# The State of Pttnjab v. Nathu Rani Raghubar Dayal ]. May 2

- **Citation:** [1962] 2 S.C.R. 644
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Appeals Nos. 636 to 641 of 1957
- **Bench:** B. P. Sinha, s. K. DAS, A. K. Sarkar, N. RAJAGoPALA AYYANGAR, J. R. Mudholkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-state-of-pttnjab-v-nathu-rani-raghubar-dayal-may-2-2281
- **Pages:** 15

## Headnote

Sales Tax-Hire-purchase agreement-Transaction on such
agreemrnt, if liable to tax-Bengal Finance (Sales Tax) Act, 194r,
as extended to Delhi State, s. 2(g).
Section 2(g) of the Bengal Finance (Sales Tax} Act, i941, as
extended to Delhi State, provided as follows,-
" 'Sale' means any transfer of property in goods for cash or
deferred payment or other valuable consideration, including a
transfer of property in goods involved in the execution of a contract, but does not include a mortgage, hypothecation, charge er
pledge.
Explanation 1 .... A transfer of goods on hire-purchase or
other instalment system of payment shall, notwithstanding that
the seller retains a title to any goods as security for payment of
the price, be deemed to be a sale."
The hire-purchase agreement entered into by the petitioneic
company provided that after all the monthly instalments had
been paid, "'the hiring shall come to an encl and the vehicle
shall, at the option of the hirer, become his absolute property;
but until such payments as aforesaid have been made, the veJii ..
cle shall remain the property of the owners. The hirer shall'.
also have the option of purchasing the vehicle at any time dur ..
ing 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." The question for determination was whether the agreement was a transaction of mere hiring or one of hire-purchase
within the meaning of Explanation 1 to s. 2(g) of the Act.
2 S.C.R. SUPREME COURT REPORTS
645
Held, that the language of Explanation 1 to s. 2(g) of the
z96z
Act was wide enough to include a mere transfer of goods without the transfer of the title thereto, if such transfer took place Install>""' Supply
in the course of an agreement of hire-purchase or any other
(P.) Ltd.
instalment system of payment.
v.
As the-Att did not define the term 'hire-purchase', it had Union °1 India
to be construed in its ordinary Common Law sense, i.e., that it
partook of the nature of a c.ootract of bailment with an element
of sale added to it.
·
Lee v. Buller, [1893] 2 Q. B. 318 and Helby v. Matthews,
[1895] A. C. 471, referred to.
The non obstante clause in Explanation 1 to s. 2(g) of the
Act did not govern the main clause of the said Explanation and
its sole purpose was to emphasise the categorical statement of
the law contained therein. Since the agreement in the instant
case contained not merely a contract of bailment simpliciter bu\
also an element of sale, the transaction had rightly been subjected to sales tax.
There could be no force in the contention that the Act in so
far as it sought to extend the concept of sale to what in law
was not a real _sale, was unconstitutional.
Mithan Lal v. State of Delhi, [1959] S.C.R. 445, referred to.
Nor was there any substance in the contention that the
extended definition of the word 'sale' in the Act infringed Art. 14
of the Constitution.
!tis well settled that in matters of taxation there can be no
question of res judicata.
Society of Medical Officers of Health v. Hope (Valuation Officer), [1960] A. C. 551 and Broken Hill Proprietary Company Ltd.
v. Municipal Council of Broken Hilt, [r925] A. C. 94, referren to.
Instalment s .. pply Ltd., New Delhi v. State of Delhi, A.LR.
1956 Punj. 1J7, considered.
ORIGINAL JURISDICTION:
Petition No. 146 of 1958.
Petition under Art. 32 of the Constitution of India.
for enforcement of Fundamental Rights.
Veda Vyasa, S. K. Kapur and Ganpat Rai, for the
petitioners.
C. K. Daphtary, Solicitor-General of India, R. Gopalakr-ishnan and D. Gupta, for the respondents.
1961. May 2.
The Judgment of the Court was
delivered by
SINHA, C. J.-The petitioners have moved this
Sinha c. J.
