S.B.T vs The Commercial Tax Officer on 8 January, 2008

[Cites 37, Cited by 1]

Kerala High Court

S.B.T vs The Commercial Tax Officer on 8 January, 2008

Bench: H.L.Dattu, K.M.Joseph

       

  

  

 
 
  IN THE HIGH COURT OF KERALA AT ERNAKULAM

OP No. 3234 of 2000(I)



1. S.B.T.
                      ...  Petitioner

                        Vs

1. THE COMMERCIAL TAX OFFICER
                       ...       Respondent

                For Petitioner  :SRI.M.PATHROSE MATHAI

                For Respondent  :GOVERNMENT PLEADER

The Hon'ble the Chief Justice MR.H.L.DATTU
The Hon'ble MR. Justice K.M.JOSEPH

 Dated :08/01/2008

 O R D E R
                   H.L. DATTU, CJ. & K.M. JOSEPH, J.
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                 O.P. No.3234/2000 & W.A. 2073/2007
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                 Dated this the 8th day of January, 2008.

                                     JUDGMENT

K.M. JOSEPH, J, Since common questions arise in the Original Petition and Writ Appeal, they are clubbed together and disposed of by this judgment.

2. Petitioner in O.P.3234 of 2000 is a statutory banking corporation. It is constituted by the State Bank of India (Subsidiary Banks) Act, 1959. The said enactment is traced to Entries 43 and 45 of of List I of the VII Schedule of the Constitution of India. According to the petitioner, the Banking Regulation Act, 1949 covers the entire field of Banking Corporations. Petitioner challenges the constitutional validity of the amendment to the definition of the word 'dealer' in the Kerala General Sales Tax Act (hereinafter referred to as 'the Act'), whereunder a Bank is treated as the dealer. Section 2(viii) of the Act contains the definition of the word 'dealer'. By the impugned amendment Clause (g) was added. It reads as follows:

"(g) a bank or a financing institution which, whether in the course of its business or not, sells any gold or other valuable article pledged with it to secure any loan, for the realisation of such loan amount;"

O.P.3234/2000 & W.A.2073/07.

For the purpose of this clause, Explanation I includes a Nationalised Bank or a Scheduled Bank or a Co-operative Bank. It is the case of the petitioner that it is beyond the legislative competence of the State of Kerala to encompass a bank, which disposed of gold or valuable articles pledged as security to secure the loan amount, for realisation of the loan amount. Petitioner also calls in question Ext.P1 issued by the Commercial Tax Officer to the petitioner on the strength of the impugned amendment requesting the petitioner to instruct all the branches in Trivandrum District to remit any amount of tax collected and deposited in the suspense account within seven days of the receipt of the communication. Ext.P1 would show that the officer directed that the branches may be instructed to remit the tax collected on the sales of gold ornaments or other valuables during each month, on or before the 15th of the succeeding month.

3. The appellant in W.A. 2073 of 2007 impugns the judgment of the learned Single Judge, by which the learned Single Judge dismissed the writ petition filed by the petitioner. The appellant had also sought to declare the amendment aforesaid as ultra vires the constitution. It also sought to quash Exts.P1 to P3 proceedings issued in the light of the impugned amendment. A writ of mandamus is also sought seeking to restrain proceedings for the levy O.P.3234/2000 & W.A.2073/07.

of tax on the sale of gold ornaments.

4. The learned Single Judge followed the Bench decision of this court in Federal Bank Ltd. v. State of Kerala (2003 (2) K.L.T. 347) and dismissed the writ petition. In fact the appellant had challenged the judgment by way of a Special Leave Petition before the Apex Court as the matter was engaging the attention of the Apex Court. The Apex Court had by Annexure A2 order dismissed the petition noting that the appellant had not exhausted the statutory remedy. Annexure A1 produced along with the appeal would show that the writ petition filed by the petitioner before the Apex Court came to be dismissed on the ground that an appeal lies before the Division Bench.

5. We heard learned Senior Counsel appearing for the petitioner Sri.M.Pathrose Mathai and S.Easwaran appearing on behalf of the appellant in the appeal besides Sri. Vinod Chandran, Special Government Pleader for Taxes.

