TMI Blog1966 (9) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... Gupte, Solicitor-General of India (A.G. Pudissery with him), for the respondent. -------------------------------------------------- The judgment of the Court was delivered by RAMASWAMI, J.- These two appeals are brought by special leave from the judgment of the Kerala High Court dated 30th June, 1964, in Writ Appeals Nos. 101 and 103 of 1964. The appellant was a dealer in cars, trucks and radios in Trivan- drum and Alwaye and other places in the State of Kerala. The appellant was a registered dealer under the Kerala General Sales Tax Act, 1125. For the assessment year 1960-61, the appellant filed a return showing a net turnover of Rs. 3,76,554.66 taxable at 2 nP., Rs. 703.79 at 4 nP., Rs. 1,06,45,113.66 at 7 nP. and Rs. 467.79 at 6 nP. After perusing the books of accounts of the appellant, the respondent issued a notice pointing out that a turnover of Rs. 33,25,728 had not been included in the return. The appellant replied that the said amount represented transactions of hire-purchase entered into by the appellant-company with its customers and that these transactions were not taxable under the Kerala General Sales Tax Act, 1125. Notwithstanding the objection o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er stipulating the conditions under which the proposal was accepted by the appellant. The conditions of the agreement were all embodied in the deed of agreement itself, marked exhibit P-3. In respect of all the transactions covered by the disputed turnover, the agreement was in the said form. The appellant relied upon clause (3) in the agreement and also clause (1-b) in the conditions and pointed out that the nature of the agreement was such that the option was with the hirer to terminate the hire- purchase agreement at any time by surrendering the vehicle. It was not open to the owner to insist that the hirer should continue to be in possession of the vehicle and to be under the obligation to pay the hire moneys payable under the agreement. Nor was it open to the appellant to compel the buyer to purchase the vehicle at the end of the hire period. Under the agreement, therefore, the option to purchase the vehicle was entirely at the discretion of the purchaser and a sale took place only when the buyer exercised his option to purchase. Section 2(j) of the Kerala General Sales Tax Act, 1125, states as follows: "(j) 'Sale' with all its grammatical variations and cognate expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, can only tax a "sale" within the meaning of that word as defined in the Sale of Goods Act. The essence of a sale under the Sale of Goods Act is that the property shall pass from the seller to the buyer when the contract of sale is made except in a case of conditional sale. Hire- purchase agreements are not conditional sales, and therefore any legislation by the State Legislature making an agreement or transaction, in which property does not pass from the seller to the buyer, a sale, would be beyond its legislative competence. The statutory provision which was challenged in K.L. Johar Company's case [1965] 2 S.C.R. 112; 16 S.T.C. 213., was the explanation (1) of section 2(h) of the Madras General Sales Tax Act (9 of 1939) the language of which is almost in identical terms with the explanation (1) of section 2(j) of the Kerala General Sales Tax Act, 1125. The ratio of the decision of this Court in K.L. Johar Company's case [1965] 2 S.C.R. 112; 16 S.T.C. 213., applies to the present case and it must, there- fore, be held that explanation (1) to section 2(j) of the Kerala General Sales Tax Act, 1125, is beyond the competence of the State Legislature and is invalid. On behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out in that case that the power of the Provincial Legislature to impose a tax on sales under Entry 48 in List II of Schedule VII of the Government of India Act, 1935, did not extend to imposing a tax on the value of material in building contracts which are entire and indivisible. The second argument of the appellant was that the Kerala Surcharge on Taxes Act, 1957, as amended by Kerala Act 12 of 1960 was discriminatory in character and violated the provisions under Article 14 of the Constitution. It was stated that levy of surcharge on those whose turnover was above Rs. 30,000 resulted in illegal discrimination against those whose turnover exceeded that amount, especially when the surcharge cannot be passed on to the consumer. It was contended that the classification was based on no intelligible criteria and there was no nexus with the objects sought to be achieved by the Act. Section 3 of the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957) states as follows: "3. Levy of surcharge on sales and purchase taxes: (1) The tax payable under the Travancore-Cochin General Sales Tax Act, 1125, or the Madras General Sales Tax Act, 1939, shall, in the case of a dealer whose turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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