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Issues: Whether a bank, while selling gold ornaments pledged as security for loans, is a "dealer" carrying on "business" within the meaning of the Andhra Pradesh General Sales Tax Act, 1957, so as to be liable to sales tax on the sale proceeds.
Analysis: The definition of "dealer" under the Andhra Pradesh General Sales Tax Act, 1957 turns on carrying on the business of buying or selling goods, and "business" is given an inclusive meaning. The Banking Regulation Act, 1949 defines banking as receipt of deposits for lending or investment and permits only specified forms of business. It also prohibits banking companies from directly or indirectly dealing in the buying or selling of goods except in connection with the realisation of security given to or held by them. Selling pledged ornaments in default of repayment is therefore not an independent commercial venture, but a step taken in the course of banking activity to realise the bank's secured dues. Applying the principle that sales are taxable only when they occur in the course of trade or business, the sale of pledged gold ornaments by a bank does not amount to carrying on business in goods for sales tax purposes.
Conclusion: The bank is not amenable to sales tax on the sale of gold ornaments pledged to it as security for loans, and the impugned notices were liable to be quashed.
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