CourL under Art.. 32 of the Constitution for a. writ
8>
646
SUPREME COURT REPORTS
[19ti2]
z96z
or order i.n the nature of mandamus and/or prohibiI
I -
5
1 tion and/or other suitable writ, order or direction to
nsla ment upp y
]
h
11
(

## Text

The State of
Pttnjab
v.
Nathu Rani
Raghubar
Dayal ].
May 2.
644
SUPREME COURT REPORTS
[ 1902]
connected appeals, viz., Civil Appeals Nos. 636 to
641 of 1957.
Appeal di81nissed.
INSTALMENT SUPPLY (P.)LTD. AND
ANOTHER
v.
THE UNION OF INDIA AND OTHERS
(B. P. SINHA, c. J., s. K. DAS, A. K. SARKAR,
N. RAJAGoPALA AYYANGAR and
J. R. MUDHOLKAR, JJ.)
Sales Tax-Hire-purchase agreement-Transaction on such
agreemrnt, if liable to tax-Bengal Finance (Sales Tax) Act, 194r,
as extended to Delhi State, s. 2(g).
Section 2(g) of the Bengal Finance (Sales Tax} Act, i941, as
extended to Delhi State, provided as follows,-
" 'Sale' means any transfer of property in goods for cash or
deferred payment or other valuable consideration, including a
transfer of property in goods involved in the execution of a contract, but does not include a mortgage, hypothecation, charge er
pledge.
Explanation 1 .... A transfer of goods on hire-purchase or
other instalment system of payment shall, notwithstanding that
the seller retains a title to any goods as security for payment of
the price, be deemed to be a sale."
The hire-purchase agreement entered into by the petitioneic
company provided that after all the monthly instalments had
been paid, "'the hiring shall come to an encl and the vehicle
shall, at the option of the hirer, become his absolute property;
but until such payments as aforesaid have been made, the veJii ..
cle shall remain the property of the owners. The hirer shall'.
also have the option of purchasing the vehicle at any time dur ..
ing 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." The question for determination was whether the agreement was a transaction of mere hiring or one of hire-purchase
within the meaning of Explanation 1 to s. 2(g) of the Act.
2 S.C.R. SUPREME COURT REPORTS
645
Held, that the language of Explanation 1 to s. 2(g) of the
z96z
Act was wide enough to include a mere transfer of goods without the transfer of the title thereto, if such transfer took place Install>""' Supply
in the course of an agreement of hire-purchase or any other
(P.) Ltd.
instalment system of payment.
v.
As the-Att did not define the term 'hire-purchase', it had Union °1 India
to be construed in its ordinary Common Law sense, i.e., that it
partook of the nature of a c.ootract of bailment with an element
of sale added to it.
·
Lee v. Buller, [1893] 2 Q. B. 318 and Helby v. Matthews,
[1895] A. C. 471, referred to.
The non obstante clause in Explanation 1 to s. 2(g) of the
Act did not govern the main clause of the said Explanation and
its sole purpose was to emphasise the categorical statement of
the law contained therein. Since the agreement in the instant
case contained not merely a contract of bailment simpliciter bu\
also an element of sale, the transaction had rightly been subjected to sales tax.
There could be no force in the contention that the Act in so
far as it sought to extend the concept of sale to what in law
was not a real _sale, was unconstitutional.
Mithan Lal v. State of Delhi, [1959] S.C.R. 445, referred to.
Nor was there any substance in the contention that the
extended definition of the word 'sale' in the Act infringed Art. 14
of the Constitution.
!tis well settled that in matters of taxation there can be no
question of res judicata.
Society of Medical Officers of Health v. Hope (Valuation Officer), [1960] A. C. 551 and Broken Hill Proprietary Company Ltd.
v. Municipal Council of Broken Hilt, [r925] A. C. 94, referren to.
Instalment s .. pply Ltd., New Delhi v. State of Delhi, A.LR.
1956 Punj. 1J7, considered.
ORIGINAL JURISDICTION:
Petition No. 146 of 1958.
Petition under Art. 32 of the Constitution of India.
for enforcement of Fundamental Rights.
Veda Vyasa, S. K. Kapur and Ganpat Rai, for the
petitioners.
C. K. Daphtary, Solicitor-General of India, R. Gopalakr-ishnan and D. Gupta, for the respondents.
1961. May 2.
The Judgment of the Court was
delivered by
SINHA, C. J.-The petitioners have moved this
Sinha c. J.
