States Entitled to Impose Tax

When a hire purchase transaction is entered in the state where the goods are lying, the concerned state is entitled to impose sales tax. In cases where the contract of hire purchase is made into one state and the goods are in another state, the entitlement to tax vests with the state in which the goods are delivered by the hire vendor to the hire, even though the goods may be transported transferred to different states subsequently.

Sales tax on hire purchase is not levied if the state in which goods are delivered has a single point levy system in respect of such goods and if the owner (finance company) had purchased the goods within the same state. Moreover, sales tax is not levied on hire purchase transactions structured by finance companies if they are not dealers in the type of goods given on hire.

The interstate hire purchase deals attract central sales tax (CST). But in actual practice, no hire purchase transaction is likely to be subject to CST: Under the CST: the taxable event is not the delivery but the transfer of goods. In interstate hire purchase deals, the movement of goods would normally be occasioned at the time of delivery while the property in the goods is transferred when the option to buy is exercised. In other words, interstate movement of goods is not occasioned when the property in goods is transferred and a hire purchase deal is concluded. In fact, there is, strictly speaking, no interstate hire purchase deal.

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