TMI Blog2003 (4) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the dues of the bank is being returned to the customers in due course. 2.. The respondents who are the State of Kerala and the authorities under the Kerala General Sales Tax Act, 1963 (for short, "the Act") have been taking the view that such transaction of the sale of gold ornaments in public auction by the banks and other financial institutions is liable to tax under the Act. Earlier when the sales tax authorities initiated action against the Federal Bank Ltd.-the first appellant herein-they approached this Court by filing Writ Petition, O.P. No. 9508 of 1994 challenging the said action. The learned single Judge disposed of the said writ petition along with five other writ petitions upholding the action of the sales tax authorities. The learned single Judge held that the petitioners therein are dealers as per section 2(viii) of the Act and are liable to pay tax under section 5 of the Act. It was also held that section 2(viii)(f)(1) of the Act is constitutionally valid. The petitioners therein took up the matter in Appeal, W.A. No. 634 of 1997 and connected cases. A division Bench (Chief Justice U.P. Singh, as his Lordship then was and Justice S. Sankarasubban) in Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mere transfer of the property in goods by one person to another does not attract the provisions of the Act unless such transfer is in the course of trade or business, that the transaction of selling of secured goods is not incidental or main business of the bank and that since banks are prohibited from trading in goods it cannot be said that trading in goods is the main business. The State took up the matter in appeal before the Supreme Court (Civil Appeal Nos. 3550-53 of 1997 (State of Kerala v. Lord Krishna Bank). The respondent-bank sought permission to withdraw the cases. The Supreme Court in the above circumstances disposed of the civil appeals as follows: "In view of the fact that for a proper appreciation of the legal issues arising for consideration, the particulars of the nature of transactions is necessary, leave is sought for withdrawing the writ petitions with liberty to raise all the issues factual and legal, before the concerned authority. The statement is made after we have heard learned counsel for the appellants and, partly, learned counsel for the respondents and have expressed our strong, prima facie, reservations about the correctness of the judgments unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sales of the pledged gold ornaments will in unmistakable terms fall within the ambit of "sale" as defined in the Act and that in view of the new amendment introduced to section 2(viii) of the Act, the scope of the definition of "dealer " is widened to embrace banks also. It is stated that the banks are really carrying on business and they are dealers within the meaning of the Act, that while pledging an article with the bank the pawner not only parts with the possession of the pledged article in favour of the banks, but by virtue of such pledge parts with the rights he held to sell the pledged articles in case of default of payment and discharge of the loan or redemption of the articles pledged within the time stipulated therefor, that such auction sale by the banks does not depend upon any further consent or permission by the pawner, that there is no compulsion or mandate upon the banks to necessarily sell the articles even beyond the period fixed for redemption, that they can do so if they choose or they can always retain the article and return the same to the pawner on receipt of the dues even after the expiry of the period of redemption, that the exercise of discretion by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 2(viii) of the Act is amended by the Finance Act, 1998 by introducing a new subclause (g) bringing the banks and financial institutions which effect sale of any gold or other valuable articles pledged with them to secure any loan for realisation of such loan amount within the definition of "dealer", in the absence of corresponding amendments to the definitions of "business " and "sale" in the Act, the Legislature could not achieve the purpose for which the amendment was made. The Senior Counsel submitted that in order to bring the transaction of sale of gold or other valuable articles pledged with the bank to secure any loan as incidental to the business of the appellants the main business of the appellants must be one of dealing in goods. The activity in question cannot be brought under the definition of "business" under section 2(vi) of the Act. The Senior Counsel brought to our notice the decisions reported in Lord Krishna Bank Limited v. Assistant Commissioner (Assessment-I), Sales Tax Office, Special Circle, Trichur [1999] 114 STC 333 (Ker), Canara Bank v. Commercial Tax Officer [1997] 107 STC 488 (Kar), Corporation Bank v. Government of Andhra Pradesh [2002] 125 STC 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son as a dealer under the Act, that the definition of the term "business" is only an inclusive one and not exhaustive and therefore, even if the transaction did not strictly come within the definition of the said word, still it will fall within the meaning of the word "business". He also pointed out that the legislative entry 54 of List II of the Seventh Schedule is "taxes on the sale or purchase of goods" and