Hire-purchase deemed as sale lacked legislative competence, so the sales tax assessment on turnover was quashed.

Hire-purchase receipts of an industrial co-operative society were sought to be taxed as sales under the Mysore Sales Tax Act, 1957, by virtue of Explanation 1 to Section 2(t). The Court held that the deeming provision was beyond the State Legislature's competence, following the same reasoning applied to the corresponding Madras sales tax provision. Explanation 1 to Section 2(t) was therefore void and inoperative, and hire-purchase turnover could not be subjected to sales tax. The assessment was quashed in favour of the assessee.

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Issues: Whether hire-purchase transactions entered into by an industrial co-operative society with its members were liable to sales tax under the Mysore Sales Tax Act, 1957, and whether Explanation 1 to Section 2(t) of that Act, deeming such transactions to be sales, was valid.

Analysis: The turnover had been brought to tax on the footing that hire-purchase receipts constituted sales by reason of Explanation 1 to Section 2(t). The validity of that deeming provision depended on the State Legislature's competence to treat a transfer of goods on hire-purchase or instalment system as a sale for sales tax purposes. The Court followed the principle that the corresponding provision in the Madras General Sales Tax Act, 1939, had already been held void for want of legislative competence, and applied the same reasoning to the Mysore enactment.

Conclusion: Explanation 1 to Section 2(t) of the Mysore Sales Tax Act, 1957, was held void and inoperative, and the hire-purchase turnover could not be subjected to sales tax. The petition was allowed and the assessment was quashed, in favour of the assessee.

Ratio Decidendi: A State Legislature cannot, by a deeming provision, validly treat a hire-purchase transfer as a sale for sales tax purposes if it lacks constitutional competence to do so.

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