Contentions:

6. Sri. M. Pathrose Mathai, learned senior counsel contended that when a loan is given by a Bank on the strength of the pledge of gold ornaments and then sold, it could not be said that there was sale of movable property as contemplated under the Sale O.P.3234/2000 & W.A.2073/07.

of Goods Act, 1930. According to him, what is involved in pledge is only the transfer of special property. He would contend that Sale of Goods Act contemplates transfer of general property in goods, in order that there be a sale within the contemplation of the Act. In this connection he drew our attention to the following passage in Mulla on Sale of Goods Act.

"Thus, special property or interest exists so that the pawnee can compel payment of the debt, or can sell the goods when the right to do so arises. A pawnee's special property in the pledge may be assigned to a third person by an assignment of the pawnee's interest or by a sub-pledge made by him. The term 'special property' has, however, been criticised and the use of the word 'special interest' preferred, on the ground that when the pawnee's right to sell is examined, the so-called 'special property' which that right is said to create, is in truth no property at all."

He would contend that unless there is a sale as contemplated in the Sale of Goods Act, it is not competent for the State legislature to impose tax on the footing that there was a sale of goods as understood in Entry 54 of List II of the Seventh Schedule of the Constitution. In this connection, he drew our attention to Entry 45 of List I of the Constitution. Entry 45 of List I of the Constitution reads as follows:

O.P.3234/2000 & W.A.2073/07.

"45. Banking."

He would contend that being a bank, its activities are regulated by the provisions of the Banking Regulation Act, 1949, which is a central enactment providing for the regulation of the activities of the Bank. According to him, under Section 8 of the Act, there is an embargo against the banks selling goods. Section 8 being pertinent to the issue is extracted:

"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 others 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.

[Provided that this section shall not apply to any such business as is specified in pursuance of clause (o) of sub-section (1) of section 6] Explanation.- For the purposes of this section, "goods' means every mind of movable property, other than actionable claims, stocks, shares, money, bullion and specie, and all instructions referred to in clause (a) of sub- section (1) of section 6."

O.P.3234/2000 & W.A.2073/07.

He also referred to Section 6 of the Banking Regulation Act.

7. He drew our attention to the definition of the word 'banking'. It reads as follows:

"5(b) "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise;"

According to him, having regard to the definition of the word 'banking' as contained in the Banking Regulation Act, the acceptance of gold items as part of a pledge would not fall within the concept of banking. It is pointed out that the definition of the word 'sale or purchase of goods' in Article 366 (29A) of the Constitution does not include pledge or realisation of security of pledged goods against loan given by the bank as part of its banking business. It is submitted that when a sale takes place on default being committed by the borrower, who has pledged the gold items, it amounts only to the realisation of the security of the loan and it cannot be treated as sale of goods. The definition of the word 'sale' in the Act is contained in Section 2(xxi). We extract below the definition without explanations appended to the same.

O.P.3234/2000 & W.A.2073/07.

"(xxi) "sale" with all its grammatical variations and cognate expressions means every transfer whether in pursuance of a contract or not of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge."

It is therefore contended that the definition of the word 'sale' itself would reflect an intention to exclude a pledge. It is contended by the petitioner/appellant that though this court had occasion to consider the question in the decision reported in Federal Bank Ltd.'s Case (2003(2) K.L.T. 347), the question relating to the legislative competence was not in issue. The decision of this court as confirmed by the Apex Court in Federal Bank Ltd. v. State of Kerala (2007(3) K.L.T. 106) will not preclude the present litigation and adjudication sought herein, it is pointed out. In paragraph 8 of the judgment of the Apex Court, the court has held as follows:

"We do not find any merit in the above contention. As stated above, we are not concerned in the present civil appeals with the question of legislative competence of the State Legislature to insert clause (g) in S.2(viii) of the 1963 Act. In the present case, we are O.P.3234/2000 & W.A.2073/07.

concerned only with the limited question argued before us, namely, whether auction sale of pledged goods by scheduled banks is a 'transaction' which takes place in the course of banking business in terms of the 1949 Act."

According to him, as no sale takes place within the meaning of Entry 54 of List II of Seventh Schedule, it is the central legislature alone, which is possessed of legislative power having regard to Entry 45 as also Entry 97 of List I of the Constitution.

