2014 (10) TMI 980 - HC - VAT and Sales Tax

Sale of pledged articles taken as a security - Dealer or not? - levy of tax on sale - imposition of penalty for non-payment of tax - Is the appellant is a dealer as defined under Section 2(xv) of the Kerala Value Added Tax Act? - Held that - Reading of Rule 2(xv)(f) show that a bank or a financial institution selling pledged articles taken as a security whether in the course of business or not, is a dealer - In so far as this case is concerned, it is the admitted case of the bank that the properties of the company were mortgaged to it, for securing the loan availed and those properties were sold in public auction by the Bank. It was in the capacity of the mortgager that the bank became a party to the proceedings before the BIFR - the appellant bank satisfied the requirements of Section 2(xv)(f) of the Kerala Value Added Tax Act and is a dealer in so far as the sale conducted by it on 5.4.2007. The respondents were fully justified in levying tax and also penalty - revision dismissed.

Summary

Issues:
1. Interpretation of Section 2(xv)(f) of the Kerala Value Added Tax Act.
2. Whether the appellant bank qualifies as a dealer under the Act.
3. Validity of the tax and penalty levied on the bank.
4. Challenge against the order of the Kerala Value Added Tax Additional Appellate Tribunal.

The judgment involves a revision filed against the order of the Kerala Value Added Tax Additional Appellate Tribunal, where the appeal by the appellant bank was dismissed. The appellant, a nationalized bank, sold assets of a company after an Asset Sale Committee (ASC) was formed following orders from the Board for Industrial and Financial Reconstruction (BIFR). The Intelligence Officer issued a notice to the bank regarding tax liabilities post-sale, leading to the imposition of tax and penalty on the bank. The primary issue was whether the bank qualifies as a "dealer" under Section 2(xv)(f) of the Act, which includes banks selling pledged articles taken as security. The Tribunal held that the bank satisfied the requirements of being a dealer under the Act based on the sale conducted. Consequently, the tax and penalty levied on the bank were deemed valid, and the Tribunal's order was upheld by the High Court.

The key contention revolved around the interpretation of Section 2(xv)(f) of the Kerala Value Added Tax Act, which defines a "dealer" to include a bank selling pledged articles taken as security. The court analyzed the provision and concluded that a bank or financial institution selling such pledged articles, whether in the course of business or not, falls under the definition of a dealer. In this case, the bank had mortgaged properties of the company to secure a loan and subsequently sold these properties in a public auction. The court agreed with the Tribunal's view that the bank met the criteria of Section 2(xv)(f) and therefore qualified as a dealer for the sale conducted on a specific date.

Regarding the validity of the tax and penalty imposed on the bank, the court found that since the bank satisfied the definition of a dealer under the Act, the tax and penalty levied by the authorities were justified. The court upheld the Tribunal's decision to reduce the penalty to half of the tax assessed. Ultimately, the court dismissed the Tax Revision Case, stating that there was no reason to interfere with the orders passed by the statutory authorities. Therefore, the challenge against the Tribunal's order was rejected, and the tax and penalty imposed on the bank were deemed legitimate based on the interpretation of the relevant provisions of the Kerala Value Added Tax Act.