Madras High Court
Madras Pawn Brokers Association vs State Of Tamil Nadu. (And Other Cases) on 27 April, 1995
Author: Doraiswamy Raju
Bench: Doraiswamy Raju
JUDGMENT Dr. Raju, J.
1. The above batch of writ petitions involve for out consideration the tax liability of a pawnbroker, governed by the Tamil Nadu Pawn Brokers Act, 1943, Tamil Nadu Act 23 of 1943 (hereinafter referred to as "the Act") and the Tamil Nadu Pawn Brokers Rules, 1943 (hereinafter referred to as "the Rules") who got the pawned or pledged articles sold in public auction, to realise the amount of loan, the interest and the prescribed charges due to him on account of default committed by the owner/holder of the pawn ticket in redeeming the pledge within the time stipulated therefor or at any rate before the actual sale of those articles, under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the TNGST Act") and the Tamil Nadu General Sales Tax Rules, 1959 (hereinafter referred to as "the TNGST Rules"). Slight variation in the nature of relief sought for and the language adopted for the same apart, the sum and substance of relief sought for in all these writ petitions is for writs of declaration, declaring that sections 2, 3, 4 and 5 or some or the other of those provisions of the TNGST (Second Amendment) Act, 1992 (Tamil Nadu Act 31 of 1992) are ultra vires to entry 54, List II of the Seventh Schedule to the Constitution of India and also repugnant to articles 14, 19(1)(g) and 301 of the Constitution of India and irreconcilable with sections 2(n) and 2(r) of the TNGST Act, 1959 and, therefore, void and unenforceable. The writ petitions before us have been either by the registered associations of pawnbrokers for and on behalf of their members or by individual pawnbrokers or by the association and one or two such pawnbrokers joining together.
2. The nature of business of a "pawnbroker" and his dealings, rights, duties and obligations are to be dealt with, having regard to the law governing their business activities, to have a proper perspective of the character and nature of their business activities to properly appreciate the various issues raised by the petitioners in the context of the TNGST Act, 1959. There is no controversy over the position that the pawnbrokers in question lend money on the security of pledge articles which varies from gold or silver jewelleries or silver vessels and articles, and vessels and articles made of other metals and other kind of securities or certificates, repayable with interest and other charges stipulated or prescribed. To carry on such business activities one need take a licence under the Act and the Rules made thereunder, maintain relevant accounts, registers and records as prescribed under the Act and the Rules. It is also not in controversy that in cases where the pawner/the holder of the pawn ticket neglects or fails to redeem by paying the amounts due the articles pledged within the time stipulated or prescribed therefor the pawnbroker shall be at liberty to have the pawned articles sold at public auction to be conducted through and by auctioneers approved by the competent authority under the Act and in accordance with the procedure prescribed under the Act and the Rules. The auctioneer is also bound to maintain the various items of records stipulated by the Rules and obliged under the Act. Even a cursory perusal of the Act and the Rules made thereunder would go to show that the auctioneer as such has no direct relationship or answerability to the pawner and that the auctioneer merely holds conducts the auction in the manner expected of him and only for and on behalf of the pawnbroker, with no independent or vested right or interest of his own in the pledged article or the amount realised except the expenses incurred or the charges due for the conduct of the auction. If any amount realised under the auction remains as surplus after appropriating the amounts due to the pawnbroker, the same shall be paid over to the pawner/holder of the ticket. Subject to certain stipulations and conditions, the pawnbroker has also been given the liberty and right to participate and bid in the public auction held by the auctioneer.
3. The sum and substance of the contentions of the various petitioners in the affidavits filed in support of the respective writ petitions are that a pawnbroker who lends money on the pledge of articles as security cannot be considered to be "dealers" carrying on any "business" as a trading or commercial activity in the nature of "purchase or sale of goods", that the nature and character of the business activities of a pawnbroker cannot by any stretch be called "sales" and their capital investment or money realised as "sales or purchase turnover" and their dealings "business" within the meaning of the TNGST Act, 1959 and that, therefore, there is no justification to compel the pawnbrokers to get registered as dealers under the TNGST Act or subject their dealings or transactions to the levy of sales tax under the TNGST Act. It is also stated that the pawnbrokers have no general properly rights in the articles pledged and they do not themselves conduct auction or sell the articles in auction themselves and the attempt to treat them as dealers under the Act when they are really not so factually would be unconstitutional and arbitrary. Pawnbrokers are said to lend money by way of sale proceeds of the pawned articles by means of public auction through approved auctioneers cannot be considered to be sales turnover exigible to sales tax under the TNGST Act, 1959 (sic). Pawnbrokers are said to be merely in the position of bailee having lien and temporary custody over articles pledged by way of security for the realisation of the amount lent and that the pawner as the owner of the goods or the holder of the pawn ticket at times, continue to be the owner of the pledged articles retaining with them the general property rights in such articles, and that the disposal of the unredeemed pawned articles in public auction conducted by the approved auctioneers in the presence of the authorised officer/licensing authority does not amount to "sales" by the pawnbroker for the purposes of the TNGST Act, 1959. Pawnbrokers are also said to have under the transactions in question only the right to recover the loan amount, interest and other permitted charges and the auction sale of unredeemed pledge articles in public auction by the approved auctioneer is nothing but a process of converting the pawned articles into money on behalf of the pawner and not on their own behalf to pay and wipe of the loan transaction and discharge the liabilities of the pawner under the loan account. The liability to refund the surplus available after discharge of the loan account from the proceeds realised is also pressed into support as a point to substantiate the above stand. For all the above reasons, it is claimed on behalf of the petitioners that the sales tax authorities, as also the TNGST (Second Amendment) Act, 1992 (Tamil Nadu Act 31 of 1992) purport to treat what really are not sales, and those who really are not "dealers" carrying on any business in the commercial sense as "sales" and "dealers" and thereby usurp jurisdiction and authority to levy sales tax under the TNGST Act, 1959.
