Hire-purchase becomes taxable sale only on exercise of option and passing of property within the taxing State.

A hire-purchase arrangement involves bailment until the hirer exercises the option to purchase and completes the contractual terms; only then does a taxable sale arise because the sale of goods depends on passing of property after fulfilment of the agreement. Where that completed sale occurs within a State's territory, the State may validly levy sales tax on the transaction, even if earlier dealings occurred elsewhere. A constitutional challenge to the taxing provision may be pursued under Article 32 where ultra vires is alleged.

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Issues: (i) Whether a hire-purchase transaction becomes a sale liable to sales tax only when the hirer exercises the option to purchase and completes the contractual terms; (ii) whether the State of Gujarat could levy sales tax on the transaction when the property in the goods passed within Gujarat; (iii) whether the petition under Article 32 was maintainable.

Issue (i): Whether a hire-purchase transaction becomes a sale liable to sales tax only when the hirer exercises the option to purchase and completes the contractual terms.

Analysis: A hire-purchase arrangement contains both a bailment element and an eventual sale element. Until the option to purchase is exercised in accordance with the agreement, no sale takes place. The taxable event under a sales tax law is the sale of goods, and liability arises only when the sale is completed by the passing of property after fulfilment of the contractual terms.

Conclusion: The taxable sale arises only on exercise of the option and completion of the hire-purchase terms.

Issue (ii): Whether the State of Gujarat could levy sales tax on the transaction when the property in the goods passed within Gujarat.

Analysis: The sale crystallised when the hirer exercised the option to purchase, at which point the goods were inside Gujarat. The State could validly tax a sale taking place within its territory. The incorporation of the territorial principle reflected in the Central Sales Tax Act was accepted, and the prior Delhi transaction did not prevent Gujarat from taxing the later sale. The constitutional objection based on the power of a State to create a deemed sale was not attracted because the tax was imposed on the actual sale that occurred in Gujarat.

Conclusion: The Gujarat sales tax levy was upheld.

Issue (iii): Whether the petition under Article 32 was maintainable.

Analysis: The challenge included the constitutionality of the relevant provision of the Gujarat Act. Where a statute is alleged to be ultra vires, recourse under Article 32 is maintainable.

Conclusion: The petition was maintainable.

Final Conclusion: The hire-purchase transactions were taxable only upon completion of the sale, the Gujarat levy was valid, and the petitions failed.

Ratio Decidendi: In a hire-purchase agreement, sales tax becomes exigible only when the option to purchase is exercised and property in the goods passes, and a State may tax that completed sale if it occurs within its territory.

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