Judgment

ALAGIRISWAMI, J. :- The very same question that arises in these three petitions, though from a different angle, was considered by this Court in an earlier litigation to which the petitioner was a party (Instalment Supply (P) Ltd. v. Union of India, (1962) 2 SCR 644. The question is when does a sale liable to sales tax take place under a hire-purchase agreement. On the earlier occasion it was the Delhi State that sought to tax certain transactions under hire-purchase agreements. In the present case it is the Gujarat State that has sought to tax certain transactions under certain hire-purchase agreements.

2. The petitioner is a limited company with its registered office in New Delhi. It carries on the business of financing the purchase of motor vehicles. The person desiring to purchase a motor vehicle enters into a hire-purchase agreement with the petitioner company. It may be useful to give within a short compass the terms of the agreement. The company charges the hirer an initial deposit by way of premium as a consideration for granting the lease of the vehicle, which deposit becomes the absolute property of the company, the premium charged as aforesaid is a substantial amount, being usually 25% of the price in respect of new vehicles. The hirer undertakes to pay instalments and when all the instalments are paid, the vehicle becomes the property of the hirer as his option, on payment of rupee one to the company, as a consideration for the option; until all the stipulated instalments have been paid and the option exercised as aforesaid, the vehicle remains the property of the company as owners. The hirer is delivered possession of the vehicle and he remains responsible to the company for damage or destruction or loss. The hirer has to pay interest at the rate of one per cent per mensem on all sums overdue. Until the option of purchase is exercised by the hirer he is at liberty to return the vehicle and to put an end to the hiring agreement, on certain terms. Thus, under the agreement the hirer has the use of the vehicle which is entrusted to him as the property of the company, and it is open to the hirer to become the purchaser of the vehicle as aforesaid, but he is not bound to do so.

3. The liability to sales tax on the earlier occasion arose under the Bengal Finance (Sales Tax) Act, 1941, which was extended to the State of Delhi. Under Section 2 (g) of that Act Sale means any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge. There was an Explanation thereto as follows :

Explanation I. 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.

The Court pointed out that the definition includes not only what may be compendiously described as a sale under the Sale of Goods . Act, but also transactions, which ,strictly speaking, are not sales, not even contracts of sale but only contain an element of sale, that is the option to purchase, and that is the reason why the explanation ends with the words be deemed to be a sale , thereby indicating that a legal fiction has been introduced into the concept of sale as ordinarily understood, and that the explanation has included within its amplitude a mere transfer of goods without the transfer of title to the goods.

4. To the attack on behalf of the petitioner that the explanation, in so far as it sought to extend the concept of sale to what in law was not a real sale, was unconstitutional, this Court pointed out that in view of its decisions in Mithan Lal s case (1959) SCR 445 this contention had lost all its force. In Mithan Lal s case this Court upheld the right of Parliament to impose a tax on the supply of materials in building co