Lease and hire-purchase rentals taxable in Kerala where delivery for use occurred in the State, not treated as inter-State sales.

Lease rentals and hire charges under lease and hire-purchase arrangements were held taxable in Kerala where the goods were acquired after the agreement and delivered to the lessee or hirer in the State. The Court treated the arrangement as involving separate steps: the agreement, then the purchase and delivery of goods, with the taxable event arising on delivery for use. It also rejected the plea that the transactions were inter-State, since any inter-State movement related only to the petitioner's purchase from the supplier and not to the lease or hire-purchase transaction with the customer. The levy was therefore sustained.

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Issues: (i) Whether lease rentals and hire charges arising from lease and hire-purchase transactions were liable to sales tax in Kerala when the agreements were executed before the goods were acquired and the goods were delivered to the lessees or hirers in Kerala. (ii) Whether the transactions could be treated as inter-State transactions so as to exclude Kerala's taxing jurisdiction.

Issue (i): Whether lease rentals and hire charges arising from lease and hire-purchase transactions were liable to sales tax in Kerala when the agreements were executed before the goods were acquired and the goods were delivered to the lessees or hirers in Kerala.

Analysis: The transactions were found to consist of two distinct elements: first, the execution of the lease or hire-purchase agreement, and second, the subsequent purchase and delivery of the goods to the customer. Where the goods were not in existence at the time of the agreement, the taxable event occurred on delivery of the goods. The Court applied the governing principle that such deemed sales in lease and hire-purchase arrangements are taxable in the State where the delivery for use takes place.

Conclusion: The lease rentals and hire charges were taxable in Kerala and the challenge to levy failed.

Issue (ii): Whether the transactions could be treated as inter-State transactions so as to exclude Kerala's taxing jurisdiction.

Analysis: The movement of goods from the supplier to the lessee or hirer after the petitioner had already entered into the agreement did not convert the lease or hire-purchase transaction between the petitioner and the customer into an inter-State sale. The inter-State element, if any, related only to the purchase by the petitioner from the supplier and not to the separate transaction of leasing or hiring to the customer. The Court therefore rejected the contention that the transactions were inter-State lease or inter-State hire-purchase transactions.

Conclusion: The transactions were not exempt as inter-State transactions and remained taxable in Kerala.

Final Conclusion: The revision cases failed on merits, and the levy sustained by the Tribunal was upheld.

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