the scope of the said words has been widened by the constitutional amendments made to article 366 of the Constitution by introducing clause (29A) as per which wherever there is a transfer of property in the goods for cash, deferred payment or other valuable consideration is involved not as a direct result of sale is also brought within the meaning of the words "tax on sale or purchase of goods". The Special Government Pleader submitted that the constitutional provisions do not in any way provide that the tax on the sale or purchase of goods must be in the course of business. He accordingly submits that the amendment to the definition of "dealer" in section 2(viii) by introducing clause (g) is constitutionally valid. The Special Government Pleader also submitted that the divis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e" has also to be amended as done in the definition of "turnover". The appellants have also got a case that subclause (g) of section 2(viii) is beyond the legislative competence of the State. 8.. Before considering the constitutional validity of the amendment made to section 2(viii) of the Act it is necessary to understand the scheme of the Act to ascertain as to whether the transaction of sale of pledged gold ornaments by the appellant-banks can be subjected to tax under the Act. For that purpose we have to refer to the provisions of section 5(1) of the Act which is the charging section. The relevant portion of section 5(1) reads: "5. Levy of tax on sale or purchase of goods.-(1) Every dealer (other than a casual trader or agent of a non-resident dealer) whose total turnover for a year is not less than two lakh rupees and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year." Relevant portion of section 2(viii)(g) reads: "(viii) 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, executing works contract, transferring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but does not include a mortgage, hypothecation charge or pledge." The extended definition of "sale" contained in the explanations to the definition of "sale" takes in transactions which are not made in the course of business also [vide explanations (1), (1A), (1B) and (2)]. 9.. Under the charging section 5 every dealer whose total turnover for a year is not less than Rs. 2 lakhs shall pay tax on his taxable turnover. The definition of "dealer" prior to the introduction of sub-clause (g) by the Finance Act 14 of 1998, under the main part means any person who carries on the business of buying, selling, supplying or distributing goods directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration. This part of the definition contemplates the carrying on of the business of buying, selling, supplying or distributing goods for consideration. However sub-clause (e) thereof includes a person who, whether in the course of business or not, sells goods produced by him by manufacture, agriculture, horticulture or otherwise or trees which grow spontaneously and which are agreed to be severed before sale or under the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y extracted the definition of the word "business" which includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce, or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern. The term "business" also includes any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern. Here, it is necessary to refer to the provisions of the Banking Regulation Act, 1949 under which the appellant-banks are carrying on banking business. Section 5-A of the Banking Regulation Act, 1949 provides that the provisions of this Act shall have effect notwithstanding anything to the contrary contained in the memorandum of articles of a banking company, or in any agreement executed by it, or in any resolution passed by the banking company in general meeting or by its board of directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of the Banking Companies (Amendment) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurity or part of the security for any loans or advances or which may be connected with any such security. Section 8 clearly saves the transaction covered by clauses (f) and (g) of section 6(1). In view of the provisions of sections 6 and 8 of the Banking Regulation Act, 1949, it is idle to contend that the appellant-banks are not engaged in any business falling within the definition of "business" under section 2(vi) of the Act. 11.. Now, let us refer to the decisions relied on by the appellants. A division Bench of this Court in Lord Krishna Bank Limited v. Assistant Commissioner (Assessment I), Sales Tax Officer, Special Circle, Trichur [1999] 114 STC 333, considered the question as to whether banks are liable to pay tax under section 5 of the Act in respect of the sale of jewellery or gold ornaments in exercise of the right which the banks obtained as a result of the pledge of gold ornaments or other valuable articles. The division Bench after referring to the provisions of the Banking Regulation Act, particularly the provisions of sections 6 and 8 of the said Act, the provisions of the Indian Contract Act, section 176 thereof and the commentaries on the subject and the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank is receiving or lending loans. In this context, it is pertinent to notice that in the definition of 'sale', 'pledge', or 'mortgage' are excluded. It is not necessary that the bank should take