TMI Blog1995 (4) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... and substance of relief sought for in all these writ petitions is for writs of declaration, declaring that sections 2, 3, 4 and 5 or some or the other of those provisions of the TNGST (Second Amendment) Act, 1992 (Tamil Nadu Act 31 of 1992) are ultra vires to entry 54, List II of the Seventh Schedule to the Constitution of India and also repugnant to articles 14, 19(1)(g) and 301 of the Constitution of India and irreconcilable with sections 2(n) and 2(r) of the TNGST Act, 1959 and, therefore, void and unenforceable. The writ petitions before us have been either by the registered associations of pawnbrokers for and on behalf of their members or by individual pawnbrokers or by the association and one or two such pawnbrokers joining together. 2.. The nature of business of a "pawnbroker" and his dealings, rights, duties and obligations are to be dealt with, having regard to the law governing their business activities, to have a proper perspective of the character and nature of their business activities to properly appreciate the various issues raised by the petitioners in the context of the TNGST Act, 1959. There is no controversy over the position that the pawnbrokers in question l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir capital investment or money realised as "sales or purchase turnover" and their dealings "business" within the meaning of the TNGST Act, 1959 and that, therefore, there is no justification to compel the pawnbrokers to get them registered as dealers under the TNGST Act or subject their dealings or transactions to the levy of sales tax under the TNGST Act. It is also stated that the pawnbrokers have no general property rights in the articles pledged and they do not themselves conduct auction or sell the articles in auction themselves and the attempt to treat them as dealers under the Act when they are really not so factually would be unconstitutional and arbitrary. Pawnbrokers are said to lend money by way of sale proceeds of the pawned articles by means of public auction through approved auctioneers cannot be considered to be sales turnover exigible to sales tax under the TNGST Act, 1959 (sic). Pawnbrokers are said to be merely in the position of bailee having lien and temporary custody over the articles pledged by way of security for the realisation of the amount lent and that the pawner as the owner of the goods or the holder of the pawn ticket at times, continue to be the own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Chief Justice-the then Acting Chief Justice of the Karnataka High Court) was a party. Further, in the counter-affidavit, the respondent contends that whatever may be the nature of the transaction, there is a factum of sale, that the right to sell the goods pledged in the event of default in redemption carry with it the incident of sale, that in the course of business, the pledgee or pawnee sells the goods, that the concept of business will include even the business of a pawnbroker carrying with it the incidental activity to sell unredeemed goods, that any transaction which is incidental or ancillary to the main business also constitute business as defined under the TNGST Act and that having regard to the definition of the pawnbroker it would constitute "business" within the meaning of section 2(d)(11) of the TNGST Act, that the said position has been reiterated in the decision of the Supreme Court in [1973] 31 STC 426 (State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. of India Ltd.) and, therefore, irrespective of the nomenclature as such the pawnbroker will be a dealer carrying on business for the purposes of the TNGST Act. Reliance is also placed upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the pawnbroker has merely special property in the goods on account of the goods in question being a security for the debt, that the general property continues with the owner, that the pawnbroker is not directly or intimately connected with or is a party to the sale effected by the approved auctioneer in public auction in the presence of the authorised officer, by virtue of the statutory provisions engrafted in section 12 of the Act and the Rules made thereunder and that the sale, if at all, is by the auctioneer of the pawner who alone is said to be the seller and that the pawnbroker who is neither the owner nor the agent of the owner effecting sale or transfer of property in goods cannot be subjected to the levy of sales tax under the TNGST Act, 1959. 6.. Argued the learned counsel further that to constitute any activity "business" within the meaning of section 2(d), it has got necessarily to be trade or commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, irrespective of the motive to make gain or profit [section 2(d)(i)] and any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position of law when the provisions of the Contract Act alone applied, that the provisions of the TNGST Act have to be literally interpreted by adopting beneficial constructions towards the class of pawnbrokers, that the pawnbrokers do not resort regularly to auction of the articles pawned, that it is not also incidental or ancillary to their business of money lending but merely consequential due to default of redemption and that the pawnbroker cannot be considered to be a owner but is merely in the position of trustee and that unequals like pawnbrokers cannot be equated to owners themselves who sell their goods and to that extent the provisions are discriminatory and unconstitutional. Reliance was placed by the learned counsel on the decision reported in AIR 1961 SC 552 (Kunnathat Thathunni Moopil Nair v. State of Kerala) and the learned counsel referred to the head notes in that decision in this regard. It was also contended that all sales may not be taxable and that many such sales may be second sales exempt from the levy of sales tax. 8.. Mr. A.L. Somayaji, learned senior counsel appeared on behalf of the petitioner in W.P. No. 10617 of 1993. The learned senior counsel, while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as equals, the learned counsel for the respondent contended that there is neither substance nor merit in the said plea and that the decision in AIR 1961 SC 552 (Kunnathat Thathunni Moopil Nair v. State of Kerala) is also of no relevance or assistance to the petitioners. 11.. The learned counsel appearing on either side invited our attention to some of the judicial pronouncements and we would advert to them before taking up for consideration the points raised for consideration and adjudication. 