Hire-purchase is not a sale until option to buy is exercised; resale goods used in hire-purchase remain for resale.

A hire-purchase arrangement is not a sale until the option to purchase is exercised, so a deeming provision treating such transactions as sales could not validly enlarge the State's taxing power under the sales entry. The Court also held that goods purchased on declaration for resale were not diverted to a different purpose merely because they were later used in genuine hire-purchase transactions leading to eventual resale. On that basis, additions made to taxable turnover under the deeming provision and the proviso dealing with use for a purpose other than resale were struck down, and the assessee's challenge succeeded.

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Issues: (i) Whether the deeming provision treating hire-purchase transactions as sales under the Bihar Sales Tax Act, 1959 was within the legislative competence of the State Legislature; (ii) Whether goods purchased on declaration as meant for resale could be included in taxable turnover on the footing that their use in hire-purchase transactions amounted to use for a purpose other than resale.

Issue (i): Whether the deeming provision treating hire-purchase transactions as sales under the Bihar Sales Tax Act, 1959 was within the legislative competence of the State Legislature.

Analysis: The definition of sale under the Act included a deeming explanation that treated transfer or acquisition of goods on hire-purchase as a sale, notwithstanding that the seller retained title as security. The governing principle applied was that a State tax on sales must rest on an actual sale in law, where property passes from seller to buyer. A hire-purchase transaction, by its very nature, contains an element of bailment and only fructifies into a sale when the option to purchase is exercised. An artificial deeming fiction cannot enlarge the State's taxing power under the sales entry so as to treat a transaction that is not a sale in substance as a sale for taxation.

Conclusion: The deeming explanation was held ultra vires and could not sustain tax on hire-purchase transactions as sales; the hire-purchase additions were therefore deleted in favour of the assessee.

Issue (ii): Whether goods purchased on declaration as meant for resale could be included in taxable turnover on the footing that their use in hire-purchase transactions amounted to use for a purpose other than resale.

Analysis: The statutory scheme permitted exclusion from the seller's turnover where the purchasing dealer declared the goods as required for resale, while the second proviso to section 7(2) operated only if the dealer later used the goods for some purpose other than the declared purpose. The decisive question was whether entering into hire-purchase agreements with the goods amounted to diversion from resale. The Court treated hire-purchase as a commercial method through which resale is ultimately achieved, since the transaction is directed towards eventual transfer of property to the hirer. Because the goods continued to be employed in the chain leading to resale, and not for an independent non-resale purpose such as the dealer's own use, the proviso was not attracted.

Conclusion: The additions made under the second proviso to section 7(2) were unjustified and illegal, and were struck down in favour of the assessee.

Final Conclusion: Both writ petitions succeeded, the impugned turnover additions were quashed, and the original assessment order was left undisturbed.

Ratio Decidendi: A hire-purchase arrangement is not a sale unless and until the option to purchase is exercised, and goods purchased for resale are not diverted to a different purpose merely because they are used in a genuine hire-purchase chain leading to eventual resale.

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