upon itself the act of selling the goods. Instead of selling the goods directly, it could sue and through the court realise the amount due to it. Viewed from this angle, it cannot be said that the bank is carrying on any activities in trade or business in goods." The division Bench considering the provisions of section 8 of the Banking Regulation Act further observed thus: "The section opens with a non obstante clause. It states that no banking company shall deal in buying or selling or bartering of goods. The section carves out three exceptions and those are: (i) in connection with the realisation of security given to or held by it; (ii) buy or sell goods for others otherwise than in connection with bills of exchange received for collection or negotiation; and (iii) such of the business as is referred to in clause (i) of sub-section (1) of section 6. The first exception is sale of securities for realisation of the loans. This had to be there because in the absence of sale of secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies are not carrying on the business of buying or selling. It was also held that every commercial activity will not attract the expression "business" and the transactions which are incidental or ancillary to the trade or commerce cannot take in the disposal of the security for realisation of loans and further it is not permissible to do violence to the clear cut provisions of section 8 of the Banking Regulation Act and put a construction which would defeat the intention of the Legislature. It was accordingly held that the assumption of the Commercial Tax Officer that the appellantbank was a "dealer" as contemplated under the Sales Tax Act and was required to so register and pay the tax was clearly misconceived. In Corporation Bank's case [2002] 125 STC 346, the Andhra Pradesh High Court also was concerned with the question as to whether the petitioner-bank is a dealer carrying on business of buying and selling of goods within the meaning of section 5 of the Andhra Pradesh General Sales Tax Act, 1957. The Andhra Pradesh High Court referred to the provisions of section 5(b), the definitions of "dealer" and "business " and had also referred to the provisions of the Banking Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Supreme Court in State of Andhra Pradesh v. H. Abdul Bakshi and Bros. [1964] 15 STC 644 (SC) is cited. It was also observed that even if such profit-motive is statutorily excluded from the definition of "business" yet the person could be doing "business". It was also observed that the words "carrying on business" requires something more than merely selling or buying, etc., and whether a person "carries on business" in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive and that such profit-motive may, however, be statutorily excluded from the definition of "business" but still the person may be "carrying on business". The Supreme Court, thereafter considering the activities of the Port Trust in terms of the Port Trust Act held that the Port Trust was not constituted by Parliament to "carry on business" as stated in Aminchand Pyarelal's case [1976] 1 SCR 721. The division Bench of the Andhra Pradesh High Court relying on the principles laid down in the said decision held that in view of sections 5(b), 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nominal charge to meet the cost. The question arose as to whether the trust is a dealer liable to tax under the Bombay Sales Tax Act, 1959. In that case the trust filed an application seeking determination of the question whether the trust could be said to be carrying on "business" as defined in section 2(5-A) and whether it was a "dealer" under section 2(11) of the Bombay Sales Tax Act. The Deputy Commissioner held that the activity of publication and sale of books, etc., amounted to business and the trust was a dealer, and, therefore, the trust was liable to sales tax on the value of the publications sold. The Sales Tax Tribunal, on appeal, held that the trust was not a "dealer" within the meaning of section 2(11) as it was not engaged in activity which amounted to "business" in view of its object and activities. This was affirmed by the High Court on reference. The Supreme Court referred to the definition of "dealer" in section 2(11) and observed that the said definition clearly indicates that in order to hold a person to be a "dealer", he must "carry on business" and then only he may also be deemed to be carrying on business in respect of transactions incidental or ancillary th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erce within the meaning of clause (i) of the definition and that the sale of unserviceable materials and scrap-iron, etc., is transaction in connection with or ancillary to such commerce ." Again this question was considered by the Supreme Court in Member, Board of Revenue, West Bengal v. Controller of Stores, Eastern Railway, Calcutta [1989] 74 STC 5. A Bench of three Judges observed that the assessee, South Eastern Railway, was a carrier of the goods and if at the stage of delivery goods remain unclaimed for a period the railway was entitled to dispose them of, there can be no doubt that the activity of so disposing of the goods was adjunctive to the principal activity of the carriage of goods by the railway. It is an activity which may be regarded as necessarily incidental or ancillary to its business as carrier of the goods. Again