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TMI Blog1974 (5) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. 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 per cent 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 at 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 rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on the supply of materials in building contracts even though in the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 S.T.C. 353 (S.C.); [1959] S.C.R. 379., it had been held that it could not be done. This was on the basis that the power of Parliament to legislate in respect of Part C States is untrammelled by the limitations prescribed by article 246, clauses (2) and (3), and entry 54 of List II, and is plenary and absolute and there is no restriction which is material to the competency of Parliament to legislate on this topic. Though this court did not say so the reference is obviously to entry 97 of List I of the 7th Schedule under which only Parliament would be competent to legislate in respect of matters which are not mentioned in any other entry in the 7th Schedule and, therefore, could pass a law which makes a transaction which would not be a sale under the Sale of Goods Act, a sale for taxation purposes which a State Legislature would not be competent to do. Before we proceed to deal with this case further it would be useful to clear the ground by bringing out the legal incidents of a "sale" and of "hire- purchase agreements". These have been set out in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the goods, the buyer has not only a personal remedy against the seller, but also the usual proprietary remedies in respect of the goods themselves. In many cases, too, he can follow the goods into the hands of third parties. Again, if there be an agreement for sale, and the goods are destroyed, the loss as a rule falls on the seller, while if there has been a sale, the loss as a rule falls upon the buyer though the goods have never come into his possession. (Chalmers' Sale of Goods Act, 14th Edn., pp. 4 and 12; Halsbury's Laws of England, 3rd Edn., Col. 34, paras. 29 to 31). A contract of sale should be distinguished from a contract of hire- purchase. A contract of hire-purchase is, properly speaking, a contract of hire by which the hirer is granted an option to buy, but is not, as under a contract of sale, under a legal obligation to do so. The contract of hire- purchase is one of the variations of the contract of bailment, but it is a modern development of commercial life, and the rules with regard to bailments, which were laid down before any contract of hire-purchase was contemplated, cannot be applied simpliciter, because such a contract has in it not only the element of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty in the goods to the buyer for a price. The essence of a sale is that the property is transferred from the seller to the buyer for a price, whether paid at once or paid later in instalments. On the other hand, a hire-purchase agreement, as its very name implies, has two aspects. There is first an aspect of bailment of the goods subjected to the hire-purchase agreement, and there is next an element of sale which fructifies when the option to purchase, which is usually a term of hire- purchase agreements, is exercised by the intending purchaser. Thus, the intending purchaser is known as the hirer so long as the option to purchase is not exercised, and the essence of a hire-purchase agreement properly so-called is that the property in the goods does not pass at the time of the agreement but remains in the intending seller, and only passes later when the option is exercised by the intending purchaser. The distinguishing feature of a typical hire-purchase agreement therefore is that the property does not pass when the agreement is made but only passes when the option is finally exercised after complying with all the terms of the agreement..................... The next question th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion a sale within the State includes a sale determined to be inside the State in accordance with the principles formulated in sub-section (2) of section 4 of the Central Sales Tax Act, 1956, it is necessary to set out that sub-section here: "4. (2) A sale or purchase of goods shall be deemed to take place inside a State if the goods are within the State- (a) in the case of specific or ascertained goods, at the time the contract of sale is made; and (b) ................................................." The actual sale in this case fructified only when the hirer exercised his option to purchase under the hire-purchase agreement and at that time the goods were inside the State of Gujarat. We see no objection to the incorporation in section 2(28) of the Gujarat Act of the definition of a sale inside a State contained in section 4(2) of the Central Sales Tax Act. The Gujarat legislation could as well have incorporated the very words of section 4(2) of the Central Sales Tax Act in the explanation to section 2(28) and in either case it makes no difference. We also see no objection to the Gujarat State taxing what according to the Central Sales Tax Act is a sale inside the State of G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior or subsequent to such appropriation." This definition is, in effect, the same as the one in the Gujarat Act. Therefore, the type of transactions which were subjected to tax in the earlier Instalment Supply case [1961] 12 S.T.C. 489 (S.C.); [1962] 2 S.C.R. 644., will not be subject to taxation after this amendment and the problem of the same transaction being subjected to taxation at two different stages will not arise. Finally, we may refer to an objection taken by Mr. Bhandare on behalf of the State of Gujarat that no petition under article 32 of the Constitution lies in this case. He relied on the decision in Ramjilal v. Income-tax Officer, Mohindargarh [1951] 19 I.T.R. 174 (S.C.); [1951] S.C.R. 127., for this contention. But in view of the decision of this court in Smt. Ujjam Bai v. State of Uttar Pradesh [1963] 1 S.C.R. 778., we are of the opinion that there is no substance in this contention. It was there held that "an application under article 32 will lie (1) where action is taken under a statute which is ultra vires of the Constitution, (2) where the statute is intra vires but the action taken is without jurisdiction, and (3) where the action taken is procedurally ..... X X X X Extracts X X X X X X X X Extracts X X X X
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