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Report No. 61

Position in Union Territories-delhi

1B.15. Position in Union Territories-Delhi.-

By way of example of taxation on hire-purchase transactions in a Union Territory, we may take the case of Delhi to which the Bengal Finance etc. Act extends. In a judgment rendered1 in 1962, the definition of sale was quoted as follows; and, apparently, this was2 the definition as it stood in 1954.

"'Sale' means any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge.

Explanation.-A transfer of goods on the hire-purchase or other instalment system of payment shall, notwithstanding that the seller retains a title to any goods as security for payment of the price, be deemed to be a sale."

1. Instalment Supply Ltd. case, AIR 1962 SC 53.

2. See Instalment Supply Ltd. v. State of Delhi, AIR 1956 Punj 177, para. 2.

1B.16. With reference to this definition, the Supreme Court observed:

"It is clear from the definition that it includes not only what may be 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, that is, the option to purchase, and that is the reason why the Explanation ends 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. The Explanation has included, within its amplitude, a mere transfer of goods without the transfer of title to the goods, if it is in the course of an agreement of the nature of 'hire-purchase' or other instalment system of payment."1

1. Instalment Supply Private Ltd. v. Union of India, AIR 1962 SC 53 (57), para. 5.

1B.17. It was argued that the Explanation had the effect of extending the concept of "sale" to what, in law, was not a real sale and therefore, it was unconstitutional. This argument was rejected by the Court. It was pointed out that under Article 246(4) of the Constitution, it was Parliament which had the power to legislate for Part C States, that the power was untrammeled by the limitations prescribed by Article 246, clauses (2) and (3), or State List, entry 54, that the power of Parliament was plenary and absolute, subject only to such restrictions as are imposed by the Constitution, and there was no restriction which was material to the present question. It was, therefore, competent for the Sale of Goods and with the Central Sales Tax Act, 1956 Parliament to impose a tax on hire-purchase transactions for Part C States and to impose it under the name of "sales tax".

1B.18. The Court stated that in Mithan Lal v. State of Delhi, AIR SC 682 SCC 417, a similar question had arisen, namely, whether Parliament can enact a law imposing tax on the supply of materials used in building contracts in Part C States. It had been held by the Court, for the same reasons, that it was within the competence of Parliament to impose such a tax. The Court also observed that the decision in the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., Gannon Dunkerley & Co. (in re:), AIR 1956 SC 379: 9 STC 353, was inapplicable in relation to Part C States. That decision had been given on a statute passed by the Provincial Legislature under the Government of India Act, 1935, and it had been pointed out in that case that the power of the Provincial Legislature to impose a tax on sales under Provincial Entry 48 in Schedule VII of the Government of India Act, 1935, did not extend to imposing a tax on the value of the materials in building contracts which are entire and indivisible.

1B.19. Definition in Bengal Act as extended to Delhi before 1959.-

The definition of "sale" in the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi, was as follows before 1959:

"(g) 'sale' means any transfer of property 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 variation 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 seller 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 taken 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."

1B.20. Amendment of 1959.-

In 1959, the Explanation relating to hire-purchase (in the Bengal Act as extended to Delhi) was removed by a Central Act. The Statement of objects and Reasons to the Bill which led to the Amendment Act stated1:

"Sub-clauses (c) and (d)-The definitions of 'sale' and 'sale price' have been revised so as to be in conformity with the definitions in the Central Sales Tax Act, 1956."

The definition as substituted was as follows:-

"(g) 'sale' with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash 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 of 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."

1. Central Act 20 of 1959.

1B.21. Present position.- This then is the present position as to hire-purchase.



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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