Hire-purchase agreements are not sales until purchase option is exercised; deeming sales tax provision held beyond legislative competence.

Hire-purchase transactions were not treated as sales for sales tax purposes until the hirer exercised the option to purchase and property actually passed. The Court held that a hire-purchase arrangement contains both bailment and a contingent sale element, but the taxable event of sale does not arise before completion of the option to purchase. A State Legislature cannot, by a deeming provision, convert a transaction where title has not passed into a sale under the sales law framework. Applying the controlling precedent, the Supreme Court held Explanation (1) to Section 2(j) of the Kerala General Sales Tax Act, 1125 beyond legislative competence, so hire-purchase turnover could not be included in taxable turnover.

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Issues: Whether transactions entered into under hire-purchase agreements could be treated as sales for the purpose of tax under the Kerala General Sales Tax Act, 1125, and whether the deeming provision in Explanation (1) to Section 2(j) was within the legislative competence of the State Legislature.

Analysis: A hire-purchase transaction contains both a bailment element and a contingent element of sale, but the sale materialises only when the hirer exercises the option to purchase after fulfilling the agreement. Until that point, the taxable event of sale does not occur. The State Legislature can tax only a sale within the meaning of sale law as understood in the sale of goods framework, and it cannot by a deeming provision convert a transaction in which property has not passed into a sale for the purpose of sales tax. The reasoning applied in the controlling precedent was treated as governing the present case, and the impugned explanation was held to be beyond the State's competence.

Conclusion: The deeming provision in Explanation (1) to Section 2(j) of the Kerala General Sales Tax Act, 1125, was invalid, and the hire-purchase turnover could not be included in the taxable turnover of the assessee.

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