DESHPANDE, C. J. - (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. The Bengal Finance (Sales Tax) Act, 1941, has been applied to Delhi and is and was until 1975 the law of sales tax in Delhi. The definition of "sale" given in section 2 (g) of the said Act till 1st October, 1959, was as follows : " 'sale' means any transfer of property in goods for money consideration and includes a transfer of property in goods supplied in the execution of a contract but does not include a mortgage, hypothecation, charge or pledge; and any grammatical variations of the expression 'sale' shall be construed accordingly. Explanation 1.- A transfer of goods on hire-purchase or other instalment system of payment shall, notwithstanding that the seller retains a title to any goods as security for payment of the price, be deemed to be a sale : Explanation 2.- A sale shall be deemed to have taken place in the Sate of Delhi if the goods are actually delivered in the State of Delhi as a direct result of such sale for the purpose of consumption in the State of Delhi, notwithstanding the fact that under the general law relating to the sale of goods the property in the goods has by reason of such sale passed in another State. " The amended definition with effect from 1st October, 1959, is as follows : " 2. (g) 'sale' with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes a transfer of goods on hire-purchase or other system of payment by instalments, but does not include a mortgage or hypothecation of or a charge or pledge on goods. Explanation.- A sale or purchase of goods shall be deemed to take place inside the Union Territory of Delhi if the goods are within that territory - (i) In the case of specific or ascertained goods, at the time the contract of sale is made; and (ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. " In Instalment Supply (Private) Ltd. v. Union of India [[1961] 12 S. T. C. 489 (S. C.)], a Constitution Bench of the Supreme Court took note of the language of both these definitions, old and new, and arrived at the conclusion that under both of them a mere transfer of goods in a hire-purchase contract constituted sale for the purpose of sales tax in a Union territory. The material difference between the two definitions is the omission of the words "notwithstanding that the seller retains a title to any goods as security for payment of the price" contained in explanation 1 of the old definition, while enacting the new definition with effect from 1st October, 1959. At page 499 of the Reports, the Supreme Court held that these words merely emphasised that was already conveyed by the words that a mere transfer of goods is hire-purchase contract would be included in the definition of "sale". In K. L. Johar and Co. v. Deputy Commercial Tax Officer, Coimbatore III [[1965] 16 S. T. C. 213 (S. C.)], the Supreme Court was dealing with the Madras General Tax Act enacted by the State Legislature. Consequently, it held that the State Legislature had no competence to include in the definition of "sale" a mere transfer of goods in a hire-purchase contract. For, the meaning of sale under entry 54 of the State List being transfer of property in goods there would be no sale until and unless the property in goods passes. Since the property in goods does not pass in a hire-purchase contract by the mere transfer of goods such transfer of goods would not amount to sale under a State sales tax law. In Instalment Supply Ltd. v. Sales Tax Officer, Ahmedabad-I [[1974] 34 S. T. C. 65 at 72 (S. C.)], it was observed by the Supreme Court that after the amendment of the definition of "sale" in the Bengal Finance (Sales Tax) Act from 1st October, 1959, the type of transaction which was subject to tax in the earlier Instalment Supply case [[1961] 12 S. T. C. 489 (S. C.)] would not be subject to tax. What is the meaning of this observation ? It seems to us that two relevant changes took place in the Act on 1st October, 1959. Firstly, the explanation to section 2 (g) stated that a sale or purchase of goods shall be deemed to take place inside the Union Territory of Delhi if the goods were within that territory in the case of specific or ascertained goods at the time the contract of sale is made. Secondly, section 27 of the Act stated that nothing in the Act or the Rules made thereunder shall be deemed to impose or authorise the imposition of a tax on any sale or purchase of goods when such sale or purchase takes place either in the course of inter-State trade or commerce or outside the Union Territory of Delhi. Explanation to section 27 specifically stated that section 3, 4 and 5 of the Central Sales Tax Act, 1956, shall apply for determining whether or not a particular sale or purchase takes place in the course of inter-State trade or commerce or outside the Union Territory of Delhi. It is well-known that the Central Sales Tax Act was enacted after the amendment of article 286 of the Constitution which declared that no law of the State shall authorise or impose a tax on the sale or purchase of goods where such sale or purchase takes place outside the State and also authorised the Parliament to formulate principles for determining when a sale takes place outside the State. To implement the provisions of the amendment article 286, Parliament enacted the Central Sales Tax Act, 1956. It is to be noted that the definition of "sale" in section 2 (g) thereof has been bodily transported into section 2 (g) of the Bengal Finance (Sales Tax) Act with effect from 1st October, 1959. The explanation to the new definition of "sale" in the Act reproduces section 4 (2) of the Central Sales Tax Act. The effect is that once the sale of goods takes place inside a State because the goods are there at the time of the contract of sale that sale would be deemed to be outside all other States. Hence it is the State in which the goods are situated at the time of the contract of sale which alone would be able to levy sales tax on the goods, while other States would not be able to do so. On this view, there is no inconsistency between the decisions in Instalment Supply Ltd. v. Sales Tax Officer, Ahmedabad-I [[1974] 34 S. T. C. 65 (S. C.)], and Instalment Supply (Private) Ltd. v. Union of India [[1961] 12 S. T. C. 489 (S. C.)]