TMI Blog1956 (5) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... charge, or pledge; and any grammatical variations of the expression 'sale' shall be construed accordingly. Explanation 1.-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 petitioner took objection to the constitutionality of Explanation 1 and the submission is that it is an addition to Entry 54 in the State List (List II) in Schedule VII of the Constitution. This entry runs as under- "Taxes on the sale or purchase of goods other than newspapers." The corresponding entry in the Seventh Schedule of the Government of India Act, 1935, was 48 which was as under- "Taxes on the sale of goods and on advertisements." According to the Constitution (Article 265) no tax shall be levied or collected except by authority of law. In construing taxing statutes a strict interpretation is to be placed and as is said by Maxwell on the Interpretation of Statutes, page 288, statutes which impose pecuniary burden also, are subject to the same rule of strict construction. It is a well-settled rule of law that all charges upon the subject must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed technical meaning they had acquired in legal and constitutional history. 'The interpretation of the Constitution', said justice Brewer, 'is necessarily influenced by the fact that its provisions are framed in the language of the English common law, and are to be read in the light of its history'. To which statement Chief justice Taft has added, 'the language of the Constitution cannot be interpreted safely except by reference to the common law and to British institutions as they were when the instrument was framed and adopted. The statesmen and lawyers of the Convention, who submitted it to ratification of the conventions of the thirteen States, were born and brought up in the atmosphere of the common law, and thought and spoke in its vocabulary." The words "tax on the sale of goods" were used in Entry 48 of List II of Schedule VII of the Government of India Act and the British Parliamentary draftsmen must have been aware that the words "sale of goods" had come to have a legal connotation, and it would be pro- per therefore to presume that the expression was used in the sense in which it was understood by English lawyers and also in India. It is not to be ignored that the fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the agreement has the right to determine the contract and he can resell the motor vehicle and he would neither be liable to pay the surplus on resale nor be entitled to recover any shortfall. The agreement is between the company as owner and the hirer, and by the agreement the owner agrees to let and the hirer agrees to hire 'the vehicle on the conditions contained in the contract and the relevant conditions are: (1) The. hirer shall pay a sum of Re. 1 in consideration of. the option to purchase; (2) The hirer shall make an initial deposit by way of premium for granting the lease and this deposit is the absolute property of the owners. (We sent for some of the contracts which had been entered into and it was found that the company takes about 25 per cent as deposit under this clause in the case of new vehicles); and (3) The hirer undertakes to pay instalments and when all the instalments are paid the vehicle shall at the option of the hirer become his absolute property, but until then it remains the property of the owners. At page 2 of the agreement are given the conditions which form part of the agreement. Under para 2(b) of these conditions the hirer is responsible and li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include a person who has an option to buy, the owner being bound to sell if that option is exercised: Helby v. Matthews(1). In that case the owner of a piano agreed to let it on hire, the hirer to pay rent by monthly instalments on terms very much similar to the one that are contained in the present agree- ment. The hirer received the piano, paid a few instalments and pledged it with a pawnbroker, as security for advance, and it was held that under the agreement the hirer was under no legal obligation to buy, but had an option either to return the piano or to become its owner by payment in full; that by putting it out of his power to return the (1) [1895] A.C. 471. piano he had not become bound to buy. There are certain observations of Lord Herschell, L.C., which are relevant to the issue. At page 475 his Lordship said: "An agreement to buy imports a legal obligation to buy. If there was no such legal obligation, there cannot, in my opinion, properly be said to have been an agreement to buy." and at page 477 his Lordship said: "This is undoubtedly true if the words 'agreement to sell' be used in their strict legal sense; but when a person has, for valuable con- sideration, bound h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a contract such as this was not held to be a sale and the terms of