12.. In [1952] 3 STC 121 (Kandula Radhakrishna Rao v. Province of Madras), a Full Bench of this Court had an occasion to consider the position of a broker and commission agent under the Madras General Sales Tax Act, 1939 and the Rules made thereunder. The question that really arose for consideration was as to whether a commission agent is a dealer or not under the said taxing enactment in the teeth of two conflicting decisions in [1949] 1 STC 223 (Mad.) (Province of Madras v. The Firm of Kanigolla Sivalakshminarayana) and [1950] 1 STC 245 (Mad.) (Provincial Government of Madras v. Neeli Veerabhadrappa). The eminent and learned Chief Justice of this Court, Rajamannar, C.J., speakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven in the case of a commission agent buying for an undisclosed principal. A commission agent doing this kind of business would, in my opinion, fall within the definition of 'dealer' in the Sales Tax Act. Neither the definition of 'dealer' nor of 'sale' contemplates as a necessary condition, that the goods sold should belong to the person selling or buying. There can be a sale or purchase on behalf of another." 13.. In [1964] 15 STC 201 (Fiaz Ahmed Co. v. State of Madras), a Division Bench of this Court had an occasion to consider the issue as to whether a tanner who merely purchased the tanning materials for tanning hides and skins of customers for specified charges would be held dealer liable to sales tax in respect of the tanning materials purchased. Applying the ratio of the Division Bench judgment in [1963] 14 STC 753 (Mad.) (Sadak Thamby and Co. v. State of Madras) it was held that a buying activity, even though without a counterpart of a selling activity, in the course of a business, whether it be as a dealer in hides or carrying on of the tannery with profit-motive, would be adequate to bring the turnover of purchase price of tanning materials to tax under the Tamil N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercial Tax Officer), a Division Bench of this Court had an occasion to consider the liability of an association which was a pool brought about by an agreement to which several registered companies doing general insurance business were parties, which sold through a public auctioneer the goods which came into its hands by way of salvage, in the course of carrying on its business in general insurance. It was held therein that if what the petitioner-association was doing was nothing more than collecting the salvage articles through the agency and using the agency to sell the same, then the pool would not per se be a dealer within the meaning of the Act. But the matter was relegated to the authorities for ascertaining the correct nature of the transactions of the respective parties before fastening the liability to tax under the Act. 15A. In [1972] 29 STC 266 (Tirumala Tirupati Devasthanam v. State of Madras), a learned single Judge of this Court had an occasion to deal with the liability of Tirumala Tirupati Devasthanam at Tirupati to tax under the Tamil Nadu General Sales Tax Act, 1959, in respect of their sales of silver ware and other valuable articles found in the hundies in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under an agreement executed between the parties, the corporation appointed the appellant as its selling agent for sale of cement on its behalf to different customers holding permits at the controlled price and in accordance with the instructions which might be given by it from time to time. The customers were not aware of the identity of the principal of the appellant-company. Pursuant to the agreement, the appellant made inter-State sales and realised sales tax from the customers under the Central Act. It was contended for the appellant before the court that being an agent of the corporation and having effected all the sales under its direction, the appellant was not a dealer within the meaning of the Central Act. While repelling the said plea, the Supreme Court held that it was the appellant which carried on the business in selling cement although it was acting as selling agent of the corporation and, therefore, the corporation was not a dealer which effected the sales, but it was only the appellant which did so. While coming to such a conclusion, their Lordships of the Supreme Court had approved the ratio of the Full Bench judgment of this Court in [1952] 3 STC 121 (Kandula Radh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling them and realising the sale price by way of salvage under the Karnataka Sales Tax Act, 1957. Applying the ratio of the Supreme Court in [1989] 74 STC 5 (Member, Board of Revenue v. Controller of Stores, Eastern Railway), the Division Bench of the Karnataka High Court held that the sales effected by the insurance company was incidental to the company's business and, therefore, the insurance company was a dealer and the sales of such goods by the said company are liable to tax. 21.. The earlier decision of the Supreme Court in [1976] 37 STC 423 (District Controller of Stores, Northern Railway v. Assistant Commercial Taxation Officer) related to the sales of unserviceable materials and scrap by the Northern Railway and the liability to sales tax of the Railways in respect of such sales under the Rajasthan Sales Tax Act, 1954. The apex Court held, that the activity of the Northern Railway in the selling of unserviceable materials and scraps, etc., would be "business" as defined under the Rajasthan Sales Tax Act, that there is no fallacy in thinking that the Railway which is concerned in the activity of transportation is engaged in commerce within the meaning of the definition an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the effect of nominal or bogus sales of their goods by pawnbrokers in the event of non-redemption, which will otherwise have the effect of preventing poor persons, who resort to the pawnbrokers for loans, from getting a proper value of the pledged goods when they remain unredeemed. The intervention of the auctioneer is therefore intended for safeguarding the interest of the pledgers of goods, but at the same time, the rules are careful to see that the interest of pawnbrokers are not also affected and they do not require them to part with the possession of the goods to the auctioneer before the sale. In fact the rules are silent about the mode of delivery of the goods. They have meticulously provided for the manner in which the sales are to be published and conducted. The auctioneer will be carrying out the obligations under the rules, even without taking possession of the pledged goods and delivering them to the highest bidder on the fall of the hammer. The pawnbroker can still be a person who retains the possession of the goods, and he can deliver