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Report No. 61

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 Control Sales Tax Act.

(iii) The power to tax hire-purchase within the State also vests in the Union, under Union List, entry 97 (as interpreted in the judgments of the Supreme Court. Whether this power should be transferred to the State is a question of policy. But in the Commission's view, a broad view1 should be taken of the legislative entries, and fine nuances need not matter, and the Commission prefers allotting the power to the States (by amending the Constitution). The question is ultimately one of policy, as already stated.

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, as avoiding multiple amendments.

1. C.f. discussion as to works contract.

Under the drafting device at (a) above, it will be necessary to amend State List, entry 54 (to add hire-purchase), but at the same time 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 proposed addition of hire-purchase to the State List. Under this device, it will be necessary to add the following in 7th Schedule, both at the end of Union List, entry 92 A 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, hire-purchase resulting in sale."

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

The non-obstante clause would be as follows:

"transfer of goods on the hire-purchase or other instalment system of payment, notwithstanding the fact that the transferor retains the title in the goods as security for payment of the amount stipulated"1.

1. As to the non-obstante clause, of section 2(h), Explanation 1. Madras General Sales Tax Act (Madras Act 9 of 1939) quoted in K.L. lobar & Co. v. Dy. C.T.O., AIR 1965 SC 1082 (1086) (on appeal from AIR 1958 Mad 561).

The second device (b) above would be to add fresh entries-say, State List, entry 54A and Union List, entry 92B.

The third device would be to add a wide definition of "sale" in Article 366.

The Commission prefers the last device3 (c) above as it avoids multiple amendments.

(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, so as to have an expanded definition of "sale".

It will be desirable, in this, case, to have separate taxing 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 (inter-State). This will be practically convenient, and check evasion.

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

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 tax1.

1. For a suggestion in regard to hire-purchase resulting in sale, see (v) above.

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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