Substance over form in sales tax: instalment supply of machinery was treated as a sale, not hiring, and new grounds were barred.

The scope of an advisory reference under section 25 of the Bihar Sales Tax Act, 1947 was confined to the question actually referred, so grounds not raised before the taxing authorities or the High Court could not be added before the Supreme Court. The machinery and equipment arrangement was treated on its substance as a sale rather than a hiring, because the corporation supplied the assets at an agreed price payable in instalments, retained title until full payment, and the contractors had no unrestricted right to return the goods. The transaction was therefore a sale within section 2(g), and the assessment was sustained.

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Issues: (i) Whether the appellant could raise grounds not included in the reference under section 25 of the Bihar Sales Tax Act, 1947 before the Supreme Court; (ii) Whether the machinery and equipment supplied under the contract constituted a sale within the meaning of section 2(g) of the Bihar Sales Tax Act, 1947 or a mere contract of hiring.

Issue (i): Whether the appellant could raise grounds not included in the reference under section 25 of the Bihar Sales Tax Act, 1947 before the Supreme Court.

Analysis: The appeal lay from the High Court's advisory opinion on the reference and was confined to the question actually referred. Grounds not raised before the taxing authorities or the High Court could not enlarge the scope of the reference, and the Supreme Court could not be asked to decide issues beyond that controversy.

Conclusion: The additional grounds were not open to the appellant and the appeal was limited to the question referred.

Issue (ii): Whether the machinery and equipment supplied under the contract constituted a sale within the meaning of section 2(g) of the Bihar Sales Tax Act, 1947 or a mere contract of hiring.

Analysis: The contract showed that the Corporation supplied machinery at an agreed price payable in instalments, the property was to remain with the Corporation until the price was realised, the contractors had no unfettered right to return the goods, and the Corporation's taking back of machinery was conditional on residual life and other stipulated terms. The contractors were also responsible for upkeep and spare parts, which was inconsistent with a mere bailment. On the substance of the arrangement, the transaction was a sale on deferred payments with a conditional right of repurchase, not a simple hiring.

Conclusion: The transaction amounted to a sale within section 2(g) of the Act and not a mere contract of hiring.

Final Conclusion: The legal effect of the decision was that the assessment stood sustained, the reference was answered against the appellant, and the challenge to tax liability failed.

Ratio Decidendi: In determining whether a transaction is a sale or hiring, the court must look to the substance of the agreement, and where the hirer is bound to pay the price in instalments without an unrestricted right to return the goods, the arrangement is a sale on deferred payment rather than a hire-purchase contract.

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