4. The respondent-State has filed a counter-affidavit in W.P. No. 11931 of 1993 and sought to treat the same as the counter in other cases also since identical issues alone have been raised in the affidavits filed in support of the various writ petitions. While denying the averments and claims on behalf of the petitioners and contending that the provisions under challenge are constitutionally valid and enforceable and not vitiated for any one or more of the reasons alleged, strong reliance has been placed on a decision of a learned single Judge of the Karnataka High Court reported in [1992] 87 STC 366 [Karnataka Pawn Brokers' Association (Regd.) v. State of Karnataka]. It may be noticed at this stage that the said decision, on appeal before a Division Bench of the Karnataka High Court was also confirmed in the decision reported in [1994] 94 STC 243 [Karnataka Pawn Brokers' Association (Regd.) v. State of Karnataka] to which one of us (the honourable the Chief Justice - the then Acting Chief Justice of the Karnataka High court) was a party. Further, in the counter-affidavit, the respondent contends that whatever may be the nature of the transaction, there is a factum of sale, that the right to sell the goods pledged in the event of default in redemption carry with it the incident of sale, that in the course of business, the pledgee or pawnee sells the goods, that the concept of business will include even the business of a pawnbroker carrying with it the incidental activity to sell unredeemed goods, that any transaction which is incidental or ancillary to the main business also constitute business as defined under the TNGST Act and that having regard to the definition of the pawnbroker it would constitute "business" within the meaning of section 2(d)(11) of the TNGST Act, that the said position has been reiterated in the decision of the Supreme Court in [1973] 31 STC 426 (State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. of India Ltd.) and, therefore, irrespective of the nomenclature as such as pawnbroker will be a dealer carrying on business for the purposes of the TNGST Act. Reliance is also placed upon the decision of the apex Court reported in [1989] 74 STC 5 (Member, Board of Revenue v. Controller of Stores, Eastern Railway) in further support of the claim of the respondents.
5. Mr. C. Natarajan, learned counsel appearing in W.P. No. 13833 of 1994 who made leading submissions spearheading the attack on behalf of the petitioners, made it clear even at the outset that he is no pursuing the grounds of challenge based upon the want of legislative competency and constitutional validity of the provisions of the Act and instead chose to confine his submissions to those based upon the character and nature of the transaction and the activities of a pawnbroker and the construction of the provisions of the TNGST Act, 1959, which according to the learned counsel would by themselves show that the transactions in question of a pawnbroker are not exigible to sales tax under the TNGST Act, 1959 and the Rules made thereunder. As a matter of fact, all the other learned counsel except Mr. N. Palaniappan, learned counsel appearing for the petitioner in W.P. No. 14472 of 1993 adopted the same course. Mr. Natarajan, learned counsel, while elaborating the contentions raised in the affidavit submitted that a pawnbroker, being a person merely carrying on money lending business takes goods and chattels in pawn against loan as a mere security and does not carry on the business on buying, selling or supplying or distributing any goods for a sale price or valuable consideration effecting any transfer of property in the goods owned by him general property rights and, therefore, the mere conversion of the goods or chattels pawned by getting them sold in a public auction through an approved auctioneer held in the presence of the approved officer does not constitute any "sale" within the meaning of section 2(n) of the TNGST Act. According to the learned counsel, anyone to answer the definition of a "dealer" carrying on "business" for the purpose of TNGST Act, 1959, must have the authority to sell or general property rights in the goods, dominion over goods and the power to effect transfer of title an that the pawnbrokers who are licensed under and carry of their money lending business under the Act the Rules made thereunder do not satisfy these essential requirements of law to render them and their transactions liable to sales tax under the TNGST Act. It is also submitted that the pawnbroker has merely special property in the goods on account of the goods in question being a security for the debt, that the general property continues with the owner, that the pawnbroker is not directly or intimately connected with or is a party to the sale effected by the approved auctioneer in public auction in the presence of the authorised officer, by virtue of the statutory provisions engrafted in section 12 of the Act and the Rules made thereunder and that the sale, if at all, is by the auctioneer or the pawner who alone is said to be the seller and that the pawnbroker who is neither the owner nor the agent of the owner effecting sale or transfer of property in goods cannot be subjected to the levy of sales tax under the TNGST Act, 1959.
