TaxTMI 
TaxTMI 
1997 (12) TMI 618
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.... grant different kinds of loans. Some loans are granted on the security or pledge of gold ornaments. If the pledgers did not repay the amount as promised, the banks sell the pledged goods and appropriate the amount obtained by the sale towards the debt due to them. If the amount obtained by sale exceeds the amount due, the balance amount is returned to the pledgers, while if the amount obtained is less than the amount due to it, the bank is entitled to realise the balance amount from the respective debtors. According to the Assistant Commissioner (Assmt.), Sales Tax, Special Circle, Trissur, if the sale of the jewellery or gold ornaments is in exercise of the right which the banks obtained as a result of the pledge, the banks are liable to pay tax under section 5 of the Kerala General Sales Tax Act (hereinafter referred to as "the Act"). It is that notice which is challenged in the original petitions. 2.. The contention of the banks is that they are not engaged in the business of selling or buying goods. According to them, under the Banking Regulation Act, they are engaged in banking business. Granting of loans is incidental to the business of banking. The loans are given on the....
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....ling in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities; (b) acting as agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a managing agent or secretary and treasurer of a company; (c) contracting for public and private loans and negotiating and issuing the same; (d) the effecting, insuring, guaranteeing, underwriting, participating in managing and carry....
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....vant section is section 8 of the Banking Regulation Act, which is as follows: "Prohibition of trading.-Notwithstanding anything contained in section 6 or in any contract, no banking company shall directly or indirectly deal in the buying or selling or bartering of goods, except in connection with the realisation of security given to or held by it, or engage in any trade, or buy, sell or barter goods for otherwise than in connection with bills of exchange received for collection or negotiation or with such of its business as is referred to in clause (i) of sub-section (1) of section 6." Thus, under this section, the banking company is prohibited from trading in any goods except in connection with the realisation of security given to or held by it. 5.. So far as pledge is concerned, the right to sale is contained in section 176 of the Indian Contract Act, 1872. It is as follows: "If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may s....
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....rying on the trade, commerce or adventure with or without profit and any transaction which is connected with or incidental to such trade, commerce or manufacture is also a business. "Casual trader" has been defined under section 2(vii) of the Act. It is as follows: "(vii) 'casual trader' means a person who has whether as principal, agent or in any other capacity, occasional transactions involving the buying, selling, supply or distribution of goods in the State, whether for cash or for deferred payment, or for commission, remuneration, or other valuable consideration." "Dealer" is defined under clause (viii) of section 2 of the Act as follows: "(viii) 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, executing works contract, transferring the right to use any goods or supplying by way of or as part of any service, any goods directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration and includes- (a) .............(omitted) (b) a casual trader; (c) a commission agent, a broker or a del credere agent or an auctioneer or any other mercanti....
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....es. If the amount is not repaid, it necessarily creates a right in the banking company to sell the goods. Thus, according to them, the sale of goods is incidental to the main business of the banks. Learned Government Pleader also submitted that from the definition of "casual dealer" and "business", it is very clear that the transaction like the sale of jewellery comes within the purview of the Act. He submitted that the banks have a duty to see that the security given by the pawnor is utilized for the satisfaction of the debts. It is from that angle that the goods are sold. Even though there may be general prohibition in trading, section 8 allows the banks to sell the goods for realisation of the amounts. Thus, according to the learned Government Pleader, whatever may be the compulsion under which the goods are sold, if they are sold, the banks are liable to pay tax under the Act. Learned counsel on both sides cited a number of decisions in order to drive home their points. We shall now examine the decisions in order to arrive at a proper answer to the questions posed. 8.. The learned Government Pleader relied on the following decisions: District Controller of Stores, ....
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.... decision in District Controller of Stores, Northern Railway v. Assistant Commercial Taxation Officer [1976] 37 STC 423 (SC). The next decision that was cited was the decision of the Supreme Court in State of Orissa v. Orissa Road Transport Co. Ltd. [1997] 107 STC 204. The question arose under the Orissa Sales Tax Act and the question was whether the Orissa Road Transport Company was liable to pay tax with regard to the sale of unserviceable, old and unutilised parts from its stores. Their Lordships relied on the decision in District Controller of Stores, Northern Railway v. Assistant Commercial Taxation Officer [1976] 37 STC 423 (SC) and held that the Orissa Road Transport Company is liable to pay tax. Further, the court also relied on the definition of the words "casual dealer" and on that basis held that the respondent was liable to be assessed under the Orissa Sales Tax Act. 9.. In the above three decisions, the honourable Supreme Court held that the respective assessees were liable, because the transaction concerned was connected with main trading or commercial activity. In the first two decisions, the Railways were either selling old unserviceable goods or were selling the....
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....ern Railway, Calcutta [1989] 74 STC 5, New India Assurance Co. Ltd. v. Deputy Commercial Tax Officer, Esplanade Division I, Madras [1972] 29 STC 539 (Mad.) and Indian Insurance Companies' Association Pool v. Deputy Commercial Tax Officer [1969] 24 STC 79 (Mad.), held that the activity comes within the scope of "business" under the Act. 12.. The learned counsel for the appellants distinguished the above decisions and also relied on the following decisions: (1) Board of Trustees of the Port of Madras v. State of Tamil Nadu [1998] 108 STC 66 (Mad.); [1997] 10 MTCR 373. In that case, the question that arose was with regard to the liability of the Port Trust to pay sales tax on auction sales. The division Bench of the Madras High Court was considering the question whether the Port Trust will be a dealer when it sold the goods which were not claimed. The Division Bench held as follows: "In order to attract this provision, it is necessary that one must carry on the business of buying, selling, supplying or distributing goods either as a factor, a broker, a commission agent, etc...". The learned counsel for the appellants relied on an unreported decision of the Karnataka High Court i....
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....the bank should take upon itself the act of selling the goods. Instead of selling the goods directly, it could sue and through the court realise the amount due to it. Viewed from this angle, it cannot be said that the bank is carrying on any activities in trade or business in goods. 14.. In this context, the provisions of section 8 of the Banking Regulation Act, 1949 has to be closely examined. The section opens with a non obstante clause. It states that no banking company shall deal in buying or selling or bartering of goods. The section carves out three exceptions and those are: (i) in connection with the realisation of security given to or held by it; (ii) buy or sell goods for others otherwise than in connection with bills of exchange received for collection or negotiation; and (iii) such of the business as is referred to in clause (i) of sub-section (1) of section 6. The first exception is sale of securities for realisation of the loans. This had to be there because in the absence of sale of securities, the bank would not be able to recover the loans which were deposited by the customers. It cannot be said that while the securities are sold the bank is carrying on business ....