the agreement were held to exclude the notice that the hirer had become the owner. This case does not in any way help the State because in spite of the power left in the owner to either seize the goods and sell them and pay the surplus, if any, or recover the balance, the transaction was still held to be one of hiring and not of sale. In Belsise Motor Supply Company v. Cox(1), there was an agreement of hire-purchase and during the currency of the agreement while there was a sum due on account of hire, the hirer without the consent of the owners pledged the vehicle to a pledgee who took it in good faith and without notice of the owners' rights. The owners demanded the vehicle from the pledgee, and it was held that it was not an agreement which fell within the words "having agreed to buy" of section 25, sub-section (2), of the Sale of Goods Act, and that the pledgee got no better title than the hirer. Channell, J., held that the case fell within the rule laid down in Helby v. Matthews(2). In Modern Light Cars, Limited v. Seals(3), there was a hire-purchase agreement with an option of purchase and payment was to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' in section 2(h) of Act XV of 1948 must, to that extent, be declared ultra vires." Thus, in order that a transaction be taxable under Entry 48 of Schedule VII of the Constitution Act of 1935 there should be a completed sale under which there is transfer of property in the goods and not when there is a mere agreement to sell and a State Legislature cannot enlarge the definition of the word "sale". In Madras the distinction between a hire-purchase agreement and a contract of sale was brought out in Auto Supply Co., Ltd. v. V. Raghunatha Chetty(2). A motor-bus was delivered under a hire-purchase agreement which contained inter alia the following terms: The hirer was to pay Rs. 1,140 and thereafter Rs. 226 every month for eleven months, the hirer acknowledged that he held the vehicle as a bailee of the owner and did not have any property in it until he exercised his option of purchase and the owners could terminate the contract of hiring and forthwith recover possession when there was a default in the payment of instalments. The hirer did commit a default and the owners terminated the hiring and claimed possession of the motor-bus. It was held that the initial payment of Rs. 1,140 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was also held that the legisla- tive powers of a Provincial Legislature to levy a tax on the sale of goods is restricted to transactions of sale as understood by the Parliament of the United Kingdom in the law relating to sale of goods. In order to constitute a sale there must be an agreement to sell by which alone the property does not pass and an actual sale by which the pro- perty passes: See Benjamin on Sale, page 1. "Sale of goods" according to the Madras case therefore means a contract whereby the property in the goods is actually transferred by the seller to the buyer and this was also the definition given to the words "sale of goods" by the Supreme Court in Poppatlal Shah v. The State of Madras(4) by Mukherjea, J., who said: (1) [1895] A.C. 471. (3) [1954] 5 S.T.C. 216; A.I.R. 1954 Mad. 1130. (2) (1935) 69 M.L.J. 69. (4) [1953] 4 S.T.C. 188; [1953] S.C.R. 677, at 681. "In the legal sense, it imports passing of property in the goods and it is in this sense that the word is used in the Sale of Goods Act." In Suraj and Sons v. J.O. Brin and Another(1), where the agreement was that the hirer could continue the hiring for a full period of ten months but could during that per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Article 226. A similar view (1) A.I.R. 1931 All. 759. (4) (1915) 30 I.C. 469. (2) (1930) I.L.R. 54 Bom. 381. (5) (1923) I.L.R. 45 All. 588. (3) [1895] A.C. 471. (6) [1952] 22 I.T.R. 418; 55 P.L.R. 195. was taken in a case under the Punjab Sales Tax Act, but the Supreme Court has held in Himmatlal Harilal Mehta v. The State of Madhya Pradesh(1), that threat by the State to realise tax from the assessee with- out the authority of law is an infringement of Article 19(1)(g) and in a more recent case, The Bengal Immunity Company Ltd. v. The State of Bihar(2), Civil Appeal No. 159 of 1953 decided on 6th September, 1955, the Supreme Court of India again held that where there is a certain infringement of the rights of a citizen under a law which is ultra vires of the powers of the Legislature a remedy by way of a writ under Article 226 is available to the party aggrieved. I would, therefore, hold that- (1) The State Legislature has not the power to enlarge the mean- ing of the words "sale of goods" by going beyond the meaning attached to it by its definition in the Sale of Goods Act, because it is in that sense that these words were used in item 48 of Schedule VII of the Constitution Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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