6. Argued the learned counsel further that to constitute any activity "business" within the meaning of section 2(d), it has got necessarily to be trade or commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, irrespective of the motive to make gain or profit [section 2(d)(i)] and any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern [section 2(d)(ii)] and, therefore, the disposal of the pledged articles by the pawnbroker in the manner contemplated and specifically provided for under section 12 of the Act and the Rules made thereunder, would not be constitute "business" under either of the limbs of section 2(d) of the TNGST Act, particularly when according when according to the learned counsel in the absence of continuous course of selling or buying systematically and in an organised manner. The disposal of the pawned articles being, if at all, incidental to the main money lending business does not, according to the learned counsel answer the second limb of section 2(d) also since the main money lending business cannot be considered to answer the definition in the first limb of section 2(d) of the TNGST Act. Commerce, as visualised for purposes of the Sales Tax Act is said to be commerce involving sale or purchase of goods and not any commerce. It is also contended that the pawnbroker merely entrust the pawned articles to the approved auctioneer with no further rights either to withdraw the same from the auctioneer or wield any control over the conduct of auction or disposal of the article by the auctioneer in public auction as could be seen from the relevant provisions of the Act and the Rules, and the right of the pawner to redeem continues with him till the date of sale and even when the pledged articles have been entrusted for disposal with the approved auctioneer and, therefore, the pawnbroker cannot be said to be dealer within the meaning of section 2(g) of the TNGST Act. Finally, it was submitted that the auctioneer alone carries on the sale in public auction without any interference from the pawnbroker, having full and absolute control over the sale and finalisation of sale of the article and, therefore, if at all, it is only the auctioneer who can be dealt with under the TNGST Act and the Rules made thereunder in respect of such transactions and not the pawnbroker who has not effected himself sale of any goods.
7. Mr. N. Palaniappan, learned counsel appearing on behalf of the petitioner in W.P. No. 14472 of 1993, while adopting the submissions of the learned counsel in W.P. No. 13833 of 1994 also contended that the dealings of the pawnbrokers are strictly governed and regulated by a separate Act and thus, form a separate class by themselves unlike their status under the prior position of law when the provisions of the Contract Act alone applied, that the provisions of the TNGST Act have to be literally interpreted by adopting beneficial constructions towards the class of pawnbrokers, that the pawnbrokers do not resort regularly to auction of the articles pawned, that it is not also incidental or ancillary to their business of money lending but merely consequential due to default or redemption and that the pawnbroker cannot be considered to be a owner but is merely in the position of trustee and that unequals like pawnbrokers cannot be equated to owners themselves who sell their goods to that extent the provisions are discriminatory and unconstitutional. Reliance was placed by the learned counsel on the decision (Kunnathat Thathunni Moopil Nair v. State of Kerala) and the learned counsel referred to the head notes in that decision in this regard. It was also contended that all sales may not be taxable and that many such sales may be second sales exempt from the levy of sales tax.
8. Mr. A. L. Somayaji, learned senior counsel appeared on behalf of the petitioner in W.P. No. 10671 of 1993. The learned senior counsel, while adopting the submissions on behalf of the other petitioners also submitted that the general interest in the goods pledged always continued with the pawner/owner, that approved auctioneer is not the agent of the pawnbroker but sells the same under the Act and the Rules that the pawner being at all times the owner till the article is sold by the auctioneer to third party purchasers in public auction, the approved auctioneer, if at all must be considered to sell the same on behalf of the pawner an not the pawnbroker. The fact that the surplus after settling the loan account has to be handed over to the pawner is relied upon to show that it is the pawner who, till the end continues to be the owner of the goods, has right to general property in the same.
9. Mr. AR. L. Sundaresan, learned counsel, while adopting the contentions of the other learned counsel, contended that even after the Amendment Act, Tamil Nadu Act 31 of 1992, the same brought into net of the sales tax law various categories of agents only, that the pawnbroker is not one who falls under the category of agent and since they not also specifically included in the definition provision, there is no scope for enforcing the provisions of the sales tax law against them in any manner. It is also stated that pawnbroker actually engages the auctioneer only on behalf of the pawner and not really on his behalf since there is no title or right in him to or in the property which he can be said to transfer to the actual purchaser in public auction. The other learned counsel merely adopted the submissions of the above referred to learned counsel.
10. Mrs. Chitra Venkataraman, learned Additional Government Pleader (Taxes), while reiterating the stand taken in the counter-affidavit, contended that the inclusive definitions of section 2(d), 2(g) and 2(n) are so wide in their amplitude that they are sufficient to render the sales of unredeemed pawned articles taxable in the hands of the pawnbrokers under the TNGST Act, 1959 and the Rules made thereunder. The regulatory provisions contained in the Tamil Nadu Pawn Brokers Act, 1943, are said to be in no way detrimental to their liability under the TNGST Act, 1959 and that, therefore, there are no merits in the challenge made to the provisions of the TNGST Act or the TNGST (Second Amendment) Act, 1992. As for the plea of the alleged vice of unequals being treated as equals, the learned counsel for the respondent contended that there is neither substance nor merit in the said plea and that the decision in (Kunnathat Thathunni Moopil Nair v. State of Kerala) is also of no relevance or assistance to the petitioners.