8. Sri. S. Easwaran, learned counsel for the appellant, in addition to the contentions addressed by the learned Senior Counsel for the petitioner, would submit as follows:

He would point out that Section 8 of the Banking Regulation Act excludes bullion from the definition of goods as is discernible from the Explanation to Section 8. He would point out that sale in realisation of security in a pledge is done by way of public auction. He would submit that having regard to the position obtaining at law, there is no sale within the meaning of Sale of Goods Act, 1930. As per the definition of 'sale' under Section 2(xxi), sale should be in the course of the business and pledge is specifically excluded, he contends. It is his contention that the sale of pledged gold or gold ornaments to realise the loan amount by the Bank is not a sale in the course of banking.

O.P.3234/2000 & W.A.2073/07.

9. Sri. Vinod Chandran, learned Government Pleader for Tax contended that the matter is squarely concluded by the decision of the Apex Court in Federal Bank Ltd.'s Case (2007 (3) KLT 106). He would further contend that there is absolutely no warrant in the contention of the petitioner and the appellant that the State is bereft of the legislative power to enact the impugned amendment. He would point out that the scheme of the distribution of legislative power as discernible from a perusal of the Lists to the Seventh schedule would show that the legislative powers as contained in the lists are broadly of two types. On the one hand the Lists contain legislative entries conferring general power on the legislatures in regard to various aspects. This is followed by an enumeration of powers conferred to impose taxes on various taxing events. A specific entry is found in List II, namely, Entry 54. It reads as follows:

"Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I."

Thus the fact that Entry 45 confers legislative power in the central legislature to make laws relating to banking would not mean that the State legislature is deprived of its legislative power to impose tax when a sale of goods is effected by a bank. When a sale of goods is O.P.3234/2000 & W.A.2073/07.

effected, as is comprehended in Entry 54 of List II of the Seventh Schedule, the State becomes endowed with authority to tax the sale. He would point out that when there is a pledge, what is transferred may be the special right in favour of the pledgee to cause the pledged articles to be sold in the event of default by a borrower, who has pledged the items. But, in the event of default, the creditor/pledgee is clothed with a power to sell the said items, no doubt for realisation of the loan. When the sale takes place, it is not a special property which is transferred. On the contrary, what is transferred is indeed the general property in the goods as contemplated in the Sale of Goods Act. In other words, a sale in enforcement of the pledge, according to the learned Government Pleader, would result in vesting of the full title to the goods as would have been transferred by the owner of the goods. He would point out Section 176 of the Indian Contract Act in this connection and he would also take us through the decision reported in Federal Bank Ltd. v. State of Kerala (2007(3) K.L.T. 106 (SC)) in this regard. He would contend that the Apex Court has categorically held that when a sale takes place in enforcement of a pledge, it is being done in the course of the business of banking.

10. In order to resolve the dispute raised, it is important to notice the matters which are concluded by the decision of the Apex O.P.3234/2000 & W.A.2073/07.

Court in Federal Bank Ltd.'s case (supra). The Apex Court has held as follows:

"The banks, in selling the goods pledged to them, did not act as agents of the borrowers/pledgers and that their sale was in exercise of statutory power under the 1949 Act."

Further, the court held "We are of the view that sale of pledged ornaments falls within the course of banking business under the 1949 Act. In the circumstances, such transactions are taxable under S.2(viii)(g) read with S.5 of the 1963 Act."

It is further held "We also find merit in the contention advanced on behalf of the Department (respondents herein) that the very object of the Kerala Finance Act, 1998 was to introduce clause (g) in S.2(viii) in order to get over the judgments of the High Court which took the view that sale of pledged goods did not fall in the course of banking business. We have quoted clause (g). That clause makes it very clear that even if the sale of pledged ornaments takes place outside the banking business, the 1963 Act would cover even such transactions. Therefore, once such transactions fall under /s.2(viii)(g) of the 1963 Act, banks become "dealers" and they are liable to pay sales tax under the said 1963 Act.

O.P.3234/2000 & W.A.2073/07.

It is important also to notice the following statement of the law by the Apex Court :

"It is true that the definition of the word "sale"

under S.2(xxi) of the 1963 Act does not include mortgage, hypothecation charge or pledge, however, the important point to be noted is that the definition of the word "sale" under 1963 Act is not the same as under S.4 of the Sale of Goods Act, 1930. The definition of the word "sale" in S.2 (xxi) in the 1949 is very similar to S.2(g) of the Central Sales Tax Act, 1956 which is held to be having a very wide meaning as compared to the definition of the word "sale" in S.4 of the Sale of Goods Act, 1930 (see: State of Maharashtra v. Embee Corporation, Bombay ((1997) 7 SCC 190). Further when charge or pledge is enforced that enforcement is by way of sale of the pledged or hypothecated goods; that sale is for consideration and, therefore, it falls within the ambit of S.2(xxi) of the 1963 Act."

