Andhra HC (Pre-Telangana)
Corporation Bank vs Government Of Andhra Pradesh And Anr. on 8 June, 2001
Equivalent citations: [2002]110COMPCAS100(AP), [2002]125STC346(AP)
Author: Bilal Nazki
Bench: Bilal Nazki
JUDGMENT Bilal Nazki, J.
1. The petitioner-bank is a nationalised bank constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 and is carrying on the business of banking with its head office at Mangalore having several branches throughout India including branches at Warangal and Guntur in the State of Andhra Pradesh. The primary business of the petitioner-bank is banking as contemplated under Section 5(b) of the Banking Regulation Act, 1949 and also such other activities which are ancillary and incidental thereto. The petitioner-bank advances loans to different types of individuals, institutions and other concerns in accordance with the directives of the Reserve Bank of India. For the purpose of securing loan advanced by the bank it receives securities of different types from its customers. One such type of security is deposit of gold jewellery against the cash advanced. If the borrower fails to repay the loan within the stipulated period the petitioner-bank reimburses itself by selling the pledged articles such as gold jewellery. This mode of lending is approved by the Reserve Bank of India. The petitioner-bank realised certain amounts by selling the gold ornaments pledged to it against the loans. The Commercial Tax Officer, Warangal through his letter Rc. No. A3/93/89, dated April 3, 1989, demanded payment of sales tax on the amount realised by the petitioner-bank at its Warangal branch from the sale of jewellery. The Commercial Tax Officer, Guntur through his letter Re. No. 334/89-A5, dated October 18, 1989, has also demanded from the petitioner-bank at its branch at Guntur details regarding the sale of pledged jewellery. These two communications have been challenged in this writ petition and it is submitted that the respondent-State has no power under the Sales Tax Act to demand sales tax on the above-mentioned sales. It is further submitted that the Government had issued a G.O. Ms. No. 1091 on June 10, 1957, by which banks were exempted from application of the provisions of the A. P. General Sales Tax Act, 1957. But, some time earlier the respondents demanded payment of sales tax from several banks on the rents realised by them by leasing out the safe deposit lockers to their customers. All the banks approached the court. During the pendency of the matter before the court respondent No. 1 withdrew G.O. Ms. No. 1091 which had granted exemption to the banks and thereafter respon-
dent No. 1 issued G.O. Ms. No. 794, dated August 19, 1987 bringing all the banks within the purview of the provisions of the A. P. General Sales Tax Act, 1957. Consequent upon the withdrawal of G.O. Ms. No. 1091, and introduction of G.O. Ms. No. 794, respondents have been issuing notices on some of the branches of the petitioner-bank directing them to furnish information regarding the amounts realised by them by sale of the pledged or hypothecated valuables such as gold ornaments.
2. Counter has been filed. We have heard learned counsel for the parties. The main grounds of attack against the action of the respondents in treating the petitioner-bank as dealer under the A. P. General Sales Tax Act was that bank was not a dealer in terms of Section 5 of the Andhra Pradesh General Sales Tax Act, 1957. It is further contended that since the petitioner could not be held to be a dealer, therefore, the bank was not subject to tax under the Sales Tax Act. So, in the light of the pleadings and arguments of the parties the only question which will have to be decided in this writ petition is, whether the petitioner-bank is a dealer carrying on business of buying and selling goods within the meaning of Section 5 of the Andhra Pradesh General Sales Tax Act, 1957. Section 5 of the Andhra Pradesh General Sales Tax Act, 1957 is, reproduced :
"5. Levy of tax on sales or purchases of goods.--(1) Save as otherwise provided in this Act, every dealer shall pay a tax under this Act for each year on every rupee of his turnover of sales or purchases of goods in each year irrespective of the quantum of his turnover at the rates of tax and at the points of levy specified in the Schedules."
3. "Dealer" is defined in Section 2(e) of the Andhra Pradesh General Sales Tax Act, 1957, as "Dealer means any person who carries on the business of buying, selling, supplying or distributing goods or delivering goods on hire-purchase or on any system of payment by instalments, or carries on or executes any works contract involving supply or use of material directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, and includes...". All sub-sections to Section 2(e) are not necessary but Explanation IV is necessary and is reproduced below :
"Explanation IV--For the purpose of this clause, each of the following persons and bodies who sells or disposes of any goods including unclaimed or confiscated or unserviceable goods or scrap, surplus, old, obsolete, or discarded material or waste products whether by auction or otherwise, directly or through an agent for cash, or for deferred payment or for any other valuable consideration shall be deemed to be a dealer to the extent of such disposals or sales, namely :
Only (i) is important for the purpose of this case which is reproduced :
(i) Insurance and financial corporations or companies and banks included in the Second Schedule to the Reserve Bank of India Act, 1934."