. This construction of these two decisions and the law stated above is confirmed by the latest decision of the Supreme Court in Balabhagas Hulaschand v. State of Orissa [[1976] 37 S. T. C. 207 (S. C.)], in which it was expressly pointed out that sale under the Central Sales Tax Act includes an agreement of sale. In this background, it would follow that the mere transfer of goods in a hire-purchase contract amounts to a sale for the purpose of the Act in the Union Territory of Delhi, even though the property in the goods may not pass at the time the transfer of goods is made. Let us now consider the question referred to us. The hire-purchase agreement consists of two documents. At annexure C is the proposal form and at annexure D is the agreement. In the proposal form, the calculation sheet is as follows : " 1. Price Rs. . . . . . . . . . . . . . . 2. Hire purchase charges Rs. . . . . . . . . . . . . . . 3. Total hire purchase value (Add 1 and 2) Rs. . . . . . . . . . . . . . . 4. Initial hire money Rs. . . . . . . . . . . . . . . 5. Unpaid balance Rs. . . . . . . . . . . . . . . 6. Payable in. . . . . . hire instalments detailed as under : 1st payable on. . . . . . and next. . . . . . hire instalments payable on the. . . . . . day of each following month. The last payment to be made on. . . . . . " In the agreement, paragraph 4 is as follows : " 4. The owners agree that : (a) The hirer shall be at liberty at any time during the currency of this agreement to terminate the hiring by returning the vehicle to the owners at their head office at New Delhi in the same order and condition in which it was hired (fair wear and tear alone excepted) at his own cost and risk, but this shall be without prejudice to any claims or rights the owners may have in respect of this agreement. The hirer shall pay to the owners the stipulated hire up to the date of such determination including apportioned hire for any broken period of the month and 40 per cent of the balance of total unpaid hire (still to fall due), as mentioned in clause 2 thereof, as compensation to the owners for extra depreciation in the value of the vehicle. The hirer shall not be entitled to any allowance, return or credit in respect of previous payments made by him under the terms of this agreement. (b) If the hirer shall duly perform and observe all the terms and conditions in this agreement contained on his part to be performed and observed and shall, in the manner aforesaid, pay to the owners monthly sums by way of rent amounting to the sum of Rs. . . . . . in addition to the sum of Rs. . . . . . so paid on the execution of this agreement as aforesaid and shall also pay to the owners all other sums of money which may become payable to them by the hirer under this agreement, the hiring shall come to an end and the vehicle shall, at the option of their hirer, become his absolute property, but until such payments as aforesaid have been made the vehicle shall remain the property of the owners. The hirer shall also have the option of purchasing the vehicle at any time during the currency of this agreement by paying in one lump sum the balance of all the hire hereinbefore mentioned and any other expenses incurred by the owners relating to the transaction. (c) The owners shall have the right to refuse to transfer the ownership of the vehicle after they have realised their full hire amount under this agreement if the hirer has hired out another vehicle from the owners in respect of which his liability is not fully discharged or the hirer is liable to the owners for any guarantee that he may have given to the owners in respect of another vehicle hired out by the owners on the hirer's guarantee. The owners can also apply the payments against the agreement to the other agreement under which he has hired another vehicle or guaranteed the transaction of another vehicle at their sole discretion. " Shri Randhir Chawla, the learned counsel for the applicant, on the strength of these provisions argued that the total consideration for the hire-purchase consists of two distinct parts, namely, (a) price for the sale of goods, and (b) the hire charges. The total of the two is called the total hire-purchase value. He argued that the hirer has an option to pay the price and an instalment or two without having to pay the rest of the instalments to secure title to the vehicle if he can find the money to pay this much amount in one lump sum. He thus argued that the "sale price" would mean only the price proper but not the hire charges in this kind of hire-purchase contract. " Sale price" in section 2 (h) of the Act means consideration for the sale of goods. If the transfer of goods in a hire-purchase contract is the sale of goods, what is the consideration for such a transfer of goods ? Shri Randhir Chawla argued that the consideration for the transfer of goods is the price, while consideration for the hire of goods is the hire charges.
(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. In Instalment Supply (Private) Ltd. [[1961] 12 S. T. C. 489 (S. C.)], it was argued for the hire-purchase company that the hire charges were not part of the price of the goods sold. The revenue on the other hand argued that the payment of all the instalments was the total sale price. The Commissioner of Sales Tax agreed with the revenue and held that the sale tax was payable on the total amount charged by the hire-purchase company from the hirer-cum-purchaser. Before the Supreme Court, the main contention of the hire-purchase company was that a hire-purchase was not a sale within the meaning of section 2 (g) of the Act. This contention was rejected by the Supreme Court because "sale" in respect of a Union territory could be made without the property in the goods having passed. The subsequent question as to what would be the sale price in case the transfer of goods in a hire-purchase was held to be a sale was neither raised nor decided. In the K. L. Johar and Co. 