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Marikar (Motors) Limited Vs. the Sales Tax Officer, and anr. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKerala High Court
Decided On
Case NumberO.P. No. 3175 of 1970
Judge
Reported in[1973]31STC201(Ker)
AppellantMarikar (Motors) Limited
RespondentThe Sales Tax Officer, and anr.
Appellant Advocate S.A. Nagendran and; N.N. Divakaran Pillai, Advs.
Respondent AdvocateGovernment Pleader
Cases ReferredKilikar v. Sales Tax Officer
Excerpt:
- - it is well-established by the decisions of the supreme court that in the case of such a transaction, the sale takesplace when the ownership of the vehicle is ultimately transferred by the dealer to the customer in fulfilment of the hire-purchase agreement. there is nolegislative guidance available as to how this should be done and perhapsit would be better if the legislature gives guidance in such matters. buteven in the absence of legislative guidance it would be for the sales taxauthorities to decide as best they can the value of the vehicle on the datethe option is exercised and the property passes to the hirer......dealer to the customer in fulfilment of the hire-purchase agreement. the principles for fixing the sale price under such a transactionfor the purpose of assessing sales tax have been laid down by the supreme court in its decision in johar and co. v. deputy commercial tax officer [1965] 16 s.t.c. 213 (s.c.). the court said :this case in our opinion brings out the true nature of the payment made as hire in hire-purchase agreement. part of the amount is toward shire and part towards the payment of price and it would be for the sales tax authorities to determine in an appropriate way the price of the vehicle on the date the hirer exercises his option and becomes the owner of the vehicle after fulfilling the terms of the agreement. there is nolegislative guidance available as to how this.....
Judgment:

M.U. Isaac, J.

1. The petitioner is a dealer in motor vehicles and automobile parts. One of the methods which it adopted for sale of motor vehicles is the hire-purchase system. It is well-established by the decisions of the Supreme Court that in the case of such a transaction, the sale takesplace when the ownership of the vehicle is ultimately transferred by the dealer to the customer in fulfilment of the hire-purchase agreement. The principles for fixing the sale price under such a transactionfor the purpose of assessing sales tax have been laid down by the Supreme Court in its decision in Johar and Co. v. Deputy Commercial Tax Officer [1965] 16 S.T.C. 213 (S.C.). The court said :

This case in our opinion brings out the true nature of the payment made as hire in hire-purchase agreement. Part of the amount is toward shire and part towards the payment of price and it would be for the sales tax authorities to determine in an appropriate way the price of the vehicle on the date the hirer exercises his option and becomes the owner of the vehicle after fulfilling the terms of the agreement. There is nolegislative guidance available as to how this should be done and perhapsit would be better if the Legislature gives guidance in such matters. Buteven in the absence of legislative guidance it would be for the sales taxauthorities to decide as best they can the value of the vehicle on the datethe option is exercised and the property passes to the hirer. There maybe two ways of doing it. The sales tax authorities may split up the hireinto two parts, namely, the amount paid as consideration for the use ofthe vehicle so long as it was the property of the owner and the paymentfor the option on a future date to purchase the vehicle at a nominalprice. If the first part is determined the rest would be towards thepayment of price. The first part may be determined after findingout the proper amount to be paid as hire in the market for a vehicle ofthe type concerned, or in such other way as may be available to the salestax authorities. The second method may be to take the original pricefixed in the hire-purchase agreement and to calculate the depreciationand all other factors that may be relevant in arriving at the price whenthe second sale takes place to the hirer including the condition of thevehicle at the time of the second sale. It is therefore for the sales tax authorities to find out the price of the vehicle on which tax has to bepaid in either of the ways indicated by us above or such other way as maybe just and reasonable.

The Sales Tax Officer, Special Circle, Trivandrum, who is the first,respondent, issued a notice exhibit P-1 dated 19th February, 1970, to thepetitioner proposing to assess the petitioner's turnover for the year1965-66 in the manner indicated therein. The petitioner filed a statement exhibit P-2 dated 16th March, 1970, objecting to some of theproposals. The first respondent overruled the objections and passed anorder of assessment exhibit P-3 dated 23rd March, 1970. This writ,petition has been filed to quash the said order, in so far as it rejectedthe petitioner's objections.

