TaxTMI 
TaxTMI 
1998 (10) TMI 456
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....lants in C.A. Nos. 9297 and 9298 of 1995. Dushyant Dave, Senior Advocate (S.R. Setia, Advocate, with him), for the appellants in C.A. Nos. 7321 to 7327 of 1995. S. Srinivasan, Advocate, for the appellants in C.A. No. 11293 of 1995. M.A. Chinnaswamy, Advocate, for the appellants in C.A. No. 7683 of 1996. K. Parasaran, Senior Advocate (S.R. Setia, Advocate, with him), for the appellants in C.A. No. 9482 of 1995. K. Ram Kumar, Advocate, for the appellants in C.A. No. 1800 of 1996. T.V.S.N. Chari, Advocate, for the appellants in C.A. Nos. 6894 and 6895 of 1994. -------------------------------------------------- The judgment of the Court was delivered by K. VENKATASWAMI, J.-The common question that arises for consideration in all these appeals is whether a pawnbroker is a "dealer" and carries on "business" within the meaning of the State General Sales Tax Act read with the State Pawn Brokers Act and Rules when he causes the sales of unredeemed articles/goods, occasioned by the default of the pawner through (statutory) auctioneer. 2.. The above question has to be considered with reference to the provisions of the Ta....
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....brokers. Accordingly, the Pawn Brokers Act came to be enacted. The Pawn Brokers Act provides details of the manner in which the business of a pawnbroker should be carried on and how the rights and liabilities of the pawner and the pawnee should be adjusted and settled.] A pawnbroker in the Karnataka Pawn Brokers Act (hereinafter called "the Act") is defined in section 2(7) as follows: "'Pawnbroker' means a person who carries on the business of taking goods and chattels in pawn for a loan. Explanation.-Every person who keeps a shop for the purchase or sale of goods or chattels and who purchases goods or chattels and pays or advances thereon any sum of money, with or under an agreement or understanding expressed or implied that the goods or chattels may be afterwards repurchased on any terms, is a pawnbroker within the meaning of this clause." Section 5 compels the pawnbroker to obtain a licence. Section 7 directs the pawnbroker to give a ticket to the pawner on taking a pledge in pawn. Section 11, an important section, deals with the redemption of pledge, which reads as follows: "11. Redemption of pledge.-(1) Every pledge shall be redeemable within one year from the day....
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....shall be liable to pay only the balance, if any, after such set-off." The next relevant provision will be rule 20 of the Karnataka Pawn Brokers Rules, which reads as under: "20. Procedure in auction of pledges.-The procedure for sale by public auction of pledges shall be as follows: (1) The sale shall be conducted by an auctioneer approved by the licensing authority or from the Inspector of Money Lenders and the pawnbrokers. (2) The auctioneer shall- (i) cause all pledges to be exposed to public view; (ii) get a catalogue of the pledges to be sold in auction containing the following particulars printed: (a) the name, place of business and licence number of the pawnbroker concerned; (b) date of loan; (c) number of the pledge in the pledge book; (d) full and detailed description of the article (weight to be noted in case of jewels); (e) name and address of pawner; and (f) date, hour and place of sale; (iii) publish the printed catalogue by getting a copy thereof pasted at the place of business of the pawnbroker and by distributing copies among intending bidders; (iv) send at least a week before the date fixed for the sale: (a) two copies of the printed catalogue....
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.... motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and (ii) any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern." Section 2(1)(k) defines "dealer". The relevant portion is as follows: "2(1)(k) 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes-.............." The definition of "sale" is found in section 2(1)(t). The relevant portion is as follows: "2(1)(t) 'sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods other than by way of a mortgage, hypothecation, charge or pledge by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, and includes,-..............." A careful reading of the above extracted provisions will show that the pawner can redeem the pledged article within the period stipulated or within the....
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....o the concept of sale as contained in the Sale of Goods Act as the law does not recognise such a transaction as a sale. 7.. Mr. T.L. Viswanatha Iyer, learned Senior Counsel appearing on behalf of the State of Karnataka, and Mr. V. Krishnamurthy, learned counsel appearing on behalf of the State of Tamil Nadu, answering the contentions of learned counsel for the appellants, submitted that factually there is a sale in disposing of the pledged articles through public auction, cannot be disputed. The right to bring the articles for sale through public auction in the event of default on the part of the pawner to redeem, vests with the "pawnbroker" and the same is incidental to the business of pawnbroker. The concept of "business" includes the business of pawnbroker with incidental right to sell the unredeemed goods. On the facts of the case, the auctioneer cannot be treated as the seller for imposing tax on him. The appellants have admitted that the sale of unredeemed articles is incidental to the business of pawnbroker. If that be so, the liability to pay sales tax on such sales cannot be avoided in view of the definitions of "business", "dealer" and "sale" in the Sales Tax Acts. The l....
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.... of the pawnbroker. 11.. The learned Judges of the Division Bench of the Madras High Court also took the view as that of the Karnataka High Court and gave additional reasons as well. After referring to a Full Bench judgment of the Madras High Court in Kandula Radhakrishna Rao v. Province of Madras [1952] 3 STC 121, the learned Judges held that the pawner, who pledges the article with the licensed pawnbroker, not only parts with the possession of the pledged article in favour of the pawnbroker, but by virtue of such pledge parts with the rights he held to sell the pledged article in case of default of payment and discharge of loan or redemption of the article pledged within the time stipulated therefor by the contract or by the provisions of the Act and the Rules made thereunder. The learned Judges further held that the sale of the pawned articles can be safely and legitimately be said to be occasioned or brought about by the action of the pawnbroker only and consequently, he alone has to be treated in law as the person responsible and also as the person who has sold the pledged articles. The intervention of an approved auctioneer is only to prevent abuse by the pawnbroker o....
