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M/s. Citi Bank Versus Commissioner of Sales Tax

2015 (12) TMI 1040 - DELHI HIGH COURT

Sale of hypothecated vehicles - disposal of repossessed cars by the bank - whether bank is a dealer - defaulting customers - Held that:- the Petitioner Bank is indeed a ‘dealer’ within the meaning of Section 2 (e) read with Section 2 (c) of DST Act. The sale by the Bank of cars hypothecated to it or offered as security against loans advanced towards financing the purchase of the car is a 'sale' within the meaning of S. 2 (m) of the DST Act. Even if the borrower is the owner in possession of the .....

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tax cannot be subjected to any further sales tax. - In any event, as of date it appears that no demand as such has been raised against the Bank for any period prior to 29th March 1996. Therefore, a question that has not been raised in this appeal is not required to be considered by the Court. - Sale of the repossessed cars by the Appellant Bank is incidental or ancillary or in connection with the Appellant’s business - Appeal disposed of. - ST. REF. 1/2003 - Dated:- 14-12-2015 - S. Muralidh .....

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f the Tribunal that the ex parte order dated 21st July 1998 passed by the Commissioner of Sales Tax was passed after reasonable and adequate opportunity is perverse? (ii) Whether the Tribunal was correct in holding that the period of six months required by Section 49 of the Delhi Sales Tax Act read with Rule 42 is directory and therefore, the order of the Commissioner dated 21st July 1998 on the application dated 15th October 1995 was valid in law? (iii) Whether in the facts and under the circum .....

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s of the case the Tribunal was correct in holding that the activity of the banking carried on by the Appellant Bank amounts to business under Clause (i) of Section 2 (c) of the Delhi Sales Tax Act, 1975? (vi) If the answer to Question No. 5 is yes, whether in the facts and under the circumstances of the case the Tribunal was correct in holding that the sale of the repossessed cars by the Appellant is incidental or ancillary or in connection with the Appellant s business.? 2. The background to th .....

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loan instalments, the Bank has the right to repossess the car and bring it to sale in order to recover the outstanding amount. 3. A copy of the standard loan agreement entered into by the Bank with the borrower has been placed on record. It is described as an unattested loan-cum-hypothecation-cum-guarantee agreement . Inter alia Clause 2 (1) states that borrower(s) by way of providing security to the Bank against the loan amount/overdraft facility undertake to hypothecate the vehicle for which/ .....

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mediate repayment of the loan, together with extra 2% or any other rate applicable at that time in terms of the bank policy on the principal amount outstanding. Clause 4 (9) states the bank is entitled to take the repossession of the hypothecated vehicle whether the entire loan amount has been recalled or not, whenever in the absolute discretion of the Bank there is likelihood or due money not being paid and/or the vehicle is likely to be transferred to defeat the security and the due amounts of .....

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rney at the time of availing of the loan, in favour of the Bank. Inter alia this document authorises the Bank to take possession of the financed vehicle in case of default in terms of the loan agreement. Clause 10 thereof authorizes the Bank to receive on consideration by sale, transfer, disposition of the said car and to give proper receipt and valid and effectual discharge for the same. 4. Pursuant to the aforementioned loan agreement and power of attorney, the Bank has, in the event of defaul .....

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t July 1997 the Commissioner of Sales Tax, Delhi ( CST ) decided the said questions after hearing submissions of the Bank as well as the Department. After referring to Section 2 (c) which defines the business and 2 (e) of the DST Act which defines the dealer , the CST came to the conclusion that the questions should be answered in the affirmative and against the Bank. It was held that the repossession and disposal of the car by the Bank is not ancillary and incidental to and in connection with i .....

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under Section 23 (6) of DST Act in case the sale proceeds were found to have crossed the taxable limit in terms of Section 3 (7) of the DST Act in any of the financial years. 6. The above order of the CST was challenged by the Bank before the Tribunal, which by an order dated 28th May 2002 agreed with the CST that the Bank was carrying on the business of hypothecating and selling of cars and had adjusted such sale proceeds towards any outstanding amount. It was held that this being incidental, .....

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uestions referred to this Court for its opinion, Mr. Mahna stated on instructions that he was not pressing Question Nos. 1 and 2 since in any event the Bank has been heard by both the Tribunal and the CST on the same issue. 10. Question No. 3 is the main question urged and it is whether the Tribunal was correct in holding that disposal of repossessed cars by the Appellant Bank constitutes a sale by the Bank . This is integrally linked to Questions 4 to 6, i.e. whether the Appellant is a 'dea .....

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e of Tamil Nadu v. Board of Trustees of the Port of Madras (1999) 114 STC 520 the question that arose was whether the Port Trust was a dealer within the meaning of the Tamil Nadu General Sales Tax Act, 1959 ( TNGST Act ) and whether the sale by it of the unclaimed and unserviceable goods" could be subjected to sales tax. The Supreme Court held as under: "42. From the above provisions, in our opinion, it is clear that the Port Trust is not involved in any activity of 'carrying on bu .....

