Case: Installment Supply (P.) Ltd. And Another Vs. The Union Of India And Others

2. The first petitioner is a private limited company incorporated under the Companies Act, with its registered office at Janpath, New Delhi. The second petitioner is the Managing Director and share-holder of that company and is directly interested in the result if this application, because it is claimed that his rights and property are directly involved. The company has been carrying on in Delhi the business of financing the purchase of new as well as second-hand motor cars and other kinds of motor vehicles. The system adopted by the Company for financing a purchase such as aforesaid is as follows. A person desiring to purchase a motor vehicle fixes a bargain with the owner and the petitioner Company would then advance the necessary finance on the terms and conditions appearing in a printed copy of the agreement, marked Annexure A to the petition. According to that 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 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 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. The hire-money received by the Company, it is contended , is not a part of the price of the goods sold and is thus not liable to he taxed as sale-price. The Bengal Finance (Sales Tax) Act, 1941 (Bengal Act. VI of 1941) was extended to the State of Delhi, which is now the Union Territory of Delhi. In pursuance of the provisions of that Act, the Sales Tax authorities started demanding and levying sales tax on all transactions of the nature aforesaid on the ground that the instalments paid by the hirers to the Company were sales-price and, therefore, liable to Sales Tax. The Company challenged the right of the Sales Tax authorities to levy any such tax on the ground that the law was beyond the competence of the legislature. Ultimately, the Company moved the Punjab High Court (Circuit Bench at Delhi) under Arts. 226 and 227 of the Constitution. In the Writ Petition, which was registered as Civil Writ Application No. 289-D of 1954, the Company prayed for a writ in the nature of prohibition and/or mandamus restraining the respondent from realising or levying any sales tax under the provisions of the Bengal Act, extended to Delhi. There was also a prayer for a writ of certiorari quashing certain orders passed by the Sales Tax authorities in 1953-54. The said application was heard by a Division Bench, which allowed the petition and issued a mandamus to the State to forbear from enforcing its notice for the realisation of the Sales Tax. It was held by the High, Court that the State Legislature had not the power to enlarge the meaning of the words "Sale of goods" by going beyond the meaning attached to it by the Sale of Goods Act. After the judgment aforesaid of the High Court of Punjab, it is further alleged, a settlement was arrived at between the companies carrying on hire-purchase business in Delhi and the Commissioner of Sales Tax, who issued a circular, being Circular No, 10 of 1956, containing the following decisions of theCompanies which are exclusively engaged in the hire purchase business will not be treated as dealers and their certificate of registration will be cancelled.(ii) Companies which are partially engaged in the business of hire purchase will continue to be dealers as hithertofore and their hire purchase transactions will be appropriately examined in the light of the judgment of the Punjab High Court, and will be liable to Sales Tax at one stage.(iii) As a result of (i) above, sales made to the above Companies by the dealers in vehicles would be liable to Sales Tax at the hands of the latter.(iv) In respect of vehicles, and machineries etc. for which tax has been paid, at the time of purchases thereon from the market, no Sales Tax would be payable in respect of hire monies collected on them by the hire purchase companies or on their re-sale or re-hire following repossession or on the exercise of the option of purchases by the hirer.(v) In respect of second hand vehicles purchased by the companies from private individuals for purposes of hire- purchase, the companies will not be liable to any sales tax either at the time of purchase or in respect of subsequent transaction thereon. The Companies will he as other non-registered dealers, in view of (i), their Registration Certificates in respect of Hire purchase business having been cancelled.(vi) The assessments which are already made will not be re-opened except in the case of M/s. Installment Supply Co. Ltd. for which there are specified orders of the High Court.