Jay Bharat Credit v. Commissioner of Sales-Tax and Anr.
(2000) 7 SCC 165
The appellants (A) had a business of hire-purchase. They engaged in purchasing of vehicles and then giving them on hire with the hirer paying an initial amount and then paying the rest, which includes the price of the vehicle and hire charges, in installments After the payment of the last installment the hirer is given an option to transfer the ownership of the vehicle in his/her name on the payment of a nominal charge.
The respondent sales tax authorities (R) maintained that the amount paid in installments was a part of the sale price and as such came under the ambit of taxation under the provisions of the Bengal Finance (Sales Tax) Act, 1941 as extended to the Union territory of Delhi.
ISSUE: Whether R were justified in holding that hire-purchase transactions entered into by A were liable to imposition of sales tax on the consolidated proceeds?
- Sales tax can not be levied on the full amount paid by the hirer which would include the hire charges, but the sale consideration on which tax can be imposed will only be the price of the vehicle at the time when the hirer exercises the option to purchase the same as per the amendment made to the Bengal Finance (Sales Tax) Act, 1941. The definition of sale under the Sale of Goods Act would not include a hire-purchase agreement.
- There was a violation of Ar. 14 of the constitution as hire purchase transactions had not been included under the ambit of taxation in the whole country, but only in Delhi.
High Court: favoured R
Supreme Court (favoured R)
- (w.r.t 1st contention of A) The amendment of the Act had, in effect, not altered the position from what existed prior to that date. definition of sale under section 2(g) of the act includes both terms ‘transfer of property in goods’ and transfer of goods on ‘hire purchase’ and therefore the latter is liable to be taxed as well. Sections 2(g)-definition of sale- and section 2(h)-definition of sale price- read together also leads to the same conclusion that hire-purchase charges are included in the sale price and as such come under the ambit of taxation.
- (w.r.t 2nd contention of A) Rejected on the ground that the definition of sale in the Central Sales Tax Act included hire purchase agreements and as such applied to the whole of India.
The term ‘hire and purchase’ is often used to describe the contracts which are in reality agreements to purchase chattels by installments subject to a condition that the property in them is not to pass until all installments have been paid. There is difference between two types of agreements -first where, as in the case of a hire-purchase contract, the hirer is not obliged to buy the goods at the end of the contract, whereas in the latter type of contract there is an obligation on the hirer to buy. It held that in cases where the property changes ownership, tax could be levied.