11. The learned counsel appearing on either side invited our attention to some of the judicial pronouncements and we would advert to them before taking up for consideration the points raised fore consideration and adjudication.
12. In [1952] 3 STC 121 (Kandula Radhakrishna Rao v. Province of Madras), a Full Bench of this Court had an occasion to consider the position of a broker and commission agent under the Madras General Sales Tax Act, 1939 and the Rules made thereunder. The question that really arose for consideration was as to whether a commission agent is a dealer or not under the said taxing enactment in the teeth of two conflicting decisions in [1949] 1 STC 223 (Mad.) (Province of Madras v. The Film of Kanigolla Sivalakshminarayana) and [1950] 1 STC 245 (Mad.) (Provincial Government of Madras v. Neeli Veerabhadrappa). The eminent and learned Chief Justice of this Court, Rajamannar, C.J., speaking for the Full Bench held that in the decision in [1950] 1 STC 245 (Provincial Government of Madras v. Neeli Veerabhadrappa), the learned Judges expressed an extreme view holding that in no event and under no circumstances can a commissioner agent be deemed to be a person carrying on the business of buying or selling goods and to that extent, it cannot be approved. As a matter of fact, on the facts and circumstances of the case, the liability to tax was sustained. In the course of the judgment, the distinction between a broker simpliciter and a commission agent was highlighted by pointing out that unlike a broker a commission agent has almost invariably, custody or possession of the goods, actually or constructively and that he often sells in his own name and in certain circumstances can sue the buyer himself. It was also observed that in spite of the parties supposing their relationship to be that of principal and agent, in point of law, it may be different and there is nothing to prevent these commission agents from purchasing the commodities themselves at the price named by their principals and then selling the same thereafter at a profit for themselves which they are entitled to retain unlike a mere agent. It was held on a consideration of the above position of a commission agent in the context of the sales tax law as hereunder :
"As no written conveyance, still less a registered deed, is necessary for the sale of goods, unlike in the case of immovable property, the contract of sale is performed when the goods are actually delivered. It is because that there can be sale by a person who has no title to the goods that section 27 enunciates the rule that the buyer acquires no better title to the goods than the seller had. In the case of a commission agent, the accepted mercantile practice is that he has control over or possession of the goods and he has the authority from the owner of the goods to pass the property in and title to the goods. If this is so, undoubtedly when a commission agent sells goods belonging to his principal with his authority and consent and without disclosing to the buyer the name of the owner, there is certainly a transfer of property in the goods from the commission agent to the buyer. A business which consists in such transactions can properly be described as a business of selling goods. A similar position would arise even in the case of a commission agent buying for an undisclosed principal. A commission agent doing this kind of business would, in my opinion, fall within the definition of 'dealer' in the Sales Tax Act. Neither the definition of 'dealer' nor of 'sale' contemplates as a necessary condition, that the goods sold should belong to the person selling or buying. There can be a sale or purchaser on behalf of another."
13. In [1964] 15 STC 201 (Fiaz Ahmed & Co. v. State of Madras), a Division Bench of this Court has an occasion to consider the issue as to whether a tanner who merely purchased the tanning materials for tanning hides and skins of customers for specified charges would be held dealer liable to sales tax in respect of the tanning material purchased. Applying the ratio of the Division Bench judgment in [1963] 14 STC 753 (Mad.) (Sadak Thamby and Co. v. State of Madras) it was held that a buying activity, even though without a counterpart of a selling activity, in the course of a business, whether it be as a dealer in hides or carrying on of the tannery with profit-motive, would be adequate to bring the turnover of purchase price of tanning materials to tax under the Tamil Nadu General Sales Tax Act, 1959.
14. In [1965] 16 STC 136 (Zackria Sons Private Limited v. State of Madras), the question as to whether an auctioneer could be considered to be a dealer under the provisions of the Madras General Sales Tax Act, 1959, arose for consideration. The learned Judges of a Division Bench of this Court held that an auctioneer functioned only as an agent to secure the most advantageous bid for the principal in the auction and thereafter the auctioneer as the principal's agent only accepted the auction and completed the contract and, therefore, the auctioneer would not fall within the definition of "dealer" as contained in section 2(g) of the Tamil Nadu General Sales Tax Act, 1959. It was also held that the mere fact that the auctioneer under special instructions from the seller recovered the money from the highest bidder would not constitute him a dealer for the purpose of sales tax liability and in this context, the learned Judges of the Division Bench expressed their dissent from the decision reported in [1961] 12 STC 535 (Chowringhee Sales Bureau Ltd. v. State of West Bengal) of the Calcutta High Court.
14A. In [1966] 18 STC 325 (Chandramouli and Company v. State of Madras), a Division Bench of this Court had an occasion to consider the tax liability of a local agent of a non-resident principal who carried on business of his own also. He was found to have transferred the goods of non-resident principal to his own business during the relevant period under consideration and on such transaction also, he admittedly collected commission from the non-resident principals. In this context, the question that was considered was whether the transaction involved a sale chargeable to tax. Overruling the contention of the assessee that the same person cannot sell goods to himself, it was held that when it was found that the same person held two different capacities, one as an agent of a non-resident principal an the other as proprietor of his own business, two different entitles altogether, while transferring the goods of the non-resident principal to himself, he not only acted as agent of his non-resident principal, but also as a purchaser an there is nothing in law which militates against the said conclusions and consequent tax liability on such person.
