Commissioner Of Commercial Taxes v. L. N. Agrawal — 1979 DIGILAW 228 (PAT)

Judgment S. P. Sinha, J. 1. At the instance of the Commissioner of Commercial Taxes, Bihar, Patna, the Commercial Taxes Tribunal has made a reference under section 33 (1) of the Bihar Sales Tax Act, 1959, hereinafter referred to as the Act, the following two questions of law, which are common for all the five periods of assessments: (1) Whether, in the facts and circumstances of the case, the transfer of goods on hire-purchase amounted to resale as contemplated under the Bihar Sales Tax Act, 1959 (Act 19 of 1959)? (2) Whether, in the facts and circumstances of the case, the second proviso to section 7 (2) (b) of the Bihar Sales Tax Act, 1959 (Act 19 of 1959), was applicable? 2. The aforesaid two questions, in substance, mean, whether the transfer of goods on hire-purchase by the dealer would be deemed to have been for the purpose of resale or whether such transfers would be deemed to have been made in violation of the declaration given by the dealer in form IX of the Bihar Sales Tax Rules. 3. It may be stated that under section 7 of the Act, for the purpose of computing the taxable turnover of a registered dealer, certain types of sales are deducted from the gross turnover and only the balance is then determined as the taxable turnover. One of such deductions, in respect of special sales tax, as laid down under sub-section (2) of section 7 is, where the registered dealer sells good for resale by the purchasing dealer inside Bihar, the goods being specified in the latters registration certificate. One of such deductions, in respect of special sales tax, as laid down under sub-section (2) of section 7 is, where the registered dealer sells good for resale by the purchasing dealer inside Bihar, the goods being specified in the latters registration certificate. This is, however, subject to what is stated in the second proviso to section 7 (2) (b) of the Act, which reads as under: provided further that where any goods exempted from the levy of tax by a notification issued by the State Government in this behalf under subsection (3) of section 4 are purchased by a dealer after furnishing declaration mentioned in the notification or where any goods, specified in the certificate of registration of a dealer, are purchased by him after furnishing a declaration as provided in the first proviso of clause (2) but are utilised by him for any purpose other than those specified in such a notification or specified in item (i) or (ii) of sub-clause (b) of clause (2), as the case may be, the sale price of the goods so purchased shall, without prejudice to any action which is or may be taken under section 38, be deducted from the gross turnover of selling dealer but shall be included in the taxable turnover of the purchasing dealer. 4. Sub-clause (i) referred to in the above quotation is in respect of resales by the purchasing dealer inside Bihar which are to be deducted in computing the purchasing dealers taxable turnover. 5. The reference to section 38, in the above quotation, is a reference to the penal provisions under the Act which makes the offence of violation of the declaration made in form IX of the Bihar Sales Tax Rules an offence punishable with imprisonment or fine or both. 6. The two questions referred for opinion of this Court have arisen because, according to the Superintendent of Commercial Taxes, the transfer of goods on hire-purchase by the dealer did not amount to resale and, consequently, there was a violation of the declaration given by the dealer while purchasing the goods, thereby attracting the second proviso of sub-section (2) (b) of section 7 of the Act. According to the Deputy Commissioner of Commercial Taxes also, who heard the appeals against the assessments, transfer of goods on hire-purchase did not amount to resale, until the agreement of hire-purchase had ripened into sale. According to the Deputy Commissioner of Commercial Taxes also, who heard the appeals against the assessments, transfer of goods on hire-purchase did not amount to resale, until the agreement of hire-purchase had ripened into sale. Since all the hire-purchase agreements, except one, in all the five periods of assessment had ripened into sales, according to the Deputy Commissioner of Commercial Taxes, the second proviso to section 7 (2) (b) of the Act was not attracted. 7. According to the Commercial Taxes Tribunal, however, transfer of goods through hire-purchase amounted to resale and, therefore, there was neither any question of violation of the terms of the declarations furnished by the purchasing dealer in form IX of the Rules, nor any question of applying the second proviso to section 7 (2) (b) of the Act could arise. 8. All the aforesaid three authorities have relied upon the decision of the Supreme Court in the case of K. L. Johar and Co. V/s. Deputy Commercial Tax Officer A. I. R.1965 S. C.1082, wherein a hire-purchase agreement has been described as: 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. 9. The Superintendent of Commercial Taxes seems to have rested his opinion on the first part of the aforesaid description of hire-purchase; the Deputy Commissioner of Commercial Taxes seems to have gone on the facts of the case, taking an overall view of the said description and the Tribunal has gone upon the normal concept of hire-purchase in the business world. 