M/S. MARIKAR MOTORS LTD. versus SALES TAX OFFICER AND ANR.

Citation: [1996] 2 S.C.R. 217 · Decided: 06-02-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY, S.B. MAJMUDAR · Disposal: Disposed off

Judgment (excerpt)

' 
MIS. MARIKAR MOTORS LTD. 
v. 
SALES TAX OFFICER AND ANR. 
/ 
FEBRUARY 6, 1996 
[B.P. JEEV AN REDDY, AND S.B. MAJMUDAR, JJ.] 
Sales Tax: 
A 
B 
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. 
M.T. George, for the Respondents. 
The following Order of the Court was delivered : 
F 
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. 
B 
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 
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. 
F 
G 
Applying the aforesaid principles, the Sales Tax Officer proposed to 
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 
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 
--
ll 
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, 
whe

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