15. In [1969] 24 STC 79 (Indian Insurance Companies' Association Pool v. Deputy Commercial Tax Officer), a Division Bench of this Court had an occasion to consider the liability of an association which was a pool brought about by an agreement to which several registered companies doing general insurance business were parties, which sold through a public auctioneer the goods which came into its hands by way of salvage, in the course of carrying on its business in general insurance. It was held therein that if what the petitioner-association was doing was nothing more than collecting the salvage articles through the agency and using the agency to sell the same, then the pool would not per se be a dealer within the meaning of the Act. But the matter was relegated to the authorities for ascertaining the correct nature of the transactions of the respective parties before fastening the liability to tax under the Act.
15A. In [1972] 29 STC 266 (Tirumala Tirupati Devasthanam v. State of Madras), a learned single Judge of this Court had an Taxes, Madras Division, Madras-7 v. Sri Dayanand Corporation), a Division Bench of this Court was directly concerned with the issue as to whether a public auctioneer carrying on the business of selling in public auction unredeemed articles pledged with pawnbrokers would be held to be "dealers" and the transactions "sales" within meaning of the Tamil Nadu General Sales Tax Act. While adverting to the earlier decision in [1965] 16 STC 136 (Zackria Sons Private Limited v. State of Madras), the learned Judges of the Division Bench held that the auctioneer discharged only the duty of a crier or a broker who brought the parties together and, therefore, was not a dealer who transferred the property in the goods to the highest bidder and, therefore, he was not liable to sales tax. The learned Judges further adverted to the statutory procedure prescribed under the Act as well as the Rules namely, the Pawn Brokers Act, 1943 and the Rules made thereunder and observed as follows :
"We have carefully gone through the formalities which the above rules have laid down for the procedure at the auction or pledged goods by the auctioneer. But nowhere has it been stated that the auctioneer should take over possession of the goods from the pawnbroker and sell them. Even the specific provision in rule 15(2) extracted above, only directs the auctioneer to cause all pledges to be exposed to public view. He could perform this obligation by directing the pawnbroker to be present at the time of the sale with the articles proposed to be sold and keep them ready for inspection. But this obligation will not make it necessary for the pawnbroker to part with 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 Pawnbrokers 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 mode of delivery of the goods. They have meticulously provided for the manner in which the sales are to be published and conducted. The auctioneer will be carrying out the obligation under the rules, even without taking possession of the pledged goods and delivering them to the highest bidder on the fall of the hammer. The pawnbroker can still be a person who retains the possession of the goods, and he can deliver them to the successful bidder at the auction by the auctioneer. It is from this point of view that we are impressed by the circumstances mentioned by the Tribunal in its order, including clause 5 of the conditions of the auction sale which allows bidder to take delivery of the goods from the pawnbroker, and the bill of sale which makes mention of the fact that the buyer will take delivery of the goods from the pawnbroker on payment of the price to the auctioneer."
16. In [1968] 21 STC 184 (Deputy Commissioner of Commercial Taxes, Madurai Division, Madurai v. A.R.S. Thirumeninatha Nadar Firm), a Division Bench of this Court was concerned with the tax liability of a bank in selling the goods pawned to it. It was held that the turnover representing sale of goods effected by a bank with whom an assessee has pledged the goods is liable to be included in the assessee's turnover and not to be treated as the sales turnover of the bank. The bank in selling the goods pawned to it does not act as an agent of the assessee but at the same time the sales are nevertheless on behalf of the pledger for the pawn or pledge by itself does not make the pawnee or pledgee the owner of the goods an the very concept of the pledge carried with it the elements of custody and power to sell the goods in default of payment. In so doing, the learned Judges observed as follows :
"On the other item of turnover, however, we must disagree with the Tribunal. In so far as it held that the banks is selling the goods pawned to them did not act as the agents of the assessee, it was right. As pledgees, the banks, acting under section 176 of the Contract Act, had a right to sell the goods. Their sale was but an exercise of the statutory power and not as agents. But the sales were nevertheless on behalf of the pledger, for, the pawn of pledge by itself did not make the pawnee or pledgee the owner of the goods. The very concept of a pledge carries with it the elements of custody and a power to sell the goods in default of payment. This is evident in this case by the fact that after crediting towards the debts due from the pawner, the balance of the sale proceeds were paid over to him. We are also unable to accept the other view of the Tribunal that even assuming that the banks acted as agents, they would be dealers and they alone would be liable to pay the tax under section 8 or section 14(a)."
17. In AIR 1987 SC 1023 (Reserve Bank of India v. Peerless General Finance an Investment Co. Ltd.), the apex Court was dealing with the principles to be observed in construing an inclusive definition. In paragraph 33 of the said decision, the apex Court held as hereunder :
"Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretion match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour by the appear different than when the statute is looked at without the glasses provided by the context. With those glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant the designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be constructed in isolation. Statutes have to be constructed so that every word has a place and everything is in its place. It is by looking at the definition as a whole in the setting of the entire Act and by reference to what preceded the enactment and the reasons for it that the Court constructed the expression 'prize chit' in Srinivasa and we find no reason to depart from the court's construction."
