Banking company sale of pledged securities for loan recovery is not trading activity under sales tax law

A banking company that sells securities or pledged goods solely to realise loan dues is not carrying on the business of buying or selling goods for sales tax purposes. The sales tax definition of dealer requires trading activity, while the banking statute expressly restricts banks from dealing in goods except for limited recovery-related exceptions. Those exceptions permit enforcement of security interests but do not convert realisation of security into trade or commerce. A notice seeking tax-related information on such disposals was therefore without jurisdiction, and the bank could not be proceeded against as a taxable dealer for the sale of securities used to recover loans.

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Issues: Whether a banking company, when selling securities or pledged goods for realisation of loans, can be treated as a dealer carrying on business of buying or selling goods under the sales tax law, and whether a notice seeking tax-related information on such disposals was without jurisdiction.

Analysis: The statutory definition of dealer under the sales tax enactment requires carrying on the business of buying, selling, supplying or distributing goods, and the definition of business extends to trade or commerce and transactions incidental or ancillary thereto. The Banking Regulation Act, however, contains a specific prohibition against a banking company directly or indirectly dealing in the buying or selling or bartering of goods, subject only to limited exceptions, including realisation of security. The Court held that those exceptions enable a bank to recover dues and do not convert the act of realising security into trading or commercial business. The disposal of securities in enforcement of security interests is therefore not an activity in the course of trade or business for sales tax purposes. The decisions relied on for other entities such as railway undertakings and pawn brokers were distinguished because those cases did not involve the same statutory prohibition on trading that governs banking companies.

Conclusion: A banking company selling securities for realisation of loans is not a dealer under the sales tax law, and the impugned notice seeking information on such disposals was without jurisdiction.

Final Conclusion: The bank was not liable to be proceeded against as a taxable dealer in respect of sale of securities realised towards loan recovery, and the coercive notice issued by the tax authority could not stand.

Ratio Decidendi: Where a special banking statute prohibits trading by banks and permits sale of securities only for recovery of dues, such realisation does not amount to carrying on business as a dealer under the sales tax law.

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