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....ses on his right to transfer the general property right in the pledge in the event of the pledge remained unredeemed resulting in the sale of the pledge by public auction through an approved auctioneer. The position being what is stated above the natural consequence will be that it is the pawnee who holds not only the absolute special property right in the pledge but also conditional general property interest in the pledge, the condition being that he can pass on that general property only in the event of the pledge brought to sale by public auction in accordance with the Act and the Rules framed thereunder. 15.. In this connection, we can usefully quote a passage from Kandula Radha- krishna Rao [1952] 3 STC 121 (Mad.) [FB], which has been approved by this Court in Bagal Kot Cement Co. v. State of Mysore [1976] 37 STC 73; [1976] 1 SCC 336. 16.. The Madras High Court in Kandula Radhakrishna Rao's case [1952] 3 STC 121 (a Full Bench judgment) speaking through Rajamannar, C.J., an eminent Judge, had an occasion to consider the position of a broker and a commission agent under the Madras General Sales Tax Act, 1939 and the Rules made thereunder. The question that was considered in th....
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....e assessee-railway in each case is a 'dealer' for the purpose of assessment under the Bengal Finance (Sales Tax) Act, 1941. In the case of the assessee, South Eastern Railway, what were sold were unclaimed goods. The railway was a carrier of the goods and if at the stage of delivery goods remained unclaimed for a period the railway was entitled to dispose them of. There can be no doubt that the activity of so disposing of the goods was adjunctive to the principal activity of the carriage of goods by the railway. It is an activity which may be regarded as necessarily incidental or ancillary to its business as carrier of the goods. It seems to us that the assessee, South Eastern Railway, was a 'dealer' for the purposes of the Bengal Finance (Sales Tax) Act, 1941." Applying the above principle to the facts of these cases, we are clearly of the opinion that in the sales of unredeemed goods through public auction by an approved auctioneer the pawnee, who has control or possession over the goods and who was given statutory authority to pass the general property in and title to the goods, is the seller and as such, satisfies the definition of "dealer" under the General Sales Tax Act of b....
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....th possession of the goods in favour of the auctioneer. With a little reflection, one also realises that a careful pawnbroker would like to keep the goods in his own custody until they are sold, and would not like to hand over possession to the auctioneer without any security for their safe custody. The provisions in the Pawn Brokers Act and, in particular, the obligation that auction sales of unredeemed goods shall be effected according to certain prescribed rules through approved auctioneers are intended to safeguard the pledgers of goods from the effect of nominal or bogus sales of their goods by pawnbrokers in the event of non-redemption, which will otherwise have the effect of preventing poor persons, who resort to the pawnbrokers for loans, from getting a proper value of the pledged goods when they remain unredeemed. The intervention of the auctioneer is therefore intended for safeguarding the interest of the pledgers of goods, but at the same time, the rules are careful to see that the interest of pawnbrokers are not also affected and they do not require them to part with the possession of the goods to the auctioneer before the sale. In fact the rules are silent about the m....
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....e highest bidder." We are in agreement with the above observations and the conclusions reached thereon. This answers, in the negative, the contention advanced on behalf of the appellants that if at all in the transactions in question, the auctioneer must be held liable for payment of tax. 20.. Now coming to the contention that inasmuch as the pawnbroker is given liberty to bid and purchase at the sale of unredeemed goods, he cannot be deemed as a "seller" as one cannot sell the goods to himself. This contention is misconceived as the pawnbroker in such circumstance plays a dual role-one as a pawnbroker and the other as individual self. As a matter of fact, a similar question arose before the Madras High Court in L.S. Chandramouli and Company v. State of Madras [1966] 18 STC 325. In that case, the question for consideration was whether a local agent of a non-resident principal, who carried on business of his own also transfers the goods of non-resident principal to his own business can be considered as a transaction of sale chargeable to tax. The learned Judges overruling a similar contention held that the concerned agent held two different capacities-one as an agent of a non-resi....
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....reference to the facts of those cases which have no direct bearing to the issues raised in these cases. 25.. In Deputy Commissioner of Commercial Taxes, Madurai [1968] 21 STC 184, the Division Bench of the Madras High Court, on the facts of the case, held that the bank in selling the goods pawned to it did not act as agent of the assessee and the sales were on behalf of the pledger. The learned Judges further held that the pawn or pledge by itself did not make the pawnee or pledgee the owner of the goods on the peculiar facts of that case. 26.. In Lallan Prasad's case [1967] 2 SCR 233, this Court considered a question whether the appellant in that case was entitled to a decree in view of his denial of the pledge and his failure to offer to redeliver the goods. In answering that question, this Court, after referring to section 176 of the Indian Contract Act, held that so long, however, as the sale does not take place, the pawner is entitled to redeem the goods on payment of the debt. Therefore, the right to sue on the debt assumes that he is in a position to redeliver the goods on payment of the debt, and if by denying the pledge or otherwise, he has put himself in a position wher....