M/S. MARIKAR MOTORS LTD.versusSALES TAX OFFICER AND ANR.

'                         MIS. MARIKAR MOTORS LTD.                                A
                                      v.
                         SALES TAX OFFICER AND ANR.                 /

                                FEBRUARY 6, 1996

              [B.P. JEEVAN REDDY, AND S.B. MAJMUDAR, JJ.]                         B

            Sales Tax:

          Kera/a Sales Tax Act-Dealer in motor vehicles and automobile
    parts-Sale on hire purchase basis-When. sales take effect-Held, it is only C
    when the purchaser exercises the option to purchase after fully paying the
    agreed amount-Not simply at the end of the hire purchase period-Deprecia-
    tion-Rate of 12% adapted-Open to the assessee to challenge the assess-
    ment-If appeal not filed earlier, could be filed within. one month-To be
    taken as filed within time and disposed of accordingly-Question as to
    whether amount of rebate should have bee,n excluded from the tumove,.-..Left D
    open.

            KL. Johar & Co. v. Deputy Commercial Tax Officer, Coimbatore, 16
    S.T.C. 213, relied on.

            CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1015 of                E
    1977.

         From the Judgment and Order dated 28.6.76 of the Kerala High
    Court in W.A. No. 98 of 1973.

            P.S. Poti, Ms. Malini Poduval for the appellant.
                                                                                  F

            M.T. George, for the Respondents.

            The following Order of the Court was delivered :

          This appeal is preferred against the judgment of a Full Bench of the    G
    Kerala High Court. The matter arises under the Kerala Sales Tax Act and
    the relevant assessment year is 1965-66. The appellant is a dealer in motor
    vehicles and automobile parts. The question herein, however, is confined
    to motor-trucks. The appellant sells trucks both by way of direct sale and
    also on the basis of hire-purchase. We are concerned with the sales           H
                                        217
    218                   SUPREME COURT REPORTS                  [1996] 2 S.C.R.

A   effected on hire-purchase basis.

          According to the hire-purchase agreement entered into between the
    appellant and the hirer, the period of hire is two years. The agreement
    stipulates that the entire consideration specified under the said agreement
    shall be paid within the said period of two years and that, at the end of
B   that period, the hirer shall become the owner.

        In the course of assessment proceedings, the question - how to value
  the vehicles and with reference to which date - arose. The matter was
  brought to his Court in 19 S.T.C. 80. This Court held that the hire purchase
C agreement comprises two elements, (i) the element of bailment and (2) the
  element of sale in the sense that it contemplates evential sale. It was held
  that element of sale in the transaction fructifies when the option is exer-
  cised by the intending purchaser after fulfilling the terms of the agreement.
  When all the terms of agreement are satisfied and the option is exercised,
  it was held, sale takes place of the goods which till then have been hired.
D Only when the sales take place, it was held further, it will attract the sales
  tax.

        In an earlier decision of this Court in KL. Johar & Co. v. Deputy
  Commercial Tax Offiw; Coimbatore, 16 S.T.C. 213, it has been held that
E in the matter of determining the consideration for sale, two courses are
  open to the Revenue, viz., (a) to take the original price of the goods and
  deduct the appropriate amount of depreciation out of it or (2) to take the
  market-value of the goods on the date of the sale.

        Applying the aforesaid principles, the Sales Tax Officer proposed to
F adopt  first of the above two methods of valuation. In other words, he
  wanted to take the original sale price from which he proposed to deduct
  the amount of depreciation. But this, in turn, gave rise to another con-
  troversy, viz, rate of depreciation. The Sales tax Officer proposed to adopt
  the rate of twelve percent depreciation per annum. Yet another question
  before the Sales Tax Officer was whether the sale should be deemed to
G have taken place at the end of the period stipulated in the agreement or
  on the date when the hirer actually exercised the option to purchase after
  paying the full price. The appellant's case was not only that he was entitled    --
  to a higher rate of depreciation but also that whatever the period of
  hire-purchase has been extended by agreement between the parties, the
H extended period should be taken into consideration and the depreciation
                        MARIKAR MOTORS LTD. v. S.T.O.                        219