CourL under Art.. 32 of the Constitution for a. writ
8>
646
SUPREME COURT REPORTS
[19ti2]
z96z
or order i.n the nature of mandamus and/or prohibiI
I -
5
1 tion and/or other suitable writ, order or direction to
nsla ment upp y
]
h
11
(P.) Ltd.
the respondents not to evy, c arge or co ect any
v.
sales tax on transactions of what the petitioners
Union of India characterised as hire-purchase agreements, a typical
example of which is contained in Annexure 'A' to the
Sinha c. f.
petition, to be hereinafter examined in detail.
The first petitioner is a private limited company
incorporated under the Companies Act, with its reg;istered office at Janpat,h, New Delhi. The second petitioner is the Managing Director and shareholder of
that company and is directly interested in the result
of 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' 2.n
initial deposit by way of premium as a consideration
for granting the lease of tho 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 posse13.
sion 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
2 S.C.R.
SUPREME COURT REPORTS
647
purchase is exercised by the 'Hirer', he is at liberty
1961
to return the vehicle and to put an end to the Hiring lnstalm:;; supply
Agreement, on certain terms. Thus, under the agree-
(P.J Ltd.
ment, the 'Hirer' has the use of the vehicle, which is
v.
entrusted to him as the property of the Company, Union of India
and it is open to the 'Hirer' to become the purchaser
of the vehicle as aforesaid, but he is not bound to
Sinha c. J.
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 be taxed as SiJ,leprice. 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 Rales
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 prl}yed for a
writ in the nature of prohibition and/or mandamus
restraining the respondent from realising or le".·· ing
any sales tax under the provisions of the Bengal .\.,,t,
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 re.alisation 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 Sa.le 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
648
SUPREME COURT REPORTS
[196.2)
'96'
business in Delhi and the Commissioner of Sales Tair,
Installn-:;;; Supply who ~s~ued a circul~r, bei~g Circular No. 10 of 1956,
(P.) Ltd.
contammg the followmg decisions of tho Department:--
•·
"(i) Companies which are exclusively engaged iin
Union of India
the hire purchase business will not be treated as
dealers and their certificate of registration will he
Sinha c. J.
cancelled.
(ii) Companies which are partially engaged in the
business of hire purchase will continue to he 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 be as other non-registered dealers,
in view of (i), their Registration Certificates in respect of Hire purchase business having been cancelled.
(vi) The assessment which are already made will
not be re-opened except in the case of M/s. Instalment 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 save by
making tax free purchases either from dealers or
from non-registered dealers. The assessment wiH,
however, be made accordingly as before in the normal way."
2 S.C.R. SUPREME COURT REPORTS
649
Thereafter in the case of Mithan Lal v. State of Delhi(')
196'
this Court examined the vires of the Beng.al Finance Instalm-;;:; Suftly
(Sales Tax) Act, 1941, as extended to Delhi, and came
(P.) Ltd.
to the conclusion that the law had been validly prov.
mulgated.
According to that decision, the definition Union oj India
of 'sale' could be legally extended so as to make it
permissible to tax sale of goods involving the supply
Sinha c. J ·
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 Company's contention and
answered to the following effect:-
"l. The incidence of Sales Tax on such tranactions is to be governed by the provisions of Sections 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
(I) (1959] S.C.R. 4'5·
1961
InsltJhnent Supply
(P.) Ltd.
v ..
U11io11 o.f India
Sinha C. /.
650
SUPREME COURT REPORTS
[1962]
nor Central Sales Tax will be leviable on the Delhi
firm irrespeci.ive of the fact that the Hire-purchase
Agreement is enterer\ 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 tra.nsactions of secondhand
vehicles, where the owner approaches the Hire Purchase Co. for finances against the vehicles, will be
leviahle 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 hirepurchase 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 vohicles 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, rPgretted
that it is not possible to accede to the request ma.do
in this behalf.
4.
Sales Tax will be payable on total amounts
charged by the Hire-purchase Co. from the hirer
an<l it is not possible to waive Sales '.!.'ax on the socallod 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 Snpreme 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
2 S.C.R.
SUPREME COURT REPORTS
651
refund of the Sales Tax paid by them on such
'96'
purchases.
