2015 (8) TMI 1239 - HC - VAT and Sales Tax

Bank liable for value added tax on sale of pledged assets for loan recovery under Orissa VAT Act.

State Bank of India and another Versus State of Odisha and others

The court held that the petitioner-bank is considered a 'dealer' under the Orissa Value Added Tax Act and is liable to pay value added tax on the sale of ... Bank liability to pay VAT – Whether petitioner-bank was covered by definition of “dealer” under section 2(12) of Orissa Value Added Tax Act, 2004 and was liable to value added tax on sale of pledged assets effected by it for recovery of loan – Held that:- As observed by Supreme court in Federal Bank Limited [2007 (3) TMI 364 - SUPREME COURT OF INDIA] when bank sells pledged goods in exercise of its statutory power, such sales were required to be indicated in its balance sheet and profit and loss account as per Act – However, ratio of Federal Bank was not confined to specific inclusion of bank in definition “dealer” but on consideration of nature of banking business – In OVAT Act, “dealer” means any person who carries on business of buying and selling – Apex court clearly held that sale of goods to recover loan was part of banking business – We do not find any reason to exclude bank from definition of “dealer” under OVAT even in absence of express inclusion of bank in said definition – Therefore, bank was not dealer liable to pay value added tax on transaction of sale of goods in auction conducted by it to recover loan dues, was not correct –Petition disposed of – Decided against Assesse. Issues Involved:1. Whether the petitioner-bank is covered by the definition of 'dealer' under section 2(12) of the Orissa Value Added Tax Act, 2004 (OVAT Act).2. Whether the petitioner-bank is liable to value added tax on the sale of pledged assets effected for the recovery of loans.Issue-wise Detailed Analysis:Issue 1: Definition of 'Dealer' under OVAT ActThe primary question is whether the petitioner-bank qualifies as a 'dealer' under section 2(12) of the OVAT Act. The petitioner's argument hinges on the interpretation of 'dealer' and whether the bank's actions fall within this definition. The petitioner argues that the bank's sale of pledged assets is not a business activity but an incidental action to recover loans, similar to the case of the Madras Port Trust, which was not considered a dealer for selling unclaimed goods. The bank contends that since its primary function is not selling goods, it should not be classified as a dealer.The court examined the definition of 'dealer' under section 2(12) of the OVAT Act, which includes any person engaged in transactions of buying, selling, supplying, or distributing goods, whether for cash, deferred payment, or other valuable consideration. The court also reviewed the definition of 'business' under section 2(7), which includes any trade, commerce, or manufacture, and transactions incidental to such activities.Issue 2: Liability to Value Added TaxThe petitioner-bank argues that the sale of pledged assets is not a taxable event under the OVAT Act because it is not part of the bank's primary business. The bank relies on the Supreme Court's decision in the State of Tamil Nadu v. Board of Trustees of the Port of Madras, which held that incidental sales by a port trust did not constitute business activities.The court, however, referred to the Supreme Court's decision in Federal Bank Ltd. v. State of Kerala, where it was held that the sale of pledged goods by a bank is part of its business activities. The court noted that the banking business includes the sale of pledged goods to recover loans, and such sales are reflected in the bank's balance sheet and profit and loss account as per the Banking Regulation Act, 1949. The court concluded that the sale of pledged goods by the bank is a business activity and falls within the definition of 'dealer' under the OVAT Act.Conclusion:The court held that the petitioner-bank is covered by the definition of 'dealer' under section 2(12) of the OVAT Act and is liable to pay value added tax on the sale of pledged assets effected for the recovery of loans. The court emphasized that the sale of pledged goods is part of the banking business and is subject to taxation under the OVAT Act. The petition was disposed of, with the court not expressing any opinion on the merits of the assessment, which may be decided at an appropriate forum.