TMI Blog1960 (11) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... M.C. Setalvad, Attorney-General for India (Kanhaiyaji and S.P. Varma, Advocates, with him), for the appellants. A.V. Viswanatha Sastri, Senior Advocate (Suresh Aggarwala and D.P. Singh, Advocates, with him), for the respondent. -------------------------------------------------- The Judgment of the Court was delivered by SINHA, C.J.- This appeal, by special leave, is directed against the judgment and order of the High Court of Patna dated July 13, 1956, disposing of a reference under section 25(1) of the Bihar Sales Tax Act, 1947, which hereinafter will be referred to as the Act, made by the Board of Revenue, Bihar. The facts of this case have never been in dispute and may shortly be stated as follows. The appellant is a Corporation incorporated under the Damodar Valley Corporation Act (XIV of 1948) and will hereinafter be referred to as the Corporation. It is a multi-purpose Corporation one of its objects being the construction of a number of dams in Bihar and Bengal with a view to controlling floods and utilising the stored water for purposes of generation of electricity. One of such dams is the Konar Dam in the district of Hazaribagh in Bihar. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessment. By his order dated May 5, 1953, the Deputy Commissioner rejected the contention of the appellant as to its liability under the Act, but made certain amendments in the assessment, which are not material to the points in controversy before us. The Deputy Commissioner repelling the Corporation's contentions based on the Act, held inter alia that the supply of equipment in Group A of the agreement aforesaid amounted to a sale and was not a hire, that the condition in the agreement for the "taking over" of the equipment on conditions laid down in the agreement was in its essence a condition of re- purchase and that the Corporation was a "dealer" within the meaning of the Act. The Corporation moved the Board of Revenue, Bihar, in its revisional jurisdiction under section 24 of the Act. The Board of Revenue by its resolution dated October 1, 1953, rejected the revisional application and upheld the order of the authorities below. Thereafter, the Corporation made an application to the Board of Revenue under section 25 of the Act for a reference to refer the following questions to the High Court at Patna, namely, (a) whether the assessment under section 13(5) of the Act is main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as correct. It is not possible for us to hold that there is any substantial question of law as to the interpretation of the Constitution involved in this case. The question at issue was purely a matter of construction of section 2(g) of the Bihar Sales Tax Act and that question was decided by this Court in favour of the State of Bihar and against the petitioner. It is argued now on behalf of the petitioner that the provisions of section 2(g) of the Bihar Sales Tax Act are ultra vires of the Constitution, but no such question was dealt with or decided by the High Court in the reference. We do not, therefore, consider that this case satisfies the requirements of Article 132(1) of the Constitution and the petitioner is not entitled to grant of a certificate for leave to appeal to the Supreme Court under this article. The application is accordingly dismissed." Having failed to obtain the necessary certificate from the High Court, the Corporation moved this Court and obtained special leave to appeal under Article 136 of the Constitution. The leave was granted on March 31, 1958. Though the scope of the decision of the High Court under section 25 of the Act on a reference made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or make available such of its equipment as is suitable for construction for the use of the contractor. The actual prices paid by the Corporation for the equipment thus made available, inclusive of freight, insurance and custom duties, if any, and the cost of its transport to site but excluding such tax as sales tax whether local, municipal, State or Central, shall be charged to the con- tractor and the equipment shall remain the property of the Corporation until the full prices thereof have been realised from the contractor. Equipment lent for the contractor's use, if any, shall be charged to him on terms of hiring to be mutually agreed upon; such terms will cover interest on capital cost and the depreciation of the equipment. The Corporation will supply to the contractor the machinery mentioned in Schedule No. 2, Group A and Group B below." Then follows a description seriatim of the many items of machinery in Group A with the number of such machinery and the approximate cost thereof. In this Group A, there are fourteen items of which it is only necessary to mention the first one, that is to say, four excavators with accessories approximately valued at Rs. 12,46,390; and No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stalments beginning with July, 1951, provided that these remaining items shall have been delivered to the contractor prior to the last specified date. Provided- (a) that the total actual price for these equipments which has been provisionally estimated at Rs. 42,63,305 will be chargeable to the contractor as per first para. of clause 1 above. (b) that after approximately two thirds of total cost or an amount of Rs. 28,43,000 (Rupees twenty eight lakhs forty three thousand) approximately has been recovered from the contractor on account of these equipments the Corporation will consider the date or dates when it could take over the equipments still under use by the contractor, assess the extent to which they have already been depreciated and thereby arrive at their residual value; and (c) that the recovery or refund of the amount payable by or to the contractor on account of these equipments will be decided only if the Corporation is fully satisfied that their residual life at the time of their being finally handed over to the Corporation shall under no circumstances fall below one-third of their respective standard life as agreed upon by the Corporation and the contracto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The spares to be supplied by the Corporation will be issued to the contractor by the Executive Engineer, Konar, as and when required by the contractor against indent accompanied by a certificate that the spares previously issued to him have been actually used up on the machines for which they were intended. (e) Whenever spares are issued to the contractor in accordance with this provision, their actual prices inclusive of freight, insurance and customs but excluding storage and handling charges shall be debited against him and recovered from his next fortnightly bill. (f) In order to enable the contractor to take active steps for planning the procurement of additional spares in advance, the Corporation shall forthwith furnish to him a complete list of all the spares which it has procured or ordered for the equipment to be supplied to the contractor." The portions quoted above contain the relevant terms and conditions in respect of the transaction in question, so far as it is necessary to know them for the purpose of this case. It will be noticed that the Corporation made available to the contractors different kinds of machinery and equipment detailed in Group A of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad depreciated as a result of the working on the project in order to arrive at the "residual value" of the same. The refund of the one- third of the price or such other sum as may be determined as the "residual value" would depend upon the further condition that the Corporation was fully satisfied that their "residual life" shall, under no circum- stances, fall below one-third of their respective standard life as agreed upon by the parties. It would, thus, appear that the "taking over" of such of the equipments as were available to be returned was not an unconditional term. The Corporation was bound to take them over only if it was satisfied that their "residual life" was not less than the standard life fixed by the parties. It is clear from the terms and conditions quoted above that there was no right in the contractors to return any of the machinery and equipments at any time they liked, or found it convenient to do so. The conditions which apply to all equipments, whether in Group A or in Group B, are also relevant to determine the nature of the transaction. The contractors are required to "continuously maintain proper machine cards showing certain relevant particulars ". It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation of law, the question, which does not arise here, may arise as to what exactly were the rights and obligations of the parties to the original contract. It is equally well- settled that for the purpose of determining as to which category a particular contract comes under, the court will look at the substance of the agreement and not at the mere words describing the category. One of the tests to determine the question whether a particular agreement is a contract of mere hiring or whether it is a contract of purchase on a system of deferred payments of the purchase price is whether there is any binding obligation on the hirer to purchase the goods. Another useful test to determine such a controversy is whether there is a right reserved to the hirer to return the goods at any time during the subsistence of the contract. If there is such a right reserved, then clearly there is no contract of sale, vide Helby v. Mathews and Others [1895] A.C. 471. Applying these two tests to the transaction in the present case, it becomes clear that it was a case of sale of goods with a condition of re- purchase on certain conditions depending upon the satisfaction of the Corporation as to w ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