the said question was before the Supreme Court in State of Orissa v. Orissa Road Transport Co. Ltd. [1997] 107 STC 204. The question arose whether the Orissa Road Transport Company was liable to pay tax with regard to the sale of unserviceable, old and unutilised parts from its stores. Following the decision in District Controller of Stores, Northern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... railway and that it is an activity which may be regarded as necessarily incidental or ancillary to its business as carrier of the goods and that the assessee, South Eastern Railway was a "dealer" for the purpose of Bengal Finance (Sales Tax) Act, 1941. The Supreme Court in Pawn Brokers' case [1998] 111 STC 752, applied the above principle and held that in the sales of unredeemed goods through public auction by an approved auctioneer the pawnee, who has control or possession over the goods and who was given statutory authority to pass the general property in and title to the goods, is the seller and as such, satisfies the definition of "dealer" under the General Sales Tax Act of both the States. The Supreme Court also observed that the aforesaid conclusion is further strengthened by the definition of "pawnbroker"; the explanation to the definition of "pawnbroker" contemplates that every person who keeps the shop for the purchase or sale of goods or chattels and who purchases goods or chattels and pays or advances thereon any sum of money, with or under an agreement or understanding expressed or implied that the goods or chattels may be afterwards repurchased on any terms, is a "paw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Supreme Court, the Supreme Court in [1998] 111 STC 752 held that by the sales of unredeemed goods through public auction by an approved auctioneer, the pawnee who has control or possession over the goods and who has been given statutory authority to pass the general property in and title to the goods, is the seller and as such, he satisfies the definition of "dealer" under the General Sales Tax Act of both the States, viz., Karnataka and Tamil Nadu. It was also noted that the Supreme Court had further observed that the above conclusion is further strengthened by the definition of pawnbroker and that any activity incidental or ancillary to the main business will also come within the definition of "business" under the Kerala General Sales Tax Act and, therefore, the contention that the sale of unredeemed goods being incidental or ancillary to the business of the pawnbroker was not liable to sales tax cannot be accepted. The division Bench held that the above judgment squarely applied to the facts and circumstances of the case and the contentions raised therein. Thus, it can be seen that the challenge made to the amended provisions of the definition of "dealer" in section 2(vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institutions coming under clause (g) are concerned. It is also relevant to note that entry 54 of List II of the Seventh Schedule which is the legislative entry only speaks of "taxes on the sale or purchase of goods other than newspapers subject to the provisions of entry 92A of the List II". The provisions of article 366 of the Constitution was also amended by inserting clause (29A) by the Constitution (46th Amendment) Act, 1982 to widen the scope of the legislative entry 54 under which six categories of transactions which are not instances of purchase or sale in the ordinary sense are included within the meaning of sale or purchase of goods. Under the constitutional entry it is not the requirement of taxing sale or purchase of goods that the sale or purchase referred to therein should be by a dealer or in the course of business. Thus, the contention that the amended provisions of the definition of "dealer" in section 2(viii) of the Act is unconstitutional has no basis. The said provision making the transaction of sale of pledged articles by the banks and financial institutions exigible to tax also does not in any way infringe the provisions of articles 14 and 19 of the Constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l disputed transactions and that therefore, the transactions are exigible to tax under the Act. The Supreme Court in Sai Publication Fund's case [2002] 126 STC 288 which we have already considered earlier was also considering the question as to whether the supply of books, pamphlets, etc., containing message of Saibaba which were made available to devotees on nominal charges to meet the cost makes the trust which is established for spreading message of Saibaba of Shiridi carrying on business. The Supreme Court observed that the main activity of the trust is not carrying on any business and their activity of supply of books, pamphlets, etc., to devotees on nominal charges to meet the cost cannot be treated as incidental to the business, exigible to tax under the Act. In other words, the Supreme Court held that unless the main activity is carrying on some business the incidental activity cannot be subjected to tax. This is not the position in the present case where the activity of the bank is carrying on banking business which includes sale of pledged securities. 19.. In view of the facts and circumstances stated above, we are of the view that the learned single Judge was perfectly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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