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1979 Supreme(Pat) 228
PATNA HIGH COURT
Shiveshwar Prasad Sinha and B.S.Sinha JJ.
Commissioner Of Commercial Taxes
Versus
L.N.Agrawal
Taxation No. 32 of 1970 ;
Decided On : OCTOBER 17, 1979
Transfer of goods on hire-purchase with the ultimate object of passing the property in the goods to the hirer is deemed to be a resale and not a utilization of the goods for a purpose other than resale.
Headnote:
HIRE-PURCHASE - RESALE - SECOND PROVISO TO SECTION 7 (2) (B) OF THE BIHAR SALES TAX ACT, 1959 - APPLICABILITY - TRANSFER OF GOODS ON HIRE-PURCHASE - WHETHER RESALE - WHETHER UTILISATION FOR PURPOSE OTHER THAN RESALE - WHETHER SECOND PROVISO ATTRACTED.
Fact of the Case:
The assessee, a registered dealer, transferred some of his goods under hire-purchase agreements, which goods he had purchased after giving declarations in form IX of the Sales Tax Rules that he was purchasing them for resale in the State of Bihar. The Superintendent of Commercial Taxes held that the transfers of goods under the hire-purchase agreement were not resales and, consequently, the declarations given by the dealer in form IX were false. Such transactions on hire-purchase were accordingly included in the taxable turnover of the dealer in terms of the second proviso to section 7 (2) (b) of the Act. On appeal, the Deputy Commissioner of Commercial Taxes agreed with the Superintendent of Commercial Taxes that transfers of goods on hire-purchase agreement were not resales, but since all such transfers, except one, had materialised into actual sales, the mischief of the second proviso to section 7 (2) (b) of the Act was not attracted to this case. The Commercial Taxes Tribunal held that even in a hire-purchase agreement, one of the aspects is that all sales fructify into option to purchase by the intending purchaser.
Finding of the Court:
The court held that the transfer of goods on hire-purchase was for resale and, therefore, there was neither any question of violation of the terms of the declarations furnished by the purchasing dealer in form IX of the Rules, nor any question of applying the second proviso to section 7 (2) (b) of the Act could arise.
Issues: 1. Whether, in the facts and circumstances of the case, the transfer of goods on hire-purchase amounted to resale as contemplated under the Bihar Sales Tax Act, 1959 (Act 19 of 1959)? 2. Whether, in the facts and circumstances of the case, the second proviso to section 7 (2) (b) of the Bihar Sales Tax Act, 1959 (Act 19 of 1959), was applicable?
Ratio Decidendi: The court observed that the explanation to section 2 (p) of the Act, which deemed transfer of goods on hire-purchase to be a sale, was ultra vires the Bihar Legislature and could not be relied upon to determine the nature of the transaction. The court further held that the substance of the transaction, rather than its form, determines whether the second proviso to section 7 (2) (b) of the Act is applicable. If the ultimate object of the hire-purchase agreement is to pass the property in the goods to the hirer, it cannot be said that the goods have been utilized for a purpose other than resale.
Final Decision: The court answered the first question in the affirmative and the second question in the negative. The dealer was entitled to costs.
S. P. Sinha, J.
1. At the instance of the Commissioner of Commercial Taxes, Bihar, Patna, the Commercial Taxes Tribunal has made a reference under section 33 (1) of the Bihar Sales Tax Act, 1959, hereinafter referred to as the Act, the following two questions of law, which are common for all the five periods of assessments:
(1) Whether, in the facts and circumstances of the case, the transfer of goods on hire-purchase amounted to resale as contemplated under the Bihar Sales Tax Act, 1959 (Act 19 of 1959)?
(2) Whether, in the facts and circumstances of the case, the second proviso to section 7 (2) (b) of the Bihar Sales Tax Act, 1959 (Act 19 of 1959), was applicable?
2. The aforesaid two questions, in substance, mean, whether the transfer of goods on hire-purchase by the dealer would be deemed to have been for the purpose of resale or whether such transfers would be deemed to have been made in violation of the declaration given by the dealer in form IX of the Bihar Sales Tax Rules.
3. It may be stated that under section 7 of the Act, for the purpose of computing the taxable turnover of a registered dealer, certain types of sales are deducted from the gross turnover and only the balance is then determined as the taxable turnover. One of such deductions, in respect of special sales tax, as laid down under sub-section (2) of section 7 is, where the registered dealer sells good for resale by the purchasing dealer inside Bihar, the goods being specified in the latters registration certificate. This is, however, subject to what is stated in the second proviso to section 7 (2) (b) of the Act, which reads as under: provided further that where any goods exempted from the levy of tax by a notification issued by the State Government in this behalf under subsection (3) of section 4 are purchased by a dealer after furnishing declaration mentioned in the notification or where any goods, specified in the certificate of registration of a dealer, are purchased by him after furnishing a declaration as provided in the first proviso of clause (2) but are utilised by him for any purpose other than those specified in such a notification or specified in item (i) or (ii) of sub-clause (b) of clause (2), as the case may be, the sale price of the goods so purchased shall, without prejudice to any action which is or may be taken under section 38, be deducted from the gross turnover of selling dealer but shall be included in the taxable turnover of the purchasing dealer.
4. Sub-clause (i) referred to in the above quotation is in respect of resales by the purchasing dealer inside Bihar which are to be deducted in computing the purchasing dealers taxable turnover.
5. The reference to section 38, in the above quotation, is a reference to the penal provisions under the Act which makes the offence of violation of the declaration made in form IX of the Bihar Sales Tax Rules an offence punishable with imprisonment or fine or both.
6. The two questions referred for opinion of this Court have arisen because, according to the Superintendent of Commercial Taxes, the transfer of goods on hire-purchase by the dealer did not amount to resale and, consequently, there was a violation of the declaration given by the dealer while purchasing the goods, thereby attracting the second proviso of sub-section (2) (b) of section 7 of the Act. According to the Deputy Commissioner of Commercial Taxes also, who heard the appeals against the assessments, transfer of goods on hire-purchase did not amount to resale, until the agreement of hire-purchase had ripened into sale. Since all the hire-purchase agreements, except one, in all the five periods of assessment had ripened into sales, according to the Deputy Commissioner of Commercial Taxes, the second proviso to section 7 (2) (b) of the Act was not attracted.
7. According to the Commercial Taxes Tribunal, however, transfer of goods through hire-purchase amounted to resale and, therefore, there was neither any question of vio