10. I will now state briefly the facts of the case: 11. The assessee is a registered dealer, dealing mainly in fans, sewing machines and accessories, in the town of Gaya. The periods of assessment are 1960-61 to 1964-65. The assessments for the first three periods, namely, for 1960-61 to 1962-63, were made by recourse to reassessment proceedings. The other two assessments are regular assessments. Admittedly, during the relevant periods, the assessee transferred some of his goods under hire-purchase agreement, which goods he had purchased after giving declarations in form IX of the Sales Tax Rules that he was purchasing them for resale in the State of Bihar. The other two assessments are regular assessments. Admittedly, during the relevant periods, the assessee transferred some of his goods under hire-purchase agreement, which goods he had purchased after giving declarations in form IX of the Sales Tax Rules that he was purchasing them for resale in the State of Bihar. It is not necessary to state the exact amounts involved in such transactions in each of the periods in question. 12. The Superintendent of Commercial Taxes held that the transfers of goods under the hire-purchase agreement were not resales and, consequently, the declarations given by the dealer in form IX were false. Such transactions on hire-purchase were accordingly included in the taxable turnover of the dealer in terms of the second proviso to section 7 (2) (b) of the Act. Prosecution in terms of section 38 of the Act was also recommended. 13. On appeal, the Deputy Commissioner of Commercial Taxes agreed with the Superintendent of Commercial Taxes that transfers of goods on hire-purchase agreement were not resales, but since all such transfers, except one, had materialised into actual sales, the mischief of the second proviso to section 7 (2) (b) of the Act was not attracted to this case. He, however, left it to the assessing officer to find out as to whether any other transactions on hire-purshase had not ripened into sales so as to include the purchase price of the said goods in the taxable turnover of the dealer. 14. If anybody should have been aggrieved by this order, it should have been the dealer himself, because it was the dealer, whose main contention that hire-purchase transaction was resale transaction, had not been accepted by the departmental authorities. It was, however, not the dealer, but the department which went up in revision against the orders passed by the Deputy Commissioner of Commercial Taxes in respect of the five periods in question. Before the Commercial Taxes Tribunal, a wider question, as to whether the transfer of goods on hire-purchase amounted to sale, was put for its consideration. The Tribunal held that even in a hire-purchase agreement, one of the aspects is that all sales fructify into option to purchase by the intending purchaser. The Tribunal further observed that, by virtue of the explanation, which had been added to section 2 (p) of the Act, transfer of goods on hire-purchase shall be deemed to be a sale. The Tribunal held that even in a hire-purchase agreement, one of the aspects is that all sales fructify into option to purchase by the intending purchaser. The Tribunal further observed that, by virtue of the explanation, which had been added to section 2 (p) of the Act, transfer of goods on hire-purchase shall be deemed to be a sale. The Tribunal, therefore, rejected the contention of the department that the transfer of goods on hire-purchase was not a sale of the goods. 15. It is on these facts that the above-mentioned questions have been referred to have the opinion of this Court. 16. Before entering into any discussion on the questions referred, I would like to observe that since the explanation to section 2 (p) of the Act has been struck down as being ultra vires the Bihar Legislature by a Bench decision of this Court in the case of Bihar State Agro-Industries Development Corporation V/s. State of Bihar (1973) 1 B. B. C. J.1, the Tribunal could not have drawn any help in its decision from that provision of the Act. 17. It is true that, in terms of the explanation added to section 2 (p), the transfer of goods on hire-purchase or under any other system, in which payment of valuable consideration is made by instalments, shall, notwithstanding the fact that the seller retains the title in the goods as security for payment of the valuable consideration or for any other reason, be deemed to be a sale, but since, in the aforesaid Bench decision of this Court, it has been held that the explanation appended to the definition of "sale" given in clause (p) of section 2 is ultra vires the Bihar Legislature, the said explanation to section 2 (p) of the Act cannot be taken in aid for determining the nature of the transaction of hire-purchase. 18. I now pass on to consider the questions referred for opinion. 19. My task has been made easy because I find that almost an identical question on identical facts has been decided by the aforesaid decision of a Bench of this High Court in the case of Bihar State Agro-Industries Development Corporation V/s. State of Bihar (1973) 1 B. B. C. J.1. 