18. In (Kunnathat Thathunni Moopil Nair v. State of Kerala), the Constitution Bench of the Supreme Court was concerned with the constitutional validity of the Travancore-Cochin Land Tax Act, 1955. In dealing with the said issue vis-a-vis article 14 of the Constitution of India, the apex Court observed that if the Legislature has classified persons or properties into different categories which are subjected to different rates of taxation with reference to income or property, such classification cannot be challenged on the ground of inequality but if the same class of property similarly situated is subjected to an incidence of taxation which results in inequality, the law may be struck down. It was also observed that the case before them was a case of inequality arising out of lack of classification where such classification is otherwise required.
19. There can be no serious dispute in law regarding the position that the pledged articles are meant to be security for a debt in which the right to property vests in the pledgee so far as is necessary to secure the debt, the pawnee has a special property or special interest in the thing pledged while the general property in the goods continues with the owner and that the special property or interest in the pawned or pledged goods will continue with the pawnee or pledgee as the case may be and he can compel payment of the debt or can sell the goods when the right to do arises. The provisions of the Contract Act in Chapter IX and particularly sections 172 to 179 reinforce the above principles while sections 176 and 179 squarely deal with the particular aspects of the matter. The apex Court also has emphasised the position by holding in (Lallan Prasad v. Rahmat Ali) that there is no difference between the common law of England and the law as enacted and codified in sections 172 to 179 of the Contract Act. Section 176 specifically stipulates that the pawnee has a right to sue upon the debt and retain the goods as collateral security, in case of default in the payment of the debt and further he is also entitled to sell the goods after reasonable notice of the intended sale to the pawner, and once the pawnee exercises his right under section 176 and sells the goods the right of the pawner to redeem them is completely extinguished. No doubt, the pawnee is entitled to apply the sale proceeds towards the satisfaction of the debt, interest and other permissible charges and pay the surplus, if any, to the pawner. Even when securities are pledged with a view to secure the repayment of a debt, the pledgee who has been given possession of the property will have a special interest in the property, as such he can enforce the charge.
20. So far as the law governing the activities of the pawnbrokers and their business dealings are concerned, the Tamil Nadu Brokers Act, 1943 and the Tamil Nadu Pawn Brokers Rules, 1943, govern the mutual rights and obligations of the pawner and pawnee (the pawnbroker). The said Act has been enacted without detriment to the rights under the Contract Act, in order to regulate and control the business of pawnbrokers in the State of Tamil Nadu with the avowed object to prevent abuse and misuse of the powers by the pawnbrokers and protect a lay pawner who would be at the mercy of the pawnbroker from exploitation on account of his indigent circumstance. According to the said Act, the pawnbroker is a person who is carrying on the business of taking goods and chattels in pawn for a loan and the pawner is a person delivering an article for pawn to a pawnbroker. Pawnbrokers are obliged to take out a licence periodically under the Act and the Rules made thereunder, and maintain certain registers, records and accounts relating to their business activities. Section 11 provides that every pledge shall be redeemable within one year from the date of pawning, exclusive of that day and there shall be added to the said period a grace period of seven days and the pledge was declared to be redeemable until it is disposed of as provided in the Act. If the contract provided for a longer period for redemption than as provided in the section, the benefit of it will enure to the said person. Section 12 declares that a pledge pawned shall not be disposed of by the pawnbroker, otherwise than by sale at a public auction, conducted in accordance with such rules as may be prescribed and that at any time within three years after the public auction the holder of the pawn ticket is enabled to inspect the entry relating to the sale either in the pawnbroker's book or in such catalogue of the auction as may be prescribed. The right of the pawner to demand and obtain refund of the surplus remaining after adjustment of the amounts due of the loan account. The pawnbroker is also permitted subject to the condition that his highest bid shall not take effect unless the bid is for a sum exceeding the sum payable on the pawn inclusive of interest and prescribed charges.
21. Rule 12 of the Tamil Nadu Pawn Brokers Rules, 1943, lays down the procedure to be observed in the matter of conduct of pledged articles. The auctioneer to whom the sale of a pledge by public auction is entrusted shall be a person approved by the Commissioner of Police or the Additional District Magistrate, as the case may be, and such auctioneer shall inform the Tahsildar having jurisdiction over the area regarding the place, date and time of the auction sale and all auction sales shall be conducted in the presence of an officer of the Revenue Department not below the rank of a Deputy Tahsildar. The officer so present must be informed of representations, if any, received from the pawners against the proposed auction sale and he is empowered to cancel the auction of articles subject to approval by the Personal Assistant (General) to the Collector of Madras or the Revenue Divisional Officer concerned. Further, the pawnbrokers are obliged to apply before the 15th of each month to the Collector of Madras in the City of Madras or to the Revenue Divisional Officer in other districts for permission for the sale of the jewels or articles which have become time barred till the end of the preceding month in the prescribed manner and the written consent of the authority thereto shall be enclosed by the pawnbroker to the auctioneer to conduct the auction and such orders are revisable by the Government or the Board as the case may be. The auctioneer is also obliged to cause the pledged articles to be exposed to public view and have the auction notice with the prescribed particulars also published in the prescribed manner and ensure service of one copy upon the pawner.