's case [[1965] 16 S. T. C. 213 (S. C.)], the sale under the State legislation could be said to have occurred only when the title to the property passed. The Supreme Court had, therefore, to consider specifically the question as to what would be the sale price for the purpose of taking the sale thereunder. The court expressed the view that the sale price would neither be the total amount payable under the hire-purchase contract nor the amount of Re. 1 payable by the hirer-cum-purchaser at the time of exercising the option after having paid all the instalments under the hire-purchase contract. The sale price would rather be arrived at by splitting the total amount payable under the hire-purchase contract into two parts, namely, (a) price, and (b) hire charges, and then deducting the depreciation from the price and arriving at what would be the real price of the vehicle at the time the property passes to the hirer-cum-purchaser. Under a State legislation, this solution of the problem would have also another advantage. It would allow the hirer-cum-purchaser to claim a deduction of the payment of hire charges as a deductible expenditure and treat the payment of the price as capital expenditure for the purpose of income-tax. The distinction between the concept of sale for the purpose of State legislation and that of the legislation by Parliament resulted in the further difference that while the total consideration for hire-purchase was sale price for the purpose of parliamentary legislation, the hire charges had to be separated from the price for the purpose of State legislation. The extreme difficulty of determining when exactly the property passes in a hire-purchase contract and to determine what should be deemed to be the sale price at that moment led to great uncertainly in the sales tax laws of the States. The sales tax authorities would be required to find out the amount of depreciation of the property and to deduct that amount from the price which itself had to be distinguished from the hire charges. All these led to uncertainly and also placed the States in a less favourable position that the Union territories. To avoid this uncertainly and unintended discrimination between the States and the Union territories, the Constitution (Forty-ninth Amendment) Bill, 1979, has been introduced in Parliament to bring in line the concept of sale in a State legislation with the concept of sale in the parliamentary legislation. After the Constitution is so amended the decision in K. L. Johar and Co. [[1965] 16 S. T. C. 213 (S. C.)] would be abrogated and the law laid down in Instalment Supply (Private) Ltd. [[1961] 12 S. T. C. 489 (S. C.)] would apply not only to the Union territories but also to the States. 18. But even before the coming into force of the proposed constitutional amendment, the reasoning in K. L. Johar and Co. [[1965] 16 S. T. C. 213 (S. C.)] cannot be applied to a sales tax law enacted by the Parliament for the purpose of a Union territory. The whole basis of the ratio as to the determination of sale price in the K. L. Johar and Co. 's case [[1965] 16 S. T. C. 213 (S. C.)] is based on the fact that the sale takes place only when the title to property passes. It thus takes place long after the transfer of goods is made in hire-purchase contract. If in parliamentary legislation in a Union territory the sale is held to take place when the goods are transferred in a hire-purchase contract, it would be a contradiction in terms to say that the sale price nevertheless must not be determined for what is paid at the time the sale takes place by the transfer of goods, but should be determined at the time the property in the goods passes. The passage of property in goods is totally irrelevant. It cannot, therefore, be the basis for the determination of the sale price. The sale price must be determined to be the consideration for the transfer of goods when the transfer of goods takes place. It was not disputed either in Instalment Supply (Private) Ltd. [[1961] 12 S. T. C. 489 (S. C.)] or K. L. Johar and Co. [[1965] 16 S. T. C. 213 (S. C.)] that the total consideration for the hire-purchase contract has to be paid by the hirer-cum-purchaser once he enters into that contract. It does not matter when he pays the whole amount due thereunder in instalments or in lump sum. The amount remains the same. These terms of the hire-purchase contract take away the very basis of the argument by Shri Randhir Chawla that the total consideration in a hire-purchase contract consists of two distinct parts, namely, the price and the hire charges. Even though these two are separately mentioned in the computation sheet in the proposal form they are merged together in the agreement and no distinction is made after the merger in payment of the whole of the amount. The consideration for the sale of goods must, therefore, be the total amount which to be agreed to be paid before the transfer of goods takes place in a hire-purchase contract. Shri Randhir Chawla argued that this holding would lead to injustice. He said that the hirer-cum-purchaser, not being the owner of the vehicle till he pays up all the amounts, has to bear other incidental charges such as insurance charges, etc. These charges also would be added to the total consideration and would be liable to payment of sales tax. In our view, whatever is the total under the hire-purchase contract which has to be agreed to be paid for the transfer of goods would be the consideration for the sale of goods within the meaning of section 2 (h) of the Act. We may mention that the hire-purchase company is given an option by the definition of "turnover" in section 2 (i) of the Act. It may either show the total consideration of its sale price in the period for which the goods are transferred or if it so elects it may show different parts of sale price received during the different periods in which the actual instalments are received. In case, therefore, instalments are not fully paid the company would not be liable to pay any sales tax on those instalments which have not been realised. Under section 4 of the Act, the incidence of taxation is on the gross turnover which is the aggregate of the sale price or parts of sale price receivable. The taxable turnover is arrived at under section 5 (2) after the appropriate deductions. ;