19. My task has been made easy because I find that almost an identical question on identical facts has been decided by the aforesaid decision of a Bench of this High Court in the case of Bihar State Agro-Industries Development Corporation V/s. State of Bihar (1973) 1 B. B. C. J.1. In that case also, the dealer, which was dealing in tractors and agricultural equipments, had entered into hire-purchase transactions in respect of some of the goods which it had purchased after giving a declaration that the said goods were being purchased for the purpose of resale. Such parts of the hire-purchase transactions were assessed in terms of the second proviso to section 7 (2) (b) of the Act. The dealer challenged the jurisdiction of the assessing authority to include such transactions in its taxable turnover. In that context, the question as to whether the goods could be deemed to have been utilised for a purpose other than that for which they were purchased, was considered by their Lordships. It was contended that, if the object behind the hire-purchase agreement was to ultimately pass the property in the goods to the hirer, it could not be said that the goods had been disposed of in a manner different than that for which they had been purchased. Their Lordships observed:. . . It is well-known that such transactions are entered into with the ultimate object of passing the property in the goods to the hirer. In finality and reality such transactions are not hire agreements only. As repeatedly pointed out by the Supreme Court, there is an element of bailment in it when a part of the agreement is for letting out on hire and the other element is the element of sale. The transaction is a process for achieving the ultimate transaction of sale. . . . 20. In fact, it is not the form of the transaction which would determine the applicability or otherwise of the second proviso to section 7 (2) (b) of the Act, but the substance of it. If the ultimate object of passing the property in the goods, under the hire-purchase agreement, is of selling it to the hirer, it would not be correct to say that the goods had been utilised for any purpose other than for resale. If the ultimate object of passing the property in the goods, under the hire-purchase agreement, is of selling it to the hirer, it would not be correct to say that the goods had been utilised for any purpose other than for resale. An agreement of hire-purchase may not be an immediate sale of the goods, but even so if the ultimate object is to pass the property in the goods to the hirer, it cannot be said that the goods had been utilised for a purpose other than for resale. 21. In the modern world "hire-purchase" has come to be a method of selling and purchasing goods. The purchaser with his limited finance wants to purchase the goods; the seller wants to sell his goods, but not lose his right over it unless full price has been paid. The converging point between these two is a transaction on hire-purchase. "hire-purchase" must not be confused with the two expressions that go to make it "hire" and "purchase". If the substance behind the transaction is to pass the right over the property or the goods to the hirer, it cannot but be an attempt at resale of the goods. May be that in certain cases, by the default of the hirer, the agreement breaks up, but even then so far as the dealer is concerned, he cannot be said to have entered into the agreement of hire-purchase with any other motive but for resale of his goods. 22. In the instant case, it has been found as a fact by the Deputy Commissioner of Commercial Taxes that all the transactions of hire-purchase had in fact ripened into sales except in one case where the agreement broke up by the default of the hirer. It is a clear indication that so far as the dealer is concerned, he had entered into the hire-purchase agreement with a clear intention of resale of the goods. The transactions cannot be, therefore, said to be an utilisation of the goods for a purpose other than that for which they had been purchased, under the declaration in form IX. 23. I will accordingly answer question No. (1) in the affirmative. As a natural corollary, the answer to question No. (2) will be in the negative. 24. The transactions cannot be, therefore, said to be an utilisation of the goods for a purpose other than that for which they had been purchased, under the declaration in form IX. 23. I will accordingly answer question No. (1) in the affirmative. As a natural corollary, the answer to question No. (2) will be in the negative. 24. Before I part with this judgment, I may observe that whether the transfer of goods on hire-purchase was for resale is a question of intention and, therefore, one of fact. The Deputy Commissioner of Commercial Taxes as also the Tribunal having come to the conclusion that the transfers under the hire-purchase agreements were intended for resale, I think the first question is a question concluded by a finding of fact which did not require an opinion of this Court. Since, however, the question has been referred to this Court and the three authorities of the commercial taxes department have held differently on the same set of facts, I have discussed the matter and have answered in the manner aforesaid. 25. In the result, question No. (1) is answered in the affirmative and question No. (2) in the negative. The dealer will be entitled to costs. Hearing fee Rs.250.