.
p
Instalment supply
If, however, it is not possible for any Hire
ur-
(P.) Ltd.
chase Co. to obtain refund of the SaleR Tax so paid
v.
by them, the amounts so paid may be adjusted Union of India
towards their liability on the hire purchase transactions."
Sinha c. J.
On receipt of the answer of the Department, as
set out in the previous paragraphs, the petitioners
moved this Court under Art. 32 of the Constitution
on the ground that the "threatened action of the respondents is illegal and unconstitutional as the petitioner company is not liable to pay sales tax on the
transactions" described above.
In support of the petition, the learned counsel
for the petitioners has raised the following contentions:
(1) that the transactions in respect of which the peti.
tioners are sought to be taxed are not covered by the
explanation to s. 2(g) of the Bengal Finance (Sales
Tax) Act, as extended to Delhi; (2) a.lternatively,
that is to say, if it is held that the explanation covers
the transactions of the nature aforesaid, then the
explanation, extending the concept of 'sale' is unconstitutional; (3) That in any case it is unconstitutional as it infringes Art. 14 of the Constitntion in
so far as the State of Delhi has been selected for
hostile discrimination; ( 4) that the judgment of the
Punjab High Court in Instalment Supply Ltd., New
Delhi v. State of Delhi(') is final and conclusive as
between the parties to that judgment; (5) that if it is
held that the judgment of the Punjab High Court,
referred to above, has been superseded by the judgment of this Court in M ithan Lal' s case ('), that
judgment cannot be given retrospective operation;
and (6) lastly, that the settlement between the Department and the Companies transacting business in
"Hire-purchase" is binding until the decision of this
Court in Mithan Lal's case('), aforesaid. We shall examine these arguments in the order in which they have
been stated.
The most important question in this case is: What
(1) A.I.R. 1956 Punj. 177.
(2) (1959) s.c.R. 445.
652
SUPREME COURT REPORTS
[1962]
r96x
is the true nature and character of the transaction
I
I I --1 5 ppl which is the subject matter of the present contro·
ns a men
u
y
D
h
d
. .
(I'.) Ltd,
versy?
o t e terms an
cond1t10ns of the agreev.
ment typified by Annexure 'A' to the petition, as. des.
Union of India cribed above, constitute a mere agreement of hiring,
as contended on behalf of the petitioners, or do they
8 ;n1ia c. f.
constitute a contract of hire. purchase, within the
meaning of explanation (1) t0 the definition of 'sale'
contained in the statute in question, as contended on
behalf of the respondents? There is no doubt that
the concept of 'sale', as it appears from the following
words of the definition, along with explanation (l), is
rather extended. In the definition of the term
'sale' for the purposes of the Act, the words are as
follows:-
" 'Sale' means any transfer of property in goods
for cash or deferred payment or other valuable
consideration, including a transfer of property in
goods involved in the execution of a contract, but
does not include a mortgage, hypothecation, charge
or pledge.
Explanation l.-A transfer of goods on hire-purchase or other instalment system of payment shall,
notwithstanding that the seller retains a title to
any goods as security for payment of the price, be
deemed to be a sale."
It is clear from the definition that it includes not only
what may be compendiously described as a sale under
the Sale of Goods Act, but also transactions, which,
strictly speaking, are not sales, not even 'contracts of
sale' but only contain an element of sale, that is the
option to purchase, and that is the reason why the
explanation ends with the words "be deemed to be a
sale", thereby indicating that a legal fiction has been
introduced into the concept of 'sale' as ordinarily
understood. The explanation has included within its
amplitude a mere transfer of goods without the transfer of title to the goods, if it is in the course of an
agreement of the nature of "hire-purchase", or other
t
instalment system of payment. A contract of hiring,
under the Common Law, is one of the species of a
contract of bailment and has, during the last 60-70
2 S.C.R. SUPREME COURT REPORTS
653
years, undergone a series of refinements as a result of
r96r
modern industrial and commercial developments. The
--
h.
h
, h
b
d fi
d .
h A
Instalment Supply
term ' ire-pure ase
as not een e ne mt c
ct.
(P.) Ltd
We have, therefore, to construe the expression in its
v.
