Case: Marikar (Motors) Limited, Trivandrum Vs. Sales Tax Officer, Special Circle, Trivandrum

2. The appellant was dealer in cars, trucks and radios in Trivandrum and Always and other places in the State of Kerala. The appellant was registered dealer under the Kerala General Sales Tax Act, 1125. For the assessment yearthe appellant filed a return showing a net turnover of Rs. 3, 76, 554.66 taxable at 2 nP., Rs. 703.79 at 4 nP., 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 ofentered into by thewith its customers and that these transactions were not taxable under the Kerala General Sales Tax Act, 1125. Notwithstanding the objection of the appellant, the respondent proceeded to assess the appellant on a turnover inclusive of the disputed amount of Rs. 33, 25, 728. The respondent also made a levy of surcharge at 5 per cent. of the tax for the assessment yearSimilarly, for the assessment yearthe appellant filed a return showing a net turnover of Rs. 4, 49, 224.66 taxable at 2 nP., Rs. 390.47 at 4 nP., Rs. 16.62 at 6 nP. and Rs. 1, 05, 48, 247.60 at 7 nP. On perusing the books of accounts of the appellant, a notice was issued by the respondent that a turnover of Rs. 29, 71, 310.25 had not been included in the return. The appellant replied that the said amount represented transaction ofd into by thewith its customers and that these were not taxable under the Kerala General Sales Tax Act, 1125. Notwithstanding this objection, the respondent proceeded to assess the appellant on a turnover inclusive of the disputed amount of Rs. 29, 71, 310.25. A levy of surcharge at 5 per cent. was also made by the respondent in the order of assessment made for the yearThe appellant thereafter applied to the Kerala High Court for the grant of a writ under Article 226 of the Constitution to quash the assessment made by the respondent of both the assessment years. The contention of the appellant was that the levy of sales tax on thetransactions was illegal and that explanation No. 1 to section 2(j) of the Kerala General Sales Tax Act, 1125, was beyond the competence of the State Legislature. This contention was rejected by the High Court relying upon the decision of this Court in M/s. Damodar Valley Corporation v. The State of Bihar ([1961] 2 S.C.R. 522; 12 S.T.C. 102). The appellant also challenged the imposition of surcharge on the ground that the provision of Kerala Surcharge on Taxes Act, 1957, as amended by Act 12 of 1960 was discriminatory in character and violated the guarantee under Article 14 of the Constitution. This contention was also negatived by the Kerala High Court.So far as the transaction ofwas concerned, the case of the appellant was that any person proposing to enter into a transaction ofany presented aproposal form of which the terms are reproduced in exhibitOn accepting the proposal form, theinto an agreement with the hire 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 exhibitIn 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 clausein the conditions and pointed out that the nature of the agreement was such that the option was with the hirer to terminate theagreement 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.

Court's reasoning:
The argument put forward on behalf of the appellant isand must be accepted as correct.For the reasons already given, we consider that the orders of assessment of sales tax made by the respondent for the two assessment years62 are illegal in so far as thetransactions are included in the computation of the taxable turnover of the appellant.