10. It is therefore not open to the petitioner/appellant to contend that when the pledged articles are sold by the banks, it is not in the course of banking business. It is also not open to them to contend that Section 8 of the Banking Regulation Act read with Section 5(b) of the said Act and Section 6 of the Act prohibit the bank from effecting sale of goods and therefore the sale in public auction by the banks of pledged articles cannot be subjected to tax. It is clear O.P.3234/2000 & W.A.2073/07.

that sale of pledged goods is not prohibited under Section 8 of the Banking Regulation Act.

11. We also think that there is no merit in the contention that when the pledgee disposes off the pledged articles on default being committed by the borrower/pledger, it only amounts to realisation of security and it cannot be treated as the sale of goods. In our view, while it amounts to realisation of the security, it is nonetheless a sale of goods. Under the Sale of Goods Act, seller is defined as follows:

"2(13) ""seller" means a person who sells or agrees to sell goods;"

Goods are defined as in Section 2(7) as follows:

""goods" means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;"

Property is defined in Section 2(11) as follows:

""property" means the general property in goods, and not merely a special property;

It is important to notice what exactly is a pledge. A pledge is essentially a bailment of goods. By the pledge itself what is O.P.3234/2000 & W.A.2073/07.

transferred by the pledger to the pledgee is only a special right in the property to cause the goods to be sold in the event of there being a default. It is true that a pledge does not involve a transfer of general property by the pledger to the pledgee. The definition of sale under the Act also excludes a pledge from the scope of the expression sale. But we are not concerned with a question as to whether the transaction of pledge itself is exigible to tax. On the one hand we are here concerned with a situation arising out of the sale by the pledgee acting under the terms of the pledge as also the provisions of Section 176 of the Contract Act and Section 8 of the Banking Regulation Act. Section 176 of the Contract Act reads as follows:

"Pawnee's right where pawnor makes default.- 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 sell the thing pledged, on giving the pawnor reasonable notice of the sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor."

O.P.3234/2000 & W.A.2073/07.

When the pledgee sells the goods upon conditions arising giving it the legal right to sell the goods, there cannot be any doubt in that there is a transfer of general property in the goods by the Bank to the buyer. In ((1998) 7 SCC 707 the Apex Court after referring to Contract Act and more pointedly the Karnataka Pawnbrokers Act, 1961 and Rules made thereunder held as follows:

"It cannot be and it is not disputed that the pawnbroker has special property rights in the goods pledged, a right higher than a mere right of detention of goods but a right lesser than general property right in the goods. To put it differently, the pawnor at the time of the pledge not only transfers to the pawnee, the special right in the pledge in the event of the pledge remaining 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 the 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 being brought to sale by public auction in accordance with the Act and the Rules framed thereunder."

A contract can be express or implied. When goods are sold in public auction by the bank of pledged articles, it cannot be said that there is O.P.3234/2000 & W.A.2073/07.

no contract between the bank and the buyer. As already noticed, the definition of the word 'seller' in the Sale of Goods Act only means the person who actually sells the property. When the Bank as pledgee sells the property, the Bank would be a seller within the meaning of the Sale of Goods Act, as it is the Bank which sells the goods. We are therefore not at all impressed by the contention that there is no sale of goods within the meaning of the Sale of Goods Act for the reason that what is transferred is only a special right and no general property of goods is transferred. We are therefore not impressed by the argument that there is no sale for the reason that there is no contract between the parties.

12. The further question to be considered would be whether the State has legislative competence to enact the amendment, which is called in question. By the amendment, a Bank effecting sale in exercise of the rights as a pledgee is brought within the scope of the word 'dealer'. It is true that banking per se is a subject assigned to the central legislature. Thus, it is apparently in exercise of the said power that various enactments, including the Banking Regulation Act, 1949 have come to be enacted by the central legislature. Banking Regulation Act is intended to regulate various aspects relating to banking. Apparently, the reason must have been O.P.3234/2000 & W.A.2073/07.

that the founding fathers thought that as a matter like banking is intimately intertwined with the financial life of the nation, it is a matter which should engage the attention of the Central legislature thus paving for uniformity in regard to the law relating to banking throughout the length and breadth of the country. But the question which arises is whether the entry should be treated as exhaustive with regard to everything connected with banks. Could it be that all activities of the bank must fall to be considered by the Central legislature on the basis of the entry in List I of the Seventh schedule. We would think that it is not the scheme of the distribution of legislative powers that all activities of a bank are to be treated as matters exclusively within the legislative province of the central legislature. Entry 54 of List II of the Seventh schedule manifests an intention to confer power to tax sale of goods. A sale of goods by a bank is not excluded from the purview of the legislative powers of the State in Entry 54 of List II of the Seventh Schedule.

