LAWS(DLH)-1979-4-26

GOODWILL INDIA LTD Vs. STATE

Decided On April 29, 1979
GOODWILL INDIA LTD Appellant
V/S
STATE Respondents

JUDGEMENT

(1.) THE main question referred for opinion under section 21 (1) of the Bengal Finance (Sales Tax) Act, 1941 (the Act), in this and the connected cases is whether the "hire charges" received by the applicant-finance company and other such companies from others form part of the "sale price" under the said Act so as to become liable to sales tax as a part of the turnover. THE constitutional background against which this question has to be considered is this : THEre are two different legislative powers exercised under the Constitution, namely, (1) by Parliament under article 246 (4) in respect of Union territories, and (2) by State Legislatures under article 246 (3) of the Constitution. While the power of the State Legislature in respect of taxes on sale of goods is derived from entry 54 of the State List in the Seventh Schedule of the Constitution (corresponding to entry 48 of the Provincial List in the Government of India Act, 1935), the power of Parliament in respect of Union territories to legislate as to taxes on sale of goods is derived from two sources. Under entry 92a, Parliament has power to legislate about taxes on sale of goods when such sale takes place in the course of inter-State trade or commerce. Under article 246 (4), Parliament has power to make laws with respect of any matter for any part of the territory of India not included in a State notwithstanding that such matter is a mater enumerated in the State List. THE result is that even though taxes on sale of goods are included in entry 54 of the State List, Parliament has an independent power to legislate on the said subject under article 246 (4 ).

(2.) IN State of Madras v. Gannon Dunkerley and Co. [[1958] 9 S. T. C. 353 (S. C.)], the Supreme Court held that the meaning of the words "sale of goods" in entry 48 of the Provincial List in the Government of INdia Act, 1935, corresponding to entry 54 of the State List of the Seventh Schedule of the Constitution was the same as its meaning in the Sale of Goods Act, 1930, with the result that there can be no sale until property in the goods passes. A State Legislature cannot, therefore, treat as sale any transaction which is not a sale within that meaning. But, in Mithan Lal v. State of Delhi [[1958] 9 S. T. C. 417 (S. C.)], the Supreme Court pointed out the fundamental difference between the power of Parliament in respect of Part C States, which are now called the Union territories, under article 246 (4) as compared to the power of the State Legislature under entry 54 of the State List of the Seventh Schedule. Parliament was not fettered in exercising its legislative power by the meaning of "sale" in the Sale of Goods Act. It could, therefore, treat any transaction as sale even though it would not be a sale within the meaning of the Sale of Goods Act.

(3.) IN our view, it depends entirely on the terms of a particular contract of hire-purchase as to what is to be regarded thereunder as the consideration for the transfer of goods. The point of time when the sale is concluded within the meaning of section 2 (g) in a hire-purchase contract is when the goods are transferred thereunder. It is the consideration for the transfer of goods which would be the consideration for the sale for the purpose of sales tax. IN INstalment Supply (Private) Ltd. [[1961] 12 S. T. C. 489 (S. C.)], the material terms of the hire-purchase agreement referred to at pages 492-493 appear to be similar to the terms of the hire-purchase agreement in the case before. Similarly, the terms of the hire-purchase agreement considered in K. L. Johar and Co. v. Deputy Commercial Tax Officer [[1965] 16 S. T. C. 213 at 217 to 219 (S. C.)], are also the same. The reason why the hire-purchase contracts every-where have these standard terms is obvious. The persons or companies carrying on the business of selling transport vehicles on hire-purchase agreements are not interested in buying the vehicle from the original dealer and selling it to other persons for the same price which the hire-purchase company has paid to the original dealer, i. e. , in reselling the vehicle on the same terms as the original dealer would have sold it. The price of the vehicle being fixed, the original dealer would have sold it for that price, if the price is paid simultaneously or for an enhanced price if the payment of price would be delayed. The extra charge for the delay would be either hire charges or interest on the arrears of the price depending on whether the title to the vehicle in reserved by the original dealer or is transferred to the purchaser. Since this could be done by the original dealer itself, these would not be terms on which the hire-purchase companies would do business. What the hire-purchase company does is to take advantage of the lack of funds with the hirer-cum-purchaser. The hire-purchaser contract fixes the total amount payable by the hirer-cum-purchaser which exceeds the original price of the vehicle by an amount which may be called the hire charges. If, in entering into the hire-purchase agreement, a clear distinction is made between the price for which the vehicle is sold and the hire charges which are payable only if the price for the vehicle is not paid at the time of the transfer of the goods, them it would be arguable that the hire charges should not be regarded as a part of the price of the vehicle. This argument would gather force if an option were to be given to the hirer-cum-purchaser to pay the full price of the vehicle without the hire charges at the time of the transfer of the goods or to be exempt from paying the proportionate hire charges if before the expiry of the hire-purchase period he were to pay the full price. The hire charges are for the actual period of delay in paying the full price, but they should not be payable when he exercises the option earlier than the whole stipulated period of the hire-purchase contract. On the other hand, if the whole of the amount payable by the hirer-cum-purchaser is consolidated and the instalments are made payable without giving any right to the hirer-cum-purchaser to buy the vehicle at the original price without paying the hire charges or earlier than the expiry of the whole period of the hire-purchase after paying the proportionate hire charges for that part of the hire-purchase period which is yet to expire, then no distinction can be made between the price and the hire charges. For, the whole of the amount is the consideration for the hire-purchase and, therefore, for the transfer of the goods in hire-purchase.