them to the successful bidder at the auction by the auctioneer. It is from this point of view that we are impressed by the circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aling with the principles to be observed in construing an inclusive definition. In paragraph 33 of the said decision, the apex Court held as hereunder: "Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With those glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that the pawnee has a right to sue upon the debt and retain the goods as collateral security, in case of default in the payment of the debt and further he is also entitled to sell the goods after reasonable notice of the intended sale to the pawner, and once the pawnee exercises his right under section 176 and sells the goods the right of the pawner to redeem them is completely extinguished. No doubt, the pawnee is entitled to apply the sale proceeds towards the satisfaction of the debt, interest and other permissible charges and pay the surplus, if any, to the pawner. Even when securities are pledged with a view to secure the repayment of a debt, the pledgee who has been given possession of the property will have a special interest in the property, as such he can enforce the charge. 26.. So far as the law governing the activities of the pawnbrokers and their business dealings are concerned, the Tamil Nadu Pawn Brokers Act, 1943 and the Tamil Nadu Pawn Brokers Rules, 1943, govern the mutual rights and obligations of the pawner and pawnee (the pawnbroker). The said Act has been enacted without detriment to the rights under the Contract Act, in order to regulate and control the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an officer of the Revenue Department not below the rank of a Deputy Tahsildar. The officer so present must be informed of representations, if any, received from the pawners against the proposed auction sale and he is empowered to cancel the auction of articles subject to approval by the Personal Assistant (General) to the Collector of Madras or the Revenue Divisional Officer concerned. Further, the pawnbrokers are obliged to apply before the 15th of each month to the Collector of Madras in the City of Madras or to the Revenue Divisional Officer in other districts for permission for the sale of the jewels or articles which have become time barred till the end of the preceding month in the prescribed manner and the written consent of the authority thereto shall be enclosed by the pawnbroker to the auctioneer to conduct the auction and such orders are revisable by the Government or the Board as the case may be. The auctioneer is also obliged to cause the pledged articles to be exposed to public view and have the auction notice with the prescribed particulars also published in the prescribed manner and ensure service of one copy upon the pawner. The auctioneer is also obliged, af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r observing due formalities and putting up the pawner on prior notice, does not depend upon any further consent or permission by the pawner. The pawnbroker in his own right as such pawnee of the pledged articles and the rights conferred upon him under law, both as such pawnee as also the person who acquired the right to sell the articles also in case of default of redemption by the pawner brings upon the articles to sale. There is no compulsion or mandate upon the pawnbroker to necessarily sell the articles even beyond the period fixed for redemption if he chooses to do so or he can always retain the article and return the same to the pawner on receipt of his dues even after the expiry of the period for redemption. That being the position in law, it is to be seen that the position of the pawnbroker alone accounts very much in the matter of sale of the articles, of course after the expiry of the period fixed for redemption, and the exercise of discretion by the pawnbroker and his action alone sets in motion the process or procedure for having the pawned articles sold in public auction. Therefore, in our view, the sale of the pawned articles can be safely and legitimately be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of the articles, though it is his default in redemption of the pledged articles that results in the auction sale of the pledged articles. Merely because he has a right in law, which is also secured under the provisions of the Act and the Rules, to be paid the surplus of the sale proceeds after appropriating the amount due towards the loan with interest due thereon and the other permissible charges. That by itself could not be said to be on account of any role played by him in effecting the sale as such, but the said right would preserve and secure to him as the person having general property rights in the articles and nothing more. Consequently, it is futile to contend that the sale was effected by the pawner or by the pawnbroker for and on behalf of the pawner. Consequently, we are of the view that the pawnbroker, whose action and decision brings about the sale and who alone having possession hands over the pledged articles to the successful bidder subsequently, alone can be said to be the seller in law. Rule 12 of the Rules has to be read and construed in conformity with section 12 of the Act and it cannot be construed so as to defeat or affect of the scope and ambit of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncidental as also ancillary to the business activities of the pawnbroker, inevitably falls squarely within the definition of "business" as defined under the TNGST Act. There could be hardly any serious contest as to the factum of sale of the pledged articles and the fact that the sale squarely satisfies the requirements of section 2(n) of the TNGST Act. What was really in controversy and contest before us in these cases was only as to who should be held liable to the payment of sales tax on the amount of sale of the pledged articles and not as to whether there was any sale at all or not of such pledged articles. In our view, the principles laid down by the various decisions of the Supreme Court and the Division Benches referred to supra and the overwhelming weight of such authoritative pronouncements referred to earlier squarely apply and govern the issues raised before us in favour of the State. We hold that the pawnbroker satisfies the definition of "dealer" in section 2(g) and his activities satisfy the definition of "business " in section 2(d) of the TNGST Act and consequently he is liable to sales tax in respect of the sales effected of the pledged articles. 30.. One of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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