22. The auctioneer is also obliged, after completion of the sale, within fourteen days thereof, to deliver to the pawnbroker a copy of the catalogue or of so much thereof, as relates to the pledges of that pawnbroker, filled up with the amounts for which the several pledges of that pawnbroker were sold as well as the charges for the sale of each of them and authenticated by the signature of the auctioneer. The pawnbroker is also expected to preserve every such catalogue for at least three years after the auction and where a pledge has been sold for more than the amount of the loan and interest and prescribed charges due to the sale, the pawnbroker shall within thirty days from the date of sale intimate the pawner by registered post acknowledgement due the surplus amount realised by the sale.
23. A careful analysis and consideration of the above provisions of law would go to show that the nature and character of the transaction culminating in the actual sale and disposal of the pawned articles cannot be said to be the same as claimed or contended on behalf of the petitioners. The pawner, no doubt, was the owner of the pledged articles or the person, who at any rate, had absolute custody and possession of the article, which was pledged with the pawnbroker as a security for the repayment of the amount borrowed as loan from the pawnbroker with interest due thereon and the permissible charges. Though normally a person who owns or holds proprietary interest has also the possession of the article as such owner or possessor with proprietary interest in the article is entitled to have the same sold in the manner he likes, while pledging the article with the licensed pawnbroker, the pawner 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 the 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, which right the pawnbroker has to exercise by having the pledged article sold in public auction, no doubt through an approved auctioneer in accordance with the procedure prescribed under the Act and the Rules made thereunder as referred to supra. Such auction or sale of the pawned articles, though have to be held in the manner prescribed after observing due formalities and putting up the pawner on prior notice, does not depend upon any further consent or permission by the pawner. The pawnbroker in his own right as such pawnee of the pledged articles and the rights conferred upon him under law, both as such pawnee as also the person who acquired the right to sell the articles also in case of default of redemption by the pawner brings upon the articles to sale. There is no compulsion or mandate upon the pawnbroker to necessarily sell the articles even beyond the period fixed for redemption if he chooses to do so or he can always retain the article and return the same to the pawner on receipt of his dues even after the expiry of the period for redemption. That being the position in law, it is to be seen that the position of the pawnbroker alone accounts very much in the matter of sale of the articles, of course after the expiry of the period fixed for redemption, and the exercise of discretion by the pawnbroker and his action alone sets in motion the process or procedure for having the pawned articles sold in public auction. Therefore, in our view, the sale of the pawned articles can be safely and legitimately be said to be occasioned or brought about by the method or 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 of his right to auction unredeemed pledged articles to the detriment of the pawner and to prevent exploitation of his innocence or indigent circumstances. His position as held by an earlier Division Bench of this Court in the decision reported in [1968] 21 STC 346 (Deputy Commissioner of Commercial Taxes v. Sri Dayanand Corporation) is that of a mere crier or broker, who brings about sale. That apart, as noticed earlier, the approved auctioneer has to conduct the auction in presence of the authorised officer, and that too, in accordance with the meticulous procedure prescribed therefor and subject to the obligations case on him, for which he is merely entitled to auction charges by way of remuneration. Consequently, such an approved auctioneer can by no stretch or imagination be characterised as the seller inasmuch as he cannot be said to have any personal or proprietary interest either in the pledged articles or in the amount realised by virtue of the sale, except as mentioned above the right to claim auction charges by way of remuneration due to him.
24. Therefore, it will be not only inappropriate but also impermissible in law to call the approved auctioneer functioning under the Pawn Brokers Act and the Rules made thereunder, as the seller of the articles. The course of events leading up to the sale and disposal of the pledged articles as referred to supra would also go to show that the pawner cannot also be considered to be the seller. Once be pledges the articles with the pawnbroker, except his right to redeem the pledged articles within the time stipulated either by the contract or by the law in question, he has no right of sale in the matter of sale of the pledged articles; nor does it require his consent to have the sale of such pledged articles. He has no right to stop the sale, except that he is entitled to pay the loan amount with interest and charges due as prescribed till the last minute before the sale of the pledged articles is effected by the pawnbroker through the approved auctioneer. Hence, the pawner plays no role whatever in the actual sale of the articles, though it is his default in redemption of the pledged articles that results in the auction sale of the pledged articles. Merely because he has a right in law, which is also secured under provisions of the Act and the Rules, to be paid the surplus of the sale proceeds after appropriating the amount due towards the loan with interest due thereon an the other permissible charges. That by itself could not be said to be on account of any role played by him in effecting the sale as such, but the said right would preserve and secure to him as the person having general property rights in the articles and nothing more. Consequently, it is futile to contend that the sale was effected by the pawner or by the pawnbroker for and on behalf of the pawner. Consequently, we are of the view that the pawnbroker, whose action and decision brings about the sale and who alone having possession hands over the pledged articles to the successful bidder subsequently, alone can be said to be the seller in law. Rule 12 of the Rules has to be read and construed in conformity with section 12 of the Act and it cannot be construed so as to defeat or affect of the scope and ambit of section 12 of the Act, though great stress was laid by learned counsel appearing for the petitioners that rule 12 confers power to an auctioneer to such an extent that he can be construed to be the dealer under the Tamil Nadu General Sales Tax Act.