(vii) In their up-to-date assessment, the hire purchase Companies should take upon themselves the responsibility to pay tax which they have saved by making tax free purchases either from dealers or from non registered dealers. The assessment will, however, be made accordingly as before in the normal way."Thereafter in the case of Mithan Lal v. State of Delhi, 1959 SCR 445 : ( AIR 1958 SC 682  ) this Court examined the vires of the Bengal Finance (Sales Tax) Act 1941, as extended to Delhi, and came to the conclusion that the law had been validly promulgated. According to that decision, the definition of sale could be legally extended so as to make it permissible to tax sale of goods involving the supply of materials in pursuance of building contracts. As a result of the decision aforesaid of this Court, a press note was issued by the Commissioner of Sales Tax, Delhi, to the effect that provision regarding levy of tax on hire-purchase transactions was valid and that all hire purchase dealers as come within the purview of Ss. 4 and 7. of the Bengal Finance (Sales Tax) Act 1941, as extended to Delhi, are liable to pay sales-tax and to get themselves registered under the Act; that all such hire-purchase dealers as were formerly registered with the Sales Tax Department shall be deemed to be registered with effect from the first of April, 1958 for the purpose of the Act and that all hire-purchase dealers who had not got themselves registered so far should immediately have themselves so registered in order to avoid being penalised for contravention of the provisions of the Act. In pursuance of the aforesaid circular of the Department, the petitioner company was also called upon to comply with the requirements of the Act. The Company made representation to the Commissioner of Sales Tax that the Company and other such companies which deal in hire-purchase were not liable to pay sales tax, but the Commissioner of Sales Tax refused to accept the Companys contention and answered to the following effectThe incidence of Sales Tax on such transactions is to be governed by the provisions of Ss. 3 and 4 of the Central Sales Tax Act, 1956. If however, the vehicles are purchased by a Company having its place of business in Delhi from a dealer outside Delhi on payment of Sales Tax of that State and the vehicle is hire purchased to the party in that very State, neither Delhi Sales Tax nor Central Sales Tax will be leviable on the Delhi firm irrespective of the fact that the Hire-purchase Agreement is entered into at Delhi.If, however, vehicle is purchased in State A but is hire purchased to a party in State B, Central Sales Tax will be leviable in the State according to the rules in force in that State.2. The hire-purchase transactions of secondhand vehicles, where the owner approaches the Hire Purchase Co. for finances against the vehicles, will be leviable to Sales Tax, because according to the Hire-purchase Agreement the property in the vehicle vests in the Hire Purchase Co. and this property is to be transferred to the so called owner by virtue of the Hire- purchase transactions.Secondhand vehicles purchased outside Delhi and hire purchased to the parties outside Delhi or hire purchase transactions conducted outside Delhi in which owner approaches the Hire purchase Co. for finance will be governed by the clarification given in 1 above.3. In the case of vehicles purchased by the Hire purchase Companies from the local registered dealers, they will not be required to pay any sales Tax because all Hire-purchase companies will be registered and will be entitled to make tax free purchases of such vehicles. It is, therefore, regretted that it is not possible to accede to the request made in this behalf.4. Sales Tax will be payable on total amount charged by the Hire-purchase Co. from the hirer and it is not possible to waive Sales Tax on the so-called incidental charges.5. It is regretted that it is not possible to alter the date of liability of the Hire-purchase Co. which has already been fixed with effect from 1st of April, 1958, in pursuance of the Supreme Court Judgment. It is true that the Press Note was issued in the month of June and so Hire-purchase Companies have been making purchases of vehicles on payment of sales tax. The Hire-purchase companies are advised to approach the dealers for refund of the Sales Tax paid by them on such purchases.If, however, it is not possible for any Hire-Purchase Co. to obtain refund of the Sales Tax so paid by them, the amounts so paid may be adjusted towards their liability on the hire purchase transactions."