4. So, from the definition itself it follows that "dealer" would mean a person who carries on business of buying, selling, supplying or distributing goods. Therefore, this court will have to consider whether pledging of ornament's with the bank against a loan and sale of such goods if the loan is not discharged would be business within the meaning of Section 2(e) of the Sales Tax Act. "Business" is defined in Section 2(bbb) as : "'Business' includes -
(i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on or undertaken with a motive to make gain or profit and whether or not any gain or profit accrues therefrom ; and
(ii) any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern ; and
(iii) any transaction in connection with or incidental or ancillary to the commencement or closure of such trade, commerce, manufacture, adventure or concern."
5. Learned counsel for the petitioner submits that in the case of banks a peculiar meaning will have to be given to the words "carrying on business". Basically under the Banking Regulation Act the only purpose for which the banks have been constituted is banking and if some other business is done incidental thereto it should be banking business and not commercial business as stipulated under the General Sales Tax Act. He further contended that, by auctioning or selling the goods pledged the bank is not getting any consideration thereof but is only getting the loan realised. If a person who pledges the ornaments with the bank pays back the advance as stipulated he is entitled to get his ornaments back and in such a situation there would be no question of sale. Similarly when a person fails to pay back the amounts, if the amounts are realised from a third party by selling the ornaments, it cannot be termed as a sale and the bank cannot be termed as a dealer. It is further stated that, even if it is conceded that a bank would be dealer even then it cannot be construed that it is doing business within the meaning of the Sales Tax Act. It is further stated that the banks are not established for carrying on business in goods but are only established to carry on banking business. In order to appreciate the argument it will be necessary to have a reference to the relevant provisions of the Banking Regulation Act, 1949. "Banking" has been defined in Section 5(b) of the Banking Regulation Act in the following terms :
" 'banking' means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise."
6. Section 6 is important in a way that Sub-section (2) of Section 6 imposes a restriction on banking not to engage in any form of business other than those referred in Sub-section (1) of Section 6. Section 6(1) elaborately lays down the parameters within which the banking business would have to be done. Sub-section (1)(f) of Section 6 is as follows :
"6. Forms of business in which banking companies may engage.--(1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely : --
(a) to (e) . . .
(f) managing, selling and realising any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims ;
(g) to (o) . . .".
7. It will be again important to note that "trade" has been prohibited under Section 8. Section 8 lays down :
"8. 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."
8. Now, from the perusal of different provisions of the Sales Tax Act and the Banking Regulation Act the following things become clear : (1) That the bank is a dealer within the meaning of Section 2(e) of the Andhra Pradesh General Sales Tax Act, 1957. (2) That the banks are basically doing the banking business in accordance with the Banking Regulation Act, 1949 and banking companies cannot trade as in terms of Section 8 of the Banking Regulation Act. Banking company is prohibited from trading in any goods except in connection with realisation of security given to or held by it.
9. Now the question before this court would be, whether it can be held that a bank while realising the loans after selling the goods pledged to it, was carrying on business for the purpose of sales tax. A number of judgments have been cited but we are not going to deal with those judgments in detail because in a judgment pronounced by the Supreme Court in the year 1999 almost all the judgments on the subject have been dealt with and the law has been concretized by the Supreme Court, the judgment being State of Tamil Nadu v. Board of Trustees of the Port of Madras . This case pertains to Madras Port Trust which is governed by the Major Port Trusts Act, 1963. It provides services of landing, shipping or trans-shipping, receiving, shifting, transporting, storing or delivery of goods brought into the premises of the Port Trust. Goods are brought into the Port Trust and delivered to the importee by means of its services. In the case of uncleared or abandoned goods the Port Trust brings them for sale in public auction after the approval of the customs authorities. Before 1959 the sales tax authorities in Madras sought to assess the Port Trust to sales tax under the Madras General Sales Tax Act, 1939, in respect of amounts collected for water supplied by the Port Trust to the ships. At that time the Port Trust was governed by the Madras Port Trust Act, 1905. A Division Bench of the Madras High Court in Trustees of the Port of Madras v. State of Madras [1960] 11 STC 224 held that the Port Trust was not constituted for the purpose of "carrying on any business" of buying and selling with a view of make profit and that while supplying water to the ships that came to the port it was only discharging a statutory duty imposed upon it by the statute and was not a dealer within the meaning of Section 2(b) of the Madras General Sales Tax Act, 1939. The Act of 1939 was replaced by the Tamil Nadu General Sales Tax Act, 1959. The definitions with regard to "business" and "dealer" come under sections 2(d) and 2(g) of the Tamil Nadu General Sales Tax Act, 1959, which were amended from time to time. Section 2(d) which defined "business" initially did not state that the motive to gain or profit was not relevant, but this Sub-section was substituted thereafter with a new clause by Madras Act No. 15 of 1964. Motive to gain or profit was made irrelevant. After the amendment of 1964 the