INSTALMENT SUPPLY PRIVATE LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) The petitioners have moved this Court under Art. 32 of the Constitution for a writ or order in the nature of mandamus and/or prohibition and/or other suitable writ, order or direction to the respondents not to levy, charge or collect any sales tax on transactions of what the petitioners characterised as hire-purchase agreements, a typical example which is contained in Annexure 'A' to the petition, to be hereinafter examined in detail.

(2.) The first petitioner is a private limited company incorporated under the Companies Act, with its registered office at Janpath, New Delhi. The second petitioner is the Managing Director and share-holder of that company and is directly interested in the result if this application, because it is claimed that his rights and property are directly involved. The company has been carrying on in Delhi the business of financing the purchase of new as well as second-hand motor cars and other kinds of motor vehicles. The system adopted by the Company for financing a purchase such as aforesaid is as follows. A person desiring to purchase a motor vehicle fixes a bargain with the owner and the petitioner Company would then advance the necessary finance on the terms and conditions appearing in a printed copy of the agreement, marked Annexure 'A' to the petition. According to that agreement, the Company charges the 'Hirer' an initial deposit by way of premium as a consideration for granting the lease of the vehicle, which deposit becomes the absolute property of the Company; the premium charged as aforesaid is a substantial amount, being usually 25% of the price in respect of new vehicles. The 'Hirer' undertakes to pay instalments and when all the instalments are paid, the vehicle becomes the property of the 'Hirer' at his option; on payment of rupee one to the Company, as a consideration for the option ; until all the stipulated instalments have been paid and the option exercised as aforesaid, the vehicle remains the property of the Company as owners. The 'Hirer' is delivered possession of the vehicle and, he remains responsible to the Company for damage or destruction or loss. The 'Hirer' has to pay interest at the rate of one per cent. per mensem on all sums overdue. Until the option of purchase is exercised by the 'Hirer', he is at liberty to return the vehicle and to put an end to the Hiring Agreement, on certain terms. Thus, under the agreement, the 'Hirer' has the use of the vehicle, which is entrusted to him as the property of the Company, and it is open to the'Hirer' to become the purchaser of the vehicle as aforesaid, but he is not bound to do so. The hire-money received by the Company, it is contended , is not a part of the price of the goods sold and is thus not liable to he taxed as sale-price. The Bengal Finance (Sales Tax) Act, 1941 (Bengal Act. VI of 1941) was extended to the State of Delhi, which is now the Union Territory of Delhi. In pursuance of the provisions of that Act, the Sales Tax authorities started demanding and levying sales tax on all transactions of the nature aforesaid on the ground that the instalments paid by the hirers to the Company were sales-price and, therefore, liable to Sales Tax. The Company challenged the right of the Sales Tax authorities to levy any such tax on the ground that the law was beyond the competence of the legislature. Ultimately, the Company moved the Punjab High Court (Circuit Bench at Delhi) under Arts. 226 and 227 of the Constitution. In the Writ Petition, which was registered as Civil Writ Application No. 289-D of 1954, the Company prayed for a writ in the nature of prohibition and/or mandamus restraining the respondent from realising or levying any sales tax under the provisions of the Bengal Act, extended to Delhi. There was also a prayer for a writ of certiorari quashing certain orders passed by the Sales Tax authorities in 1953-54. The said application was heard by a Division Bench, which allowed the petition and issued a mandamus to the State to forbear from enforcing its notice for the realisation of the Sales Tax. It was held by the High, Court that the State Legislature had not the power to enlarge the meaning of the words "Sale of goods" by going beyond the meaning attached to it by the Sale of Goods Act. After the judgment aforesaid of the High Court of Punjab, it is further alleged, a settlement was arrived at between the companies carrying on hire-purchase business in Delhi and the Commissioner of Sales Tax, who issued a circular, being Circular No, 10 of 1956, containing the following decisions of the Department:-

(3.) On receipt of the answer of the Department, as set out in the previous paragraphs, the petitioners moved this Court under Art. 32 of the Constitution on the ground that the "threatened action of the respondents is illegal and unconstitutional as the petitioner company is not liable to pay sales tax on the transactions" described above.