Case Note & Summary
The Supreme Court of India adjudicated three writ petitions filed under Article 32 of the Constitution by Instalment Supply Ltd., a company financing motor vehicle purchases through hire-purchase agreements, challenging the levy of sales tax by the Sales Tax Officer, Ahmedabad under the Gujarat Sales Tax Act. The petitioner had its registered office in New Delhi and entered into hire-purchase agreements with buyers in Delhi. Under the agreement, the hirer paid an initial premium, instalments in Delhi, and upon payment of all instalments could exercise an option to purchase the vehicle by paying one rupee. Until that option was exercised, the vehicle remained the property of the company and the hirer was at liberty to return it. The Gujarat State sought to tax those transactions where the vehicles were inside Gujarat at the time the option to purchase was exercised. The petitioner contended that since the contract was concluded in Delhi, instalments paid in Delhi, and option exercised in Delhi, the sale took place outside Gujarat and could not be taxed by Gujarat. The petitioner also challenged the constitutionality of Section 2(28) of the Gujarat Sales Tax Act. The Court noted that the same question had been considered earlier in Instalment Supply (P) Ltd. v. Union of India, but from the Delhi perspective. The Court held that under a hire-purchase agreement, the sale occurs only when the hirer exercises the option to purchase; until then, there is no transfer of property. In the present case, the option was exercised when the goods were inside Gujarat, thus the sale was inside Gujarat in accordance with Section 4(2) of the Central Sales Tax Act, 1956, which was incorporated by reference in the explanation to Section 2(28) of the Gujarat Act. The Court rejected the argument that the State of Gujarat could not tax because the agreement was concluded outside the State, stating that the agreement of sale concluded in Delhi but the sale itself was completed by passing of property in Gujarat. It also held that there is no rule that goods can be taxed only once; sales tax can be levied as often as there are sales, even if Delhi had earlier taxed the same goods. On maintainability, the Court held that an Article 32 petition lies where action is taken under a statute ultra vires the Constitution, where the statute is intra vires but action is without jurisdiction, or where action is procedurally ultra vires violating natural justice. Since the constitutionality of Section 2(28) was challenged, the petition was maintainable, but on merits it failed. Accordingly, the Supreme Court dismissed the writ petitions.
Headnote
A) Sales Tax - Hire Purchase Agreement - Sale Occurs When Option to Purchase Exercised - Gujarat Sales Tax Act, Section 2(28); Central Sales Tax Act, 1956, Section 4(2) - Under a hire-purchase agreement, the hirer was not bound to purchase; the sale took place only when the hirer exercised the option to purchase, at which time the goods were inside Gujarat State; therefore Gujarat was entitled to levy tax on that transaction of sale; held that sale inside State under Section 4(2) of Central Sales Tax Act as incorporated in explanation to Section 2(28) of Gujarat Act was valid. (Paras 392H-393A) B) Constitutional Law - State Taxation of Inter-State Sale - Contract Concluded Outside State Irrelevant - Constitution of India, 1950, Article 246; Central Sales Tax Act, 1956, Section 4(2); Gujarat Sales Tax Act, Section 2(28) - Gujarat could tax sale of goods inside State even though hire-purchase agreement entered into in Delhi, instalments paid in Delhi, and option exercised in Delhi; only agreement of sale concluded in Delhi, sale completed by passing of property in Gujarat; held no objection to State taxing sale inside State. (Paras 392E-392G) C) Sales Tax - Double Taxation - No Rule Against Multiple Taxation of Same Goods - Gujarat Sales Tax Act, Section 2(28) - Goods may be subjected to tax more than once as often as there are sales; fact that goods may have been subject to tax earlier by Delhi State did not bar Gujarat levy. (Paras 392G-392H) D) Constitutional Law - Writ Jurisdiction - Maintainability Under Article 32 - Constitution of India, 1950, Article 32 - Petition challenging constitutionality of s.2(28) Gujarat Act was maintainable; Article 32 lies where statute ultra vires Constitution, action without jurisdiction, or action procedurally ultra vires violating natural justice; held petition dismissed on merits though maintainable. (Paras 393F-H)
Issue of Consideration
Whether the State of Gujarat could levy sales tax on hire-purchase transactions where the contract of hire purchase was entered into outside the State, instalments paid outside, and option exercised outside, but the goods were inside Gujarat at the time of exercise of option; and whether a petition under Article 32 of the Constitution is maintainable when the constitutionality of a State sales tax provision is challenged.
Final Decision
The Supreme Court dismissed the writ petitions, holding that the State of Gujarat was entitled to levy sales tax on the hire-purchase transactions because the sale took place when the hirer exercised the option to purchase while the goods were inside Gujarat, thereby constituting a sale inside the State under Section 4(2) of the Central Sales Tax Act, 1956 as incorporated in Section 2(28) of the Gujarat Sales Tax Act. The petition was maintainable under Article 32 but failed on merits.
Law Points
- Sale under hire purchase agreement occurs when option to purchase exercised and property passes
- State can tax sale if goods inside State at time of sale irrespective of where contract concluded
- no constitutional bar to double taxation of same goods on successive sales
- Article 32 petition maintainable when constitutionality of statute challenged or action without jurisdiction or violates natural justice
- incorporation of Central Sales Tax Act Section 4(2) definition into State Act valid