2. Counsel for the petitioner assailed the order of assessment onlyin respect of three matters, The first was regarding the determinationof the turnover in respect of sales under the hire-purchase agreements.In the notice exhibit P-1 issued to the petitioner, the first respondentproposed to adopt apparently the second method indicated by the SupremeCourt; and he stated that he proposed to deduct 7 per cent, per annumin the case of cars and scooters and 12 per cent, per annum in the case oflorries, trucks and tractors of the price fixed in the agreement on accountof depreciation for fixing the sale price. The petitioner, in his objectionstatement exhibit P-2, requested the first respondent to inform it thebasis of fixing the above rates of depreciation so as to enable it to submitits objections to the said rates and adduce evidence in the matter.Exhibit P-2 also pointed out that in some cases the vehicles had beensold much before the period fixed in hire-purchase agreements, while inmany other cases the period of the agreement had been extended,and the vehicles were sold long after the period fixed in the agreements. The petitioner, therefore, claimed that depreciation should beallowed for the actual period of the hire, irrespective of the period fixedin the agreement. The petitioner further claimed that in addition tothe depreciation other relevant factors mentioned in the decision of theSupreme Court should also be taken into account in determining thesale price of the vehicle. The first respondent did not furnish to thepetitioner any further information regarding the fixation of the percentage of deduction on account of depreciation. Nor did he give any opportunity to the petitioner to produce any evidence in support of itscontention. He straightaway passed the impugned order within one weekof the receipt of the objection, fixing the sale price of the vehicles asproposed by him.

3. The petitioner had furnished to the first respondent a listshowing the periods during which the hire of the vehicles remained inforce irrespective of the periods fixed in the agreements. As alreadystated, in some cases it was less than the stipulated period, while inmany cases it was more. It was not clear from the impugned orderwhether, in respect of the vehicles sold before the stipulated period, the depreciation has been allowed only for the actualperiod of hire or for the longer period as fixed in the hirepurchase agreement. The petitioner's reply affidavit states that insuch cases the first respondent has calculated depreciation only for theactual period of the hire. Admittedly, in the case of vehicles where theperiod of hire has been extended, depreciation has been allowed not forthe actual period of hire, but for the period fixed in the agreement. Insupport of this mode of calculation, the counter-affidavit of the firstrespondent states that the depreciation can be allowed only for theperiod fixed in the agreement and not for the actual period of the hire,it has not stated any reason for the same. There is also no reason for notapplying that method in the case of sales which took place earlier thanthe period stipulated in the agreements. Whatever that may be, thetrue legal position is that, until the ownership of the vehicle is transferredfrom the petitioner to its customer, there is no sale of the vehicle andtherefore depreciation has to be allowed till the ownership is actuallytransferred, irrespective of the period fixed originally in the hire-purchaseagreement.

4. It is also clear from the decision of the Supreme Court citedabove, that the amount of depreciation has to be decided on a reasonablebasis. That has to be done by the Sales Tax Officer on the basis ofrelevant materials. The assessee is also bound to produce relevant evidencein order to assist the Sales Tax Officer to come to a correct decision. In thiscase, the first respondent's decision is not based on any materials ; and thepetitioner was not also given any opportunity to adduce any evidence inrespect of that matter. It would have been helpful for a proper adjudication of the matter on a quasi-judicial basis, if the first respondentfurnished the petitioner the basis on which he proposed to decide thisquestion and the petitioner produced evidence in support of its objection,if any, to the proposal made by the first respondent. The SupremeCourt has also referred not only to depreciation but 'all other factorsthat may be relevant' in fixing the sale price. There is no indicationwhat those relevant factors would be. It may be because they varyaccording to the nature of the commodity or market conditions of theplace. The assessee must point out what these factors are and the SalesTax Officer must decide how for they are relevant and to what extentallowance can be given on that account in determining the price of thevehicle on the date of sale. What the Supreme Court has indicated isonly the guidelines in fixing the said price. In the light of what I havestated, the fixation of sale price of the vehicles sold under hire-purchaseagreements in the manner done by the first respondent cannot besustained.

5. The second objection raised to the impugned order of assessmentrelated to the turnover of trucks. According to the petitioner, there wasno sale of trucks as such., What was done was to sell the chassis andthen under a separate contract to build and supply the body. So it was contended that the turnover in respect of the chassis and the bodyshould have been determined separately and the first respondent was inerror in clubbing both as the turnover in respect of sale of motor vehiclesand assessing it at 10 per cent., whereas the turnover relating to supplyof body was assessable only at 3 per cent. This is a pure question offact, which the petitioner does not seem to have raised before the firstrespondent.

6. The third objection urged by the petitioner's counsel relates todisallowance of rebates given to the customers in determining the turnover.This claim has to be considered by the first respondent in the light ofExplanation II to Section 2(27) of the Kerala General Sales Tax Act,1963, wherein the term turnover is defined and Rule 9(a) of the Rulesmade under the Act.

7. The petitioner has also raised a contention that the levy ofsurcharge is illegal, for the reason that the Kerala Surcharge on TaxesAct, 1957, is unconstitutional. This contention has to be rejected inview of the decision of this court in Kilikar v. Sales Tax Officer [1968] 21 S.T.C. 252

8. For the reasons stated above, I quash the order exhibit P-3, in so far as it relates to the matters dealt with above and direct the first respondent to assess afresh the petitioner's turnover according to lawand in the light of the observations herein contained. There will be no order as to costs.


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