13. In M/s.New India Sugar Mills Ltd., v.

Commissioner of Sales Tax (AIR 1963 SC 1207) the Apex Court was considering the question whether there is sale, which could be taxable under the Bihar Sales Tax Act. The matter was answered in the context of Entry 48 of List II of the Seventh Schedule of the O.P.3234/2000 & W.A.2073/07.

Government of India Act, 1935, whereunder power to legislate in respect of taxes on sale of goods was conferred on the provincial legislature. The court took note of the fact that the expression sale of goods, was not defined in Government of India Act. The court further held that the expression has to be understood in the sense in which it is used in the Sale of Goods Act, 1930. It held as follows:

"In popular parlance 'sale' means transfer of property from one person to another in consideration of price paid or promised or order valuable consideration. But that is not the meaning of 'sale' in the Sale of Goods Act, 1930. Under S.4 of the Sale of Goods Act a transaction is called sale only where for money consideration property in goods is transferred under a contract of sale. A contract of sale between the parties is therefore a prerequisite to a sale."

The assessee was a sugar factory in the province of Bihar. The Sugar Controller of India in exercise of the authority under the Sugar and Sugar Products Control Order, 1946 issued directions, pursuant to which the assessee despatched sugar to its authorised agents in the State of Madras. It was in this context that the question arises as to whether there was a sale which could be taxed. It was following the decision of the Apex Court in State of Madras v. Gannon Dunkerley and Co. (AIR 1958 SC 560) that the court took the view O.P.3234/2000 & W.A.2073/07.

that there must be a contract of sale between the parties. It is noticed that it is common ground that the province of Madras intimated its requirement of sugar to the Controller and the Controller called upon the manufacturing unit to supply the whole or part of the requirement to the province. It is also held that in calling upon the manufacturing unit to supply sugar, the Controller did not act as agent of the State to purchase goods and he acted in exercise of its statutory authority. It is also held that there is manifestly no offer to purchase sugar by the province and no acceptance of any offer by the manufacturer.

14. In Joint Commercial Tax Officer, Madras v.

Y.M.A., Madras (AIR 1970 SC 1212) the question which arose before the Apex Court was whether the clubs supplying food, snacks, beverages and other articles to their members or their guests could be regarded as dealers within the meaning of the Act. The articles necessary for the supply were purchased by the clubs out of club funds, which consisted of the members' subscription. No profit was made in providing these amenities by the clubs. The court found that there was no sale involved and there could be no levy. The court held as follows:

"The essential question, int he present case, is whether the supply of the various preparations by each club to its members involved a transaction of sale within O.P.3234/2000 & W.A.2073/07.

the meaning of the Sale of Goods Act, 1930. The State Legislature being competent to legislate only under Entry 54, List II of the 7th Schedule to the Constitution the expression "sale of goods" bears the same meaning which it has in the aforesaid Act. Thus in spite of the definition contained in Sec.2(n) read with Explanation I of the Act if there is no transfer of property from one to another there is no sale which would be exigible to tax. If the club even though a distinct legal entity is only acting as an agent for its members in the matter of supply of various preparations to them no sale would be involved as the element of transfer would be completely absent. This position has been rightly accepted even in the previous decision of this Court."

15. We would think that these decisions would not assist the petitioner/appellant. It cannot be said that there is no contract by the bank when they sell the pledged articles. It cannot also be said that in the transaction there is no transfer of general property in the goods to the buyer. When a sale takes place at the hands of a pledgee, there is indeed transfer of general property to the buyer and it is not a special right which is transferred. It cannot be said that in the case of sale by the pledgee there is no volition on the part of the seller of the pledged articles. Having regard to the pledge, it is clear that the borrower/pledger must also be treated as having agreed to O.P.3234/2000 & W.A.2073/07.

the transfer of general property of the goods to the prospective buyer on the happening of default. It is clear that the sale by the bank of pledged articles cannot be treated as sale by the banks as agents of the borrower/pledger as held by the Apex Court. We do not see how any assistance can be derived by the Banks from the aforesaid two decisions of the Apex Court.

