to at (v) above, should be adopted or not, is again a matter of policy, involving financial and political considerations.

1. If necessary, a non-obstante clause may be added to the effect that property need not pass.

Hire-purchase resulting in sale

(vii) Hire-purchase resulting in sale is governed by the position applicable to sale in general, except that only the sale element can be taxed under the name of sales tax. For suggestions in regard to hire-purchase resulting in sale, see (v) above.

[Chapter 1B]



Certain Problems connected with Powers of the States to Levy a Tax on the Sale of Goods and with the Central Sales Tax Act, 1956 Back




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