matter regarding Madras Port Trust again went before the Madras High Court in State of Madras v. Trustees of the Port of Madras [1974] 34 STC 135. This time the dispute was with respect to sale of unclaimed and unserviceable goods by Madras Port Trust through auctioneers. Two questions were raised, whether the Port Trust was a department of Central Government and whether the Port Trust was a "dealer" and its activity of selling the unclaimed and unserviceable goods could be subjected to sales tax. The High Court held that the transactions of sale were not liable to sales tax and the Port Trust could not be treated as a "dealer". Thereafter the matter went to the Supreme Court. It may be noted that the definitions in the Madras General Sales Tax Act are pari materia with the definitions of Andhra Pradesh General Sales Tax Act. The important words in sales tax like "dealer", "business", "carrying on business" are defined in the same fashion. The question before the Supreme Court was as to what "carrying on business" in terms of Section 2(d) really means. Paragraphs 13 and 14 of the judgment are relevant, they are reproduced :
"13. Now the definition of 'business' in Section 2(d) and in most of the sales tax statutes is an inclusive definition and includes 'trade or business or manufacture, etc.'. This itself shows that the Legislature has recognised that the word 'business' is wider than the words 'trade, commerce or manufacture, etc.'. The word 'business' though extensively used is a word of indefinite import, in taxing statutes, it is normally used in the sense of an occupation, a profession--which occupies time, attention and labour of a person, normally with a profit motive and there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive and not for sport or pleasure (State of Andhra Pradesh v. H. Abdul Bakshi and Bros. . Even if such profit motive is statutorily excluded from the definition of 'business' yet the person could be doing 'busi-ness'.
14. The words 'carrying on business' require something more than merely selling or buying, etc. Whether a person 'carries on business' in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive (Board of Revenue v. A.M. Ansari . Such profit motive may, however, be statutorily excluded from the definition of 'business' but still the person may be 'carrying on business'."
10. Thereafter, considering the activities of the Port Trust in terms of the Act and the judgments on the subject the Supreme Court found in paragraph 39 (p. 541) :
"39. We have referred to the Port Trust's activities and services in' some detail only with a view to show that the Port Trust was not constituted by Parliament to 'carry on business' as stated in Aminchand Pyarelal's case . We have given the long list of its activities and services only to show how infinitesimal are the sales of unserviceable or unclaimed goods as compared to the very large range of the activities and services it is supposed to render."
11. In paragraph 42 again the Supreme Court found (p. 541) ;
"42. From the above provisions, in our opinion, it is clear that the Port Trust is not involved in any activity of 'carrying on business' as has been clearly held in Aminchand Pyarelal's case , and that unclaimed and unserviceable goods are sold in discharge of various statutory charges, items, etc., and the sales of these items are also an infinitesimal part of the Port Trust's main activities or services. No doubt, the sales of goods are in connection with, or incidental or ancillary to the main 'non-business' activities, but they cannot be treated as 'business' without any plea by the State of Tamil Nadu that the Port Trust had an independent intention to carry on business in the sale of unserviceable/unclaimed goods. That is not the case of the department in the show-cause notice. Further from the counter-affidavits filed in the High Court it is clear that it is not the case of the State that there is any separate intention on the part of the Port Trust, to carry on business in the unserviceable and unclaimed goods. Its contention has been that the main activities of the Port Trust amounted to 'carrying on business' and that these sales, even if they were incidental, fell within the meaning of the word 'business'. The argument fails in view of our finding that the main activity is not one amounting to 'carrying on business'."
12. Applying the principles laid down in this judgment, we will have to see whether the bank is carrying on business of sale of goods. In view of section 5(b), Section 6(1) and Section 8 of the Banking Regulation Act, 1949, banks have specifically been created for the purpose of banking business and Section 8 of the Banking Regulation Act, 1949 creates a prohibition for banking companies to deal in buying or selling or bartering of goods. There are only some exceptions to this prohibition one of them being selling of goods in connection with realization of security given to or held by it. In the absence of sale of securities which is prohibited by the Reserve Bank of India, banks could not have realised their amounts if the loan was advanced against the security in gold and the borrower did not pay the loan. The banks would be loser if they had not the power to sell the pledged goods. Therefore, the transaction of selling the gold pledged is basically for the purpose of a banking activity and is for securing the bank's own advanced amounts. In view of the judgment of the Supreme Court the "sale" as defined in the Act is not mere transfer of property or goods by one person to another person, this could be "sale" for the purposes of sales tax if it is in the course of trade or business. Therefore, we are of the view that the transactions in question are not amenable to sales tax. There is another judgment from the Kerala High Court which is directly on the point being Lord Krishna Bank Limited v. Assistant Commissioner [1999] 114 STC 333.
13. For these reasons, we allow the writ petition, quash the impugned notices and hold that the banks or banking companies are not amenable to sales tax on sale of gold or ornaments pledged to it as security for loan. No costs.
14. That rule nisi has been made absolute as above.