STATE OF KERALA Vs. MODERN PLASTIC INDUSTRIES

JUDGEMENT

(1.) THE one and only question that need engage our attention in this appeal is whether in entering into what purported to be a hire-purchase agreement with the defendant, the State of Kerala, the plaintiff was really entering into a financing arrangement in regard to the purchase of a machinery for his business. THE Court below has said that though apparently the arrangement between the plaintiff and the defendant was one of hire-purchase, in fact and in substance it was only a financing arrangement and therefore when the Government, pursuant to the hire-purchase agreement, purported to transfer the machinery ultimately to the plaintiff it was not selling the machinery and therefore any sales tax which the plaintiff was compelled to pay to the Government would not be a proper levy. For that reason the plaintiff has obtained a decree for recovery of a sum of Rs. 9,670 and interest thereon which he had to pay as sales tax at the instance of the officers of the defendant.

(2.) THE plaintiff started a business of manufacture and sale of plastic products. THE plaintiff's firm applied to the Joint Director of Industries and Commerce for a loan of Rs. 1,00,000 for purchase of an injection moulding machine at an estimated cost of Rs. 1,15,000. While the plaintiff was to be financed to the extent of Rs. 1,00,000 by the State the balance was to be met by the plaintiff-firm. After negotiations with M/s. R. H. Windser (India) Ltd. , the purchase of the machine was arranged for a price of Rs. 1,42,982. Rs. 42,982 was provided by the plaintiff and the rest by the State by way of loan. A hire-purchase agreement was also executed between the parties on the usual terms with obligation in the plaintiff to pay hire money in instalments and with option to purchase. THE defendant had the right to take possession of the machinery in case of default in the payment of hire money. THE machinery was at Alleppey and the agreement contemplated a transfer in the plaintiff's name after a period of 3 years if the plaintiff so desired. But the plaintiff wanted such transfer after a period of two years evidently because he wanted to shift the machinery from Alleppey. That was allowed by exhibit B 5 order dated 1st March, 1971, and that is how the plaintiff came into complete control of the machinery. On payment of the amount due to the State the plaintiff was discharged of all obligations. THEre was only one controversy, the liability to pay sales tax insisted upon by the State and denied by the plaintiff. Nevertheless the plaintiff paid it, and filed the suit claiming the money back.

(3.) THE learned counsel for the State referred to clause 6 of the agreement, exhibit B 1, in support of his case that the plaintiff had undertaken to pay sales tax and therefore he could not now contend that he is not liable to pay tax. A reading of the clause would show that there is no specific undertaking to pay sales tax but the obligation is to pay such taxes as are levied or leviable. If in law the plaintiff was not liable to pay tax that could not be imposed by reason of an arrangement reached under exhibit P 1. THE clause does not create a liability which does not independently exist. THErefore that clause is also of no avail to the defendant, the State. In the circumstances we are in agreement with the Court below that the suit is to be decreed. THE appeal is dismissed with costs. .