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by the State of Tamil Nadu that the Port Trust had an independent intention to carry on business in the sale of unserviceable/unclaimed goods. That is not the case of the department in the show-cause notice. Further from the counter-affidavits filed in the High Court it is clear that it is not the case of the State that there is any separate intention on the part of the Port Trust, to carry on business in the unserviceable and unclaimed goods. Its contention has been that the main activities of .....

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le to sales tax under the Andhra Pradesh General Sales Tax Act, 1957 ( APGST Act ). The Andhra Pradesh High Court referred to the decision of the Supreme Court in State of Tamil Nadu v. Board of Trustees of the Port of Madras (supra) and held as under: the transaction of selling the gold pledged is basically for the purpose of a banking activity and is for securing the bank's own advanced amounts. In view of the judgment of the Supreme Court the "sale" as defined in the Act is not .....

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use by company employees and executives, for office purposes. At the time of purchase, the sales tax was paid on the cars by the dealer. After passage of time the dealer sought to replace them. These cars were then sold as used cars. The demand raised on PBL by the Sales Tax Officer under the Delhi Sales Tax Act, 1975 ( DST Act ) as well as the Central Sales Tax Act, 1956 ( CST Act ) was challenged by the Petitioner, first before the Joint Commissioner, and later before the Additional Commissio .....

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ion of the cars in question in the turnover of the dealer was unsustainable in law. 15. The above cited decisions are distinguishable in their application to the facts on hand. The sale by a Bank of gold pledged with it, the possession of which is with the Bank, as in the case of Corporation Bank (supra) is different from the sale of vehicles hypothecated to the Bank and sold by it under an authorisation of the borrower. The Borrower retains possession of the vehicle. Secondly, there is distinct .....

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he determination that sale of the car was not even incidental or ancillary to the main business of the Assessee. 16. However, as far as the present case is concerned, the facts are more or less similar to those in the case of State Bank of India v. State of Odisha (2014) 74 VST 120 (Ori). There the State Bank of India (SBI) initiated action under Section 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( SARFAESI Act ) for enforcing t .....

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lue Added Tax Act 2004 ( OVAT Act ) and that there was no legal element of sale . Reference has been made to the decision in State of Tamil Nadu v. Board of Trustees of the Port of Madras (supra) as well as Federal Bank Limited v. State of Kerala (2007) 6 VST 736 (SC). After analysing the provision of OVAT Act, it was held that the definition of dealer under the OVAT Act did not exclude the bank when the bank is selling the goods as part of its business of banking. This was inconsonance with the .....

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Calcutta High Court was considering the question whether the bank was a dealer within the meaning of Section 2 (11) of West Bengal Value Added Tax Act, 2003 ( WBVAT Act ). In that case, the bank had disposed of vehicles hypothecated to it for recovery of outstanding loans under the strength of irrevocable power of attorney obtained from the borrower. It was held that the Petitioners/Banks were dealers under the wider meaning of that expression under Section 2 (11) of the WBVAT Act. The word deal .....

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Bank Limited v. The State of Tamil Nadu 2015 VIL 372 (Mad), the Division Bench of the Madras High Court addressed the issue whether the Bank which had sold thousands of repossessed vehicles from defaulting customers was a dealer within the meaning of Section 2 (15) of the Tamil Nadu Value Added Tax Act, 2006 ( TNVAT Act ). In answering the question that in a hypothecation, the ownership of the hypothecated goods remains only with the borrower, the Court observed as under: 11. It is true that in .....

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er of the vehicle. 19. Under the expanded definition of dealer under Clause 2 (15) of TNVAT Act read with Explanation III thereof, any person who is disposing the goods by auction or otherwise is also deemed to be a dealer. Therefore, this did not require the seller must be in a position to itself pass on title in order to considered as a 'dealer' under Section 2 (15) of TNVAT Act. Further it was held that in view of the Explanation III, no distinction could be drawn between a statutory .....

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auctions goods belonging to any principal, whether disclosed or not ....... 21. Going by the above broad definition, and in light of the law explained in the aforementioned cases, the Court has no difficulty in holding that the Petitioner Bank is indeed a dealer within the meaning of Section 2 (e) read with Section 2 (c) of DST Act. The sale by the Bank of cars hypothecated to it or offered as security against loans advanced towards financing the purchase of the car is a 'sale' within t .....

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d is an inclusive one. It includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not it is for gain or profit. It also includes any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern. It is not in dispute that the Petitioner-Bank was granted permission to sell goods/assets offered to it as security for the purposes of recovering the outstanding loans. Th .....

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anking carried out by the Appellant bank amounts to business under Section 2 (c)(i) of the DST Act. As a corollary, in answer to Question No. 6, it is held that the Tribunal was correct in holding that sale of the repossessed cars by the Appellant bank is incidental or ancillary to its main banking business. 23. An attempt was made by Mr. Mahna to urge that the sale of motor vehicles is a first point sale in terms of Section 5 of DST Act read with the Schedule thereof. It is pointed out that wit .....

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