Reasoning: 7. It is clear that under the Law, as it now stands, which has now been crystallised into the section of the Hire Purchase Act, quoted above, the transaction partakes of the nature of a contract or bailment with an element of sale, as aforesaid, added to it. In such an agreement, the hirer may not be bound to purchase the thing hired ; he may or may not be. But in either case, if there is in obligation to buy, or an option to buy, the goods delivered to the hirer by the owner on the terms that the hirer, on payment of a premium as also of a number of instalments, shall enjoy the use of the goods, which ultimately may become his property, the transaction amounts to one of hirepurchase, even though the title to the goods has remained with the owner and shall not pass to the hirer until a certain event has happened, namely, that all the stipulated instalments have been paid, or that the hirer has exercised his option to finalise the purchase on payment of a sum, nominal orto third term of the agreement, on the hirer duly performing and observing the terms of the agreement, with particular reference to the payment of the monthly instalments, "the hiring shall come to an end and the vehicle shall, at the option of the hirer, become his absolute property; but until such payments as aforesaid have been made, the vehicle shall remain the property of the owners. The hirer shall also have the option of purchasing the vehicle at any time during the currency of this Agreement by paying in one lump sum the balance of all the hire hereinbefore mentioned and any other expenses incurred by the owners relating to the transaction."9. It is clear, therefore, that in addition to the contract of hiring an option has been given to the hirer to purchase or not to purchase. The more serious question on this part of the petitioners contention is whether the non obstante clause in the explanation "notwithstanding that the seller retain a title to any goods as security for payment of the price" governs the main clause of the explanation. In our opinion, it does not. The non obstante clause has been added only to emphasise the categorical statement of the law contained in the main clause to the effect that a transfer of goods on hire-purchase, etc., shall be deemed to be a sale even though there may be a stipulation to the effect that in spite of the transfer of goods to the hirer, the owner retains title to those goods until the happening of the ultimate event, namely, completion of title at the option of the hirer.10. There is, thus, no doubt that the agreement in question does contain not only a contract of bailment simpliciter but also an element of sale, which element has been seized upon by the legislature for the purpose of subjecting a transaction like that to the Salescontention has lost all its force, if ever it had any, in view of the decision of this Court in Mithan Lals case, 1959 S C R 445 : (AIR 1958 S C 682),is true that in Mithan Lals case, 1959 S C R 445 : (AIR 1958 S C 682) (supra) the contention that the enactment in question had infringed Art,14 of the Constitution had not been raised. This Court, therefore, had no occasion to pronounce on that aspect of the controversy. We have, therefore, to consider the contention under head (3), namely, that though the Parliament may have had the power to tax something which was not strictly speaking a sale, the law is open to the attack that it discriminates against traders in Delhi inasmuch as, it is further contended, such a law has not been made applicable to the whole of India. In our opinion, there is no substance in this contention because no proper foundation was laid in the pleadings for supporting such a contention. It has not been averred that other Part C States have not been similarly treated. On the other hand, it does appear that under the Central sales tax Act (LXXIV of 1956), the definition of Sale contains the extended definition, without the non obstante clause, discussedwould thus appear that hire purchase transactions have been included within the definition of sale for the purpose of Central Sales Tax, and this definition has become applicable throughout India, and it cannot, therefore, be said that the State of Delhi, and now the Union Territory of Delhi, has been selected for hostile discrimination. In our opinion, therefore, there is no substance in the contention that the extended definition of sale in the main statute infringes Art. 14 of the Constitution.13. Now, the remaining contentions raised on behalf of the petitioners may be disposed of by observing that what the Sales Tax Department does, or does not do, cannot change the law. The Department issued its instructions to the Sales Tax Officers, in conformity with the law as laid down in the judgment of the Punjab High Court in (S)AIR 1956 Punj 177 (supra). This Court later laid down the law more authoritatively in Mithan Lals case 1959 S C R 445: (AIR 1958 SC 682  ) (supra) and the Department was bound to take notice of what this Court had laid down. It cannot, therefore, be argued that the Department had, in any sense estopped itself by issuing those instructions, or that this Court, by laying down the law in Mithan Lals case, 1959 S C R 445: (AIR 1958 S C 682) (supra) had laid down a new rule of law which has no application to pending proceedings for levy, assessment and realisation of sales tax, either in Delhi or elsewhere.14. There is another answer to the point of res judicata raised off behalf of the petitioners, relying upon the decision of the Punjab High Court in (S) AIR 1956 Punj 177 (supra).It is well settled that in matters of taxation there is no question of res judicata because each years assessment is final only for that year and does not govern later years, because it determines only the tax for a particular period.(See the decision in the House of Lords in Society of Medical Officers of Health v. Hope, 1960 A C 551 approving and following the decision of the Privy Council in Broken Hill Proprietary Company Ltd. v. Broken Hill Municipal Council, 1926 A C 94.