·
ordinary Common Law sense, which may best be Union of India
e![pressed iu terms of the Dictionary of Englis1 Law
by Earl Jowitt at pages 913-914, which runs as
Sinha c. J.
follows:
"Hire-purchase-a system whereby the owner of
goods lets them on hire for periodic payments by
the hirer upon an agreement that when a certain
number of payments have been completed, the
absolute property in the goods will pass to the hirer,
but so that the hirer may return the goods at any
time without any obligation to pay any balance of
rent accruing after return; until the conditions have
been fulfilled, the property remains in the owner.
The instrument by which the hire-purchase is effected does not ordinarily require registration as a bill
of sale (Exp. Crawcour ( 1878) 9 Ch. D. 411J); the
hirer is 'reputed owner' within the Bankruptcy Act,
1914 (H:xp. Brooks (1883) 23 Ch. D. 261); but the
hirer does not 'agree to buy' within the Factors Act
or the Sale of Goods Act, 1893, so as to be able to
sell or pledge the goods as if he were a mercantile
agent (Helby v. Matthews (1895) A. C. 471; Brooks
v. Biernstein (1909) 1 K.B. 98). Such agreements
are to be distinguished from agreements such as in
Lee v. Butler (1893) 2 Q.B. 318, which are in fact a
sale, the price being paid in instalments with the
condition that the property passes when all the
instalments have been paid; here there is a binding
agreement for the party to purchase, where in a true
hire-purchase agreement there is not."
In Halsbury's Laws of England, Third Edition,
Volume 19, paragraph 823, at pages 510-511, the
nature of a hire-purchase transaction is thus expressed:
"The contract of hire purchase is one of the variations of the contract of bailment, but it is a modern
development of commercial life, and the rules with
regard to bailments, which were laid down before
83
1961
Jnstatment Supply
(P.) Ltd,
v.
Union of India
Sinha C. } .
654
SUPREME COURT REPORTS
[1962)
any contract of hire purchase was contemplated,
cannot be applied simpliciter, because such a contract has in it not only the element of bailment but
also the element of sale. At common law the term
'hire purchase' properly applies only to contracts of
hire conferring an option to purchase, but it is often
used to describe contracts which are in reality agreements to purchase chattels by instalments, subject
to a condition that the property in them is not to
pass until all instalments have been paid. The
distinction between these two types of hire purclia.se
contracts is, however, a most important one, because
under the latter type of contract there is a binding
obligation on the hirer to buy and the hirer can
therefore pass a good title to a purchaser or pledgee
dealing with him in good faith and without notice
of the rights of the true owner, whereas in the case
of a contract which merely confers an option to
purchase there is no binding obligation on the hirer
to buy, and a purchaser or pledgee can obtain no
better title than the hirer had, except in the case of
a sale in market overt, the contract not being an
agreement to buy within· the Factors Act, 1889, or
the Sale of Goods Act, 1893."
The .observations quot!'ld above are based mo.stly
on two leading cases which have come to be regarded
as the locus classicus upon the subject, namely, Lee v.
Butler (1) in which the transaction was described by
Lord Esher, M.R., as "Hire and Purchase Agreements"
and Helby v. Matthews(') in which the House of Lords
distinguished the former case on the ground that in
that case there was a binding contract to buy and not
merely an option to buy, without any obligation to
buy.
Both these cases were decided in terms of
Factors Act of 1889 (52 & 53 Viet. c. 45, s. 9).
Both
the kinds of agreements exemplified by the two leading cases aforesaid would now be included in the
definition of 'hire-purchase' as contained in s. 21 of
the Hire Purchase Act, 1938 (1 & 2 Geo .. 6, c. 53):-
" 'Hire-purchase agreement' means an agreement
for the bailment of goods under which the bailee
lI) (1893] 2 Q.B. 318,
(2) [1•95] A.C. 471.
2 S.C.R. SUPREME COURT REPORTS
655
may buy the goods or under which the property in
r96r
the goods will or may pass to the bailee, and where r
1 -
5
1
b
.
.
nsta me~it upp y
y virtue of two or more agreements, none of which
(P.J Ltd.
by itself constitutes a hire-purchase agreement,
v.
there is a bailment of goods and either the bailee Union of India
may buy the goods, or the property therein will or
may pass to the bailee, the agreements shall be
Sinha c. f.
treated for the purposes of this Act as a single
agreement made at the time when the last of the
agreements was made."
