Madras High Court
National Small Industries Corporation ... vs State Of Tamil Nadu on 31 July, 1991
Author: A.S. Anand
Bench: A.S. Anand
JUDGMENT Kanakaraj, J.
1. All these tax cases have been filed by the same petitioner in respect of different assessment years, namely, from 1964-65 to 1975-76. The assessment orders adopt the same pattern of assessment. A common order was passed in appeals relating to the assessment years 1964-65 to 1974-75 and a separate appellate order has been passed in respect of the assessment year 1975-76. However second appeals before the Sales Tax Appellate Tribunal in respect of all the 12 years were taken together and a common order was passed. Before us, in revision, Mr. V. Ramachandran, learned senior counsel for the petitioner, raises only the question of ascertaining the turnover in respect of hire-purchase sales and as to whether interest, service charges should be deducted from the turnover or not. We are, therefore, passing a common order in all the tax cases.
2. Taking the first Tax Case (Revision) No. 464 of 1982, we will set out the facts for a proper understanding of the questions raised before us. This tax case relates to the assessment year 1966-67. The assessee had declared a total and taxable turnover of Rs. 62,27,515.17 and Rs. 28,54,428.83 respectively. The assessee claimed exemption in respect of sum of Rs. 34,29,949.92 under section 6(2) of the Central Sales Tax Act, 1956 (hereinafter called "the CST Act") and on a sum of Rs. 24,62,833.72 as being sales in the course of import. The assessing authority allowed the claim based on section 6(2) of the CST Act, but rejected the claim based on the sales being in the course of import. Accordingly, he proceeded to issue a notice and, after considering the objections, determined the taxable turnover as follows :
"The taxable turnover is assessable at different rates as below :
1. Sales to registered dealers covered by C form : Rs. 14,76,055.09 @ 3%
2. Sales not covered by C forms -
a. Up to June, 1966 Rs. 8,31,448.22 @ 2%
b. From July, 1966 up to March, 1967 Rs. 4,70,638.75 @ 10%
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Rs. 27,78,142.06 "
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It is seen that the assessee did not object to the quantum of the turnover but only claimed exemption under section 5 of the CST Act. This plea that they were sales in the course of import, was found to be without any basis. The assessee only had imported the goods against their own import licence. There being no privity of contract between the buyer (hirer) and the foreign seller, the ratio of Mod. Serajuddin v. State of Orissa was held to squarely apply to the facts of this case.
3. Before the Appellate Assistant Commissioner two points were raised :
1. That the sales are exempted as being sales in the course of import;
2. That, in any event, the sales are liable to be taxed only as hire - purchase sales and therefore taxable on the basis of the value of the goods at the time of making the last payment of instalment. The Appellate Assistant Commissioner has also found that the assessee was not eligible for exemption, and on the second question relating to the ascertainment of the turnover, held that the price of the goods had already been settled and it was being paid in instalments. He held that the sale value is the aggregate amount of all the instalments. He proceeded to say that the assessees were instructed to file the details of the sale of goods effected on hire-purchase and the dates of last payment of instalments for each year. The assessees were unable to furnish such details of the sales that occurred on the last completed payment for each year of assessment. Therefore, the Appellate Assistant Commissioner proceeded to determine the turnover based on the turnover reported by the assessee and as reflected in the accounts. In second appeals before the Tribunal several points were taken but we are concerned only with the points relating to the turnover which was framed in the following manner :
"Even assuming that there were sales involved in the impugned transactions, only the depreciated market value of the machinery at the time of conversion of sale that would be reckoned for computation of taxable turnover."
On the nature of the transaction the Tribunal rendered the following finding :
"Therefore, we have no hesitation to hold that the supply transactions of machineries by the appellants to their customers under the hire-purchase agreement are sales transactions as defined under section 2(g) of the Act and there were inter-State sales involved consequent to the agreement of hire-purchase scheme, and as we see from the records, there were both despatches of machineries and the execution of the agreement simultaneously done and the dates of agreements are the dates of sales."
Regarding the correct ascertainment of the turnover the Tribunal held as follows :
"We, therefore, hold that for the purpose of computing the turnover in respect of the appellants of machineries the total of the 'hire' stipulated to be paid in instalments should be treated as the sale price or consideration for the sales."
The Tribunal therefore, held that the entire hire-purchase amount agreed to be paid in instalments should be treated as consideration for the sale. Therefore, all the appeals except for the assessment years 1974-75 and 1975-76 were dismissed. So far as the last two assessment years, namely, 1974-75 and 1975-76 were concerned, the Government Notification No. 422, Commercial Taxes and Religious Endowments Department dated October 10, 1974, directing that no tax shall be payable under the CST Act by the assessee in respect of sale of machineries imported by it through the Madras Port and sold outside the State of Tamil Nadu in the course of inter-State trade or commerce, was held to be applicable therefore the turnover in respect of these years had to be computed afresh as per the accounts. The appeals in respect of those two years were allowed and the matter was remitted back to the assessing authority for the computation of the turnover.
