Bank sale of hypothecated goods can count as business when done to realise security under sales tax law.

A banking company's sale of hypothecated goods to realise security can be treated as business under the Karnataka Sales Tax Act because the definition of business extends to transactions incidental or ancillary to trade, commerce or concern. The statutory bar on trading by banking companies does not exclude such a sale where it falls within the express exception for dealings connected with realisation of security held by the bank. Accordingly, the bank's disposal of hypothecated goods for recovery of dues remained within the taxable business activity and could attract dealer liability.

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Issues: Whether a banking company selling hypothecated goods for realisation of its security can be treated as a dealer under the Karnataka Sales Tax Act, and whether the statutory prohibition on trading by banking companies excludes such sale from the ambit of business.

Analysis: The sale of goods by the bank was effected in exercise of rights under the hypothecation agreement and for recovery of dues by realisation of security. The definition of business under the Karnataka Sales Tax Act extends to transactions incidental or ancillary to trade, commerce, manufacture or concern, and earlier decisions had held that sale of salvaged or pledged goods by an insurer or pawnbroker constituted business for the purpose of the Act. Section 8 of the Banking Companies Regulation Act, 1949 imposes a general prohibition on trading by banking companies, but expressly carves out an exception for dealings connected with the realisation of security given to or held by the bank. Since the sale in question fell within that exception, the bank could not avoid the statutory characterisation of its activity as business merely because it was undertaken to realise security.

Conclusion: The bank was not exempt from treatment as a dealer on the facts of the case, and the impugned notices did not suffer from any error of law or jurisdiction.

Ratio Decidendi: A banking company's sale of hypothecated goods for realisation of security is an ancillary business activity and, where such sale falls within the statutory exception to the trading prohibition, it can attract dealer liability under the sales tax law.

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