     worked out for that entire period, i.e., upto the date the hirer exercised the A
     option to purchase. According to the assessee, the sale did not come about
     automatically at the end of the period stipulated in the agreement but only
     when the hirer exercised the option after paying the full amount due,
     whether within the period stipulated in the agreement or the extended
     period, as the case may be. The Sales Tax Officer rejected both the
                                                                                     B
     contentions of the appellant. He adopted twelve percent per annum as the
     rate of depreciation. He also refused to look into the question, whether
     and in how many cases, was there an extension of the period of hire-
     purchase. He simply took the period stipulated in the agreement as final
     and treated the last date of the said period as the date of sale. The
     appellant questioned the order of assessment directly by way of a writ c
     petition in the Kerala High Court. The learned Single Judge allowed the
     writ petition holding (a) that so far as the rate of depreciation is concerned,
     the authority must examine the matter over again and (2) that the Sales
     Tax Officer was in error in treating the period of agreement as the only
     relevant period and in ignoring the extensions granted by the appellant. D
     Following the decision of this Court in KL. Johar & Co., the learned Single
     Judge held that the sale comes about when the hirer exercises the option
     and not automatically at the end of the period stipulated in the agreement.
     He accordingly remitted the matter to the Sale Tax Officer for making
     the assessment in accordance with the judgment.
                                                                                    E
           The revenue filed an appeal. The matter was referred to a Full
     Bench. On the question of rate of depreciation, the Full Bench held that
     no materia\ was placed by the appellant before the Court to hold that the
     rate actually adopted by the assessing officer was not reasonable. With
     respect to the other question, the Full Bench declined to express itself. It   F
     only held that the appellant has failed to prove, as a fact, that there were
     extensions. Once there is no suck proof, the Full Bench opined, it was
     unnecessary for them to go into the question whether the Sales Tax Officer
     was right in holding that the sale comes about automatically at the end of
     the agreement period irrespective of any other factors. The said view is
     questioned in this appeal.                                                     G

ll        Before proceeding further, we may mention a fact which is relevant.
     Pursuant to the judgment of the learned Single Judge, the Sales Tax Officer
     made an assessment which is dated July 16, 1976. (We are told that there
     was no stay pending the writ appeal.) A copy of the said order is placed H
    220                   SUPREME COURT REPORTS                    [1996) 2 S.C.R.

A before us. The assessment order shows that the Sales Tax Officer has
    accepted the extended period wherever there was extension. It also appears
    that in some cases, the full payment was made even prior to the stipulated        /'
    period and the hirer exercised the option to purchase. In those cases, the
    actual period was taken as the basis and the sale was held to have taken
    place at the end of such period. Now, it must be remember that on the first
B   occasion, the Sales Tax Officer did not find as a fact that there were no
    extensions as averred by the assessee. He refused to go into that aspect
    because of his opinion that it was irrelevant. The material was before him.
    Now, that we have held that the said fact is relevant, the factual aspect
    becomes relevant and for that purpose we have looked into the subsequent
c   assessment order dated July 16, 1976. If so, the basis upon which the Full
    Bench has held against the assessee (insofar as the question - when does
    the sale take place) must be held to have become untenable.

          Now, coming to the principle applicable in this behalf, we may
D reiterated the law enunciated by this Court in KL. Johar's case (supra),
  viz., that coming into being of the sale is a question of fact and that it takes
  place when the hirer exercises the option. It cannot be said that merely
  because the hire-purchase agreement stipulates a particular period for the
  total payment of the consideration and for the purchaser to exercise the
  option to purchase at the end of the said period, the sale does not take
E place at the end of that period willy-nilly. There may be cases where the
  hirer may default in paying the amount within the stipulated period, he may
  ask for extension and the dealer may grant the extension. In such cases,
  the sale obviously takes place only when the purchaser exercises the option
  to purchase after fully paying the agreed amount. In this view of the matter
F and also in view of the findings of fact affirmed i~ the assessment order
  dated July 16, 1976, the order of the Full Bench is liable to be set aside on
  this issue. We affirm the order of assessment dated July 16, 1976 on this
  issue.                                                                              -
           The next question pertains to the rate of ~epreciation. The assess-
G   ment order dated July 16, 1976 has again adopted the rate of twelve percent
    per annum. Sri Poti, learned counsel, says that this figure is arbitrary and
    that the authorities have not explained the basis upon which the said figure
    has been arrived at. He says that under the Income tax Act, where the
    trucks are held for running on hire, the rate of depreciation is forty percent.
H   He says that this factor should have been kept in mind in determining the
                         MARIKAR MOTORS LID. v. S.T.O.                        221

       rate of depreciation. As stated above, the Full Bench has opined that the A
       appellant has failed to place any material showing that the said rate was
       arbitrary. It has also refused to take into consideration the rate of deprecia-
       tion fixed by the Income Tax Act on the ground that that is a different
       enactment and that the rate prescribed therein is for the purposes of that
       Act. .Be that as it may, since the appellant has a right of appeal against B
       assessment order, we do not wish to enter into this question. It was open
       to the assessee to challenge the said finding in the appeal which may have
       been filed by him against the order of assessment. It is made clear that in
     · case, the assessee has not filed the appeal against the order dated July 16,
       1976, he may be permitted to file such an appeal now. If the appeal against
       the assessment order dated July 16, 1976 is filed within one month from C

-      today, the same shall be treated as filed within time and shall be disposed
       of accordingly. If, however, he has already filed the appeal, this direction
       shall not operate.

           There is anoth~r minor question ansmg herein. That relates to
     rebate. The question is whether the amount of rebate should have been D
     excluded from the turn-over. Having regard to the smallness of the amount
     involved, we express no opinion on this aspect and leave the question open.

            In the circumstances, this appeal is disposed of with the above
     directions. The judgment of the full Bench shall be deemed to have been        E
     set aside to the extent it runs contrary to the judgment.


-    G.N.
            No costs.

                                                             Appeal disposed of.




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