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 Lhere is an 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 hire-purchase, 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 or otherwise.
But it has been contended on behalf of the petitioners that there is no binding agreement to purchase
the goods and that title is retained by the owner not
as a security for payment of the price but absolutely.
According to 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 aha.II
remain the property of the owners. The hirer shalt
also have the option of purchasing the vehicle at any
656
SUPREME COURT REPORTS
[1962)
Tij6I
time during the currency of this AgreemPnt,, by paying
Instalment supply in one lump sum the balance of all the hire herein-
(?.) Ltd.
before mentioned and any other Bxpenses incurred by
v.
the owners relating to the tramaction."
Union of India
It is clear, therefore, that in addition to the con.
Sinha c. 1.
tract 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 whe.
ther the non obstante clause in the explanation
"notwithstanding that the seller retains 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 opt.ion of the hirer.
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 Sales Tax.
This leads us to the second ground of attack raised
by the petitioners, namely, that thu explanation, if it
has the effect of extending the concept of 'sale' to
what, in law, is not a real sale, but only an incipient
or inchoate sale, then in so far as the law has extended the definition of 'sale' it is unconstitutional. This
contention has lost all its force, if ever it had any, in
view of the decision of this Court in M ithan Lal's
case(').
But then it is argued that Mithan Lal's case(') requires re-consideration and that, in any view of the
matter, this Court did not consider the further attack
based on Art. 14 of the Constitution. It is true that
in Mithan Lal's case(') the contention that the
enactment in question had infringed Art. 14 of the
(t) [1959] S.C.R. 445·
2 S.C.R. SUPREME COURT REPORTS
657
Const.itution had not been raised. This Court, therefore, had no occasion to pronounce on that aspect Instalm;,,; supply
of the controversy
We have, therefore, to con1P.) Ltd.
sider the contention under head (3), namely, that
•·
though the Parliament may have had the power Union °! India
to tax something which was not strictly speaking
h
k h
. d'
Sinha C. ].
a 'sale', the law is open to t e attac
t at 1t
1scriminates 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 found a ti on was laid in the plead in gs for supporting such a contention. It has not been averred
that other Parp 'C' States lrnve 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, discussed above. Section 2(g) of the Central Sales Tax Act, 1956, has the
following definition:
"'Sale' with its grammatical variations and cognate expressions, means any transfer of property in
goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes a transfer of goods on the hire
purchase or other system of payment by instalments, but does not include a mortgage or hypothecation of or a charge or pledge on goods."
It would, 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 extendec'. definition of 'sale' in the main statute infringes
Art. 14 of the Constitution.
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 t.he law. The Department issued its
658
SUPREME COURT REPORTS
[1962]
'96'
instructions to the Sales Tax Officers, in conformity
Instalm;;,i··s,,pply with the law as laid down in the judgment of the
(P.J Ltd.
Punjab High Court in Instalment Supply Ltd., New
v.
Delhi v. State of Delhi(').
This Court later laid down
Union °! India the law more authoritatively in Mithan Lal's case(')
and t.hc Deprutment was bound to take notice of what
Sinha C. j.
this Court had laid down. It cannot, therefore, be
argued that the Department had, in any sense estoppcd itself by issuing t-hose instructions, or that this
Court, by laying down the law in MithanLal's case(')
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.
There is another answer to the point of res judicata
raised on behalf of the petitioners, relying upon the
decision of the Punjab High Court in Instalment Supply Ltd., Nlw Delhi v. State of Delhi(').
lt. is well
settled that in matt.ors of taxation there is no question
of res judicata because each year's 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 (Valuation
Officer)(') approving and following the decision of the
Privy Council in Broken Hill Proprietary Company
Lirnited v . .M·anicipal Council of Broken Hill {4).
As all the conlc,ntions raised on behalf of \.he petitioners fail, this petition is dismissed with coats.
(I) A I.Ii. 1956 Po:nj 177.
(JI [1960] A.C. 551.
Petition diS?nis.scd.
(2) [1959] S.C. R. 4·•5·
(4) [19>5] A.C. 94·