4. As already stated, Mr. V. Ramachandran urges before us only one question, namely, that the taxable turnover should not include the interest and service charges. The argument is that in the case of hire-purchase agreement the total value of instalments, minus, the interest and service charges, should be treated as sale price for computation of the turnover. He placed strong reliance on Johar and Co. v. Deputy Commercial Tax Officer [1965] 16 STC 213. The Supreme Court was primarily concerned with the constitutional validity of explanation I to section 2(h) of the Madras General Sales Tax Act, 1939. The explanation was in the following terms :
"A transfer of goods on the hire-purchase or other instalment system of payment shall, notwithstanding the fact that the seller retains the title in the goods as security for payment of the price, be deemed to be a sale."
After holding that the explanation was unconstitutional, the Supreme Court pointed out that in a hire-purchase agreement there were two elements : (1) element of bailment and (2) element of sale, in the sense that it contemplated an eventual sale. The element of sale fructifies when the option to purchase is exercised by the intending purchaser after fulfilling the terms of the agreement. When all the terms of the agreement are satisfied and the option is exercised a sale takes place and till then the goods had been only hired. For the purpose of our case Mr. V. Ramachandran relies on the discussion based on the "quantum of sale price which is to be the basis of taxation under the Act". Learned counsel relies on the following observations :
"The value must be something less than the original price, which in the example mentioned by us above was Rs. 5,000. In order to arrive at the value at the time of the second sale to the hirer, the sales tax authorities should take into consideration the depreciation of the vehicle and such other matters as may be relevant in arriving at such price on which the sale can be said to have taken place when the option is exercised, but that price must always be less than the original price (which was Rs. 5,000 in the example given above by us.)"
5. The question of applying the ratio of the Supreme Court judgment to the facts of the present case is our concern now. A careful perusal of the orders of the assessing authority and the Appellate Assistant Commissioner clearly shows that the petitioner never put forward such a case before the fact-finding authority. We have already pointed out that before the assessing authority, the turnover was never questioned and only the plea that the transaction related to the sales in the course of the import was projected before the assessing authority. Before the Appellate Assistant Commissioner no doubt the question of ascertaining the turnover in respect of the hire-purchase sale was raised, but the assessee never claimed any particular depreciation nor did he claim exclusion of the interest and service charges from the turnover. It will be appropriate to quote the observations of the Appellate Assistant Commissioner. They are as follows :
"They are unable to furnish the full details of the sales that accrued on the last completed payments for each year for assessment. As the appellants are not able to furnish the sales details for each year for assessment, the quantum of turnover has to be determined based on the reported turnovers. Therefore, in the absence of the details for the sales, the assessing officer had to determine the turnover reported as per accounts as relating to the sales pertaining to the years in which they were completed. Therefore, the assessment on the turnovers determined by the officer in regard to these sales is proper and is confirmed."
We have already extracted the finding of the Tribunal and the finding is that for the purpose of computing the turnover the total of the hire instalment stipulated in the agreement should be treated as sale price or as consideration for the sale. In the light of these findings, if we now examine the rival submissions, we are inclined to hold that the total value recoverable from the purchaser would be the sale price as shown in the hire-purchase agreement and, unless such entire amount was paid to the assessee, the assessee would not have parted with the goods. In other words, unless the entire amount including interest and service charges had been paid, in the stipulated instalment, the title to the goods would not have passed to the purchasers. The parties never contemplated the payment of any lesser amount. As rightly contended by the learned Additional Government Pleader, the sale price included the service charges and interest. It is the price to be paid by the purchaser as a composite price which passes on the title to them.
6. In this connection we may refer to the facts in the first Tax Case No. 464 of 1982 where the Appellate Assistant Commissioner had set out the figures in respect of a typical hire-purchase agreement. In the case of Everest Containers Corporation, Yeswanthapuram, dated March 15, 1967, the details were as follows :
"Cost of the machinery 3,19,652.72
Customs duty (CD) 87,904.52
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4,07,557.24
Clearing charges at 3 1/2% 11,187.86
Total value 4,18,745.10
Service charges 19,179.16
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4,37,924.26
Interest 89,388.11
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Total recoverable value 5,27,312.37"
Thus the total value of the goods was the subject-matter of the bargain between the parties and the same was agreed to be paid in instalments. As already stated, this is on the basis of the reported turnover of the assessee. The assessee did not claim any depreciation before the authorities. In Marikar (Motors) Limited v. Sales Tax Officer [1973] 31 STC 201 while applying Supreme Court's case cited supra the Kerala High Court observed as follows :
"It is also clear from the decision of the Supreme Court cited above, that the amount of depreciation has to be decided on a reasonable basis. That has to be done by the Sales Tax Officer on the basis of relevant materials. The assessee is also bound to produce relevant evidence in order to assist the Sales Tax Officer to come to a correct decision."
We are clearly of the opinion that the assessees have miserably failed to establish their case before the statutory authorities. On the available materials and on the basis of the findings of the authorities we are satisfied that title to the goods could not have passed to the purchaser unless the total value as per particulars given in the case of Everest Container Corporation (cited supra) had been agreed and actually paid in every case. Consequently the Tribunal was justified in upholding the assessment for all the years except 1974-75 and 1975-76. In respect of those years the Tribunal was right in remanding the case for fresh disposal on the basis of the Government Order No. 422 dated October 10, 1974. All the tax cases therefore, fail and they are dismissed. However, there will be no order as to costs.
7. Petitions dismissed.