25. So far as the provisions of the Tamil Nadu General Sales Tax Act, for short "TNGST Act" is concerned, section 2(g) defines a person who is "dealer" for the purpose of the TNGST Act, as a 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 it includes even a casual trader. In view of our conclusions referred to supra, on the role and part played by the pawnbroker in the matter of sale of the pledged articles, there could be no difficulty in our holding that the pawnbroker under our consideration satisfies the requirements of "dealer". It is also not possible for the pawnbrokers before us to contend that they do not carry on the business of buying and selling. Section 2(d) of the TNGST Act defines "business" as including any trade, or commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether such activity is carried on with a motive to make gain or profit and any transaction in connection with, or incidental or ancillary, to such trade, commerce, manufacture, adventure or concern. The apex Court, as noticed supra, has treated the railways carrying on the business of carrying passengers and goods an the Department of Customs selling the goods seized, as carrying on the business in commerce, since such activity of transportation was considered to be an engagement is commerce within the meaning of the definition and the sale of unclaimed goods was regarded, as necessary incidental or ancillary to its business. Keeping in view such provisions and our conclusions rendered regarding the nature and character of the role played by the pawnbroker in the matter of disposal by sale of the pledged of articles, there is hardly any room for doubt in holding that the business of pawnbroker satisfies the definition as contained in section 2(d) of the TNGST Act, since such activities satisfy the requirements of the word "commerce". Within the meaning of the definition and the sale being necessarily and inevitably incidental as also ancillary to the business activities of the pawnbroker, inevitably falls squarely within the definition of "business" as defined under the TNGST Act. There could be hardly any serious contest as to the factum of sale of the pledged articles and the fact the sale squarely satisfies the requirements of section 2(n) of the TNGST Act. What was really in controversy and contest before us in these cases was only as to who should be held liable to the payment of sales tax on the amount of sale of the pledged articles and not as to whether there was any sale at all or not of such pledged articles. In our view, the principles laid down by the various decisions of the Supreme Court and the Division Benches referred to supra and the overwhelming weight of such authoritative pronouncements referred to earlier squarely apply and govern the issued raised before us in favour of the State. We hold that the pawnbroker satisfies the definition of "dealer" in section 2(g) and his activities satisfy the definition of "business" in section 2(d) of the TNGST Act and consequently he is liable to sales tax in respect of the sales effected of the pledged articles.
26. One of the contentions raised before us was that it cannot be held that every sale of the pledged articles is subject to levy and there could be cases where the sales in question effected by the pawnbroker as held by us, would be within second sales. This issue is one which requires to be raised before the assessing authorities at the time of assessment and the pawnbrokers concerned are obliged to substantiate their claim about any one or more of sales by them to be second sales before claiming such exemption from tax or if their plea accepted by the authorities that the particular sales concerned are not exigible to tax in terms of the relevant and respective point of levy as shown in the Schedule to the TNGST Act. Such enquiry with reference to the exigibility to sales tax of any individual item of sale cannot be undertaken in these writ petitions, de hors individual facts and it would also be inappropriate to countenance such claims in these proceedings. We leave the respective parties to agitate any such claim before the concerned and competent authorities at the time of the assessment proceedings to vindicate their rights, if any, in accordance with law.
27. Mr. C. Natarajan, learned senior counsel appearing on behalf of the petitioners also endeavoured to make a distinction of the decision of the Division Bench of the Karnataka High Court in [1994] 94 STC 243 [Karnataka Pawn Brokers' Association (Regd.) v. State of Karnataka] on the ground that some of the provisions of the Karnataka Pawn Brokers Act and the Rules made thereunder are slightly different from the Tamil Nadu Pawn Brokers Act and the Rules made thereunder and that, therefore, the ratio of the decision of the Division Bench of the Karnataka High Court will have no application to the cases before us. Though the scheme, nature of control and the rights of parties are by and large one and the same under the two enactments, we have considered the issue raised before us de hors any reliance or reference to the said decision of the Division Bench of the Karnataka High Court reported in [1994] 94 STC 243 [Karnataka Pawn Brokers' Association (Regd.) v. State of Karnataka] and arrive at the same conclusion as are arrived at in the aforesaid decision. Therefore, we agree with the view taken in the Division Bench of the Karnataka High Court in [1994] 94 STC 243 [Karnataka Pawn Brokers' Association (Regd.) v. State of Karnataka].
28. In the light of our conclusions on the nature of the transactions and the role of the pawnbrokers in the sale of the pledged articles, we hold that there is no merit whatsoever in the plea based upon the alleged unequal treatment and violation of article 14 of the Constitution of India on that account.
29. For all the reason stated above, we see no merit in the contentions raised on behalf of the petitioners in these writ petitions and consequently, these writ petitions fail and shall stand dismissed. But, in the circumstances of the cases, there shall be no order as to costs.
30. Writ Petitions dismissed.