Substance over form in hire-purchase agreements: financing arrangement treated as loan security, not a taxable sale.

Hire-purchase documents must be construed as a whole and by their substance, not merely by their form. Where the financier was in the business of financing purchases, the vehicles remained registered in the customer's name, the customer held and insured them as owner, and the agreement's seizure and transfer clauses operated only as security for repayment, the arrangement was treated as a loan security rather than a sale of goods. On that analysis, no sales tax was exigible because there was no real transfer of title under a genuine sale transaction.

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Issues: (i) Whether the transaction documents, though styled as hire-purchase arrangements, in substance created a sale of goods liable to sales tax, or only secured repayment of loans advanced by the financier.

Analysis: The agreement and allied documents had to be read together and in the light of the surrounding circumstances. The financier was not carrying on a business of selling motor vehicles but of financing purchases. The vehicles remained registered in the customer's name, the customer insured and possessed them as owner, and the so-called sale letter did not by itself establish a real transfer of title. The covenants in the hire-purchase agreement, including the right of seizure and the clause providing that ownership would pass on payment of the full amount, were held to be security mechanisms designed to ensure repayment of the advance. The true character of the arrangement was therefore determined by its substance and the real intention of the parties, not by the form of the documents.

Conclusion: The transaction was not a real sale but a financing arrangement securing repayment of loans, and no sales tax was exigible on that basis. The appeals succeeded in favour of the assessee.

Dissenting Opinion: Subba Rao, J. held that the hire-purchase agreements were genuine commercial hire-purchase transactions entered into by the parties, that the common intention was to create such arrangements, and that if they fructified into sales they were liable to sales tax; on that view, the appeals would have failed.

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