16. In Federation of Hotel and Restaurant v. Union of India (AIR 1990 SC 1637), the question arose was whether the Parliament had legislative power to enact the Expenditure Tax Act, 1987. The Act envisaged a tax at 10% ad valorem on chargeable expenditure incurred in the class of Hotels wherein "room-charges" for any unit of residential accommodation was Rs.400/- per day per individual. It was contended on behalf of the petitioners that it is essentially a tax on luxuries, which was a legislative subject falling within the State's legislative competence as enumerated in Entry 62 which provided for taxes on luxuries among other taxes. It was contended that having regard to the impost in question, it was not really expenditure tax at all as it did not accord with the economists' notion as to such a tax, and it was also contended that in pith and substance it was a tax on luxury. The court found that the same transaction may involve two or more taxable events in different O.P.3234/2000 & W.A.2073/07.

aspects. The court took note of 'the aspect' doctrine and found that the distinct aspect, namely, the expenditure aspect of the transaction falling within the Union power must be distinguished and the legislative competence to impose tax sustained. In that case the Supreme Court held as follows:

"Wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the Courts, however difficult it may be, to ascertain to what degree and to what extent, the authority to deal with matters falling within these classes of subjects exists in each legislature and to define, in the particular case before them, the limits of the respective powers. It could not have been the intention that a conflict should exist; and; in order to prevent such a result the two provisions must be read together, and the language of one interpreted, and, where necessary modified by that of the other.

The law 'with respect to' a subject might incidentally 'affect' another subject in some way; but that is not the same time as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects.

O.P.3234/2000 & W.A.2073/07.

It is trite that the true nature and character of the legislation must be determined with reference to a question of the power of the legislature. The consequences and effects of the legislation are not the same thing as the legislative subject matter. It is the true nature and character of the legislation and not its ultimate economic results that matters."

17. In The Elel Hotels and Investment Ltd. v. Union of India (AIR 1990 SC 1664), the Hotel Receipts Tax Act, 1980 was impugned on the ground of lack of legislative competence among other grounds. Therein also a contention was raised based on Entry 62 of List II. Union of India supported the tax as a tax on income under Entry 82 of List I. The Apex Court accepted the said case and held as follows:

"On a consideration of the matter, we are of the opinion that the submissions of the learned Attorney General as to the source of the legislative power to enact a law of the kind in question require to be accepted. The work 'income' is of elastic import. In interpreting expressions in the legislative lists a very wide meaning should be given to the entires. In understanding the scope and amplitude of the expression 'income' in Entry 82, List I, any meaning which fails to accord with the plenitude of the concept of 'income' in all its width and comprehensiveness should be avoided. The cardinal rule of interpretation is O.P.3234/2000 & W.A.2073/07.

that the entries in the legislative lists are not to be read in a narrow or restricted sense and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it. The widest possible construction, according to the ordinary meaning of the words in the entry, must be put upon them. Reference to legislative practice may be admissible in reconciling two conflicting provisions in rival legislative lists. In construing the words in a constitutional document conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude."

18. Article 366 of the Constitution was amended by inserting a definition of tax on the sale or purchase of goods vide Article 366 (29A). Clause (a) of Article 366(29A) reads as follows:

"(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;"

Apart from the same, sub clauses (b) to (f) are included. In Bharat Sanchar Nigam Ltd. v. Union of India and others ((2006) 145 STC

91) the Apex Court was considering the question as to whether the goods include electromagnetic waves or radio frequencies. The Apex Court has held that 'goods' do not include electromagnetic waves or radio frequencies. The Court referred to Article 366 (29A) inter alia O.P.3234/2000 & W.A.2073/07.

and held as follows:

"Clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale. Clause (b) covers cases relating to works contracts. This was the particular fact-situation which the court was faced with in Gannon Dunkerley and which the court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley was directly overcome. Clause (c) deals with the hire-purchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as a sale. Similarly the title to the goods under clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A.V.Meiyappan's decision (1967) 20 STC 115(Mad) a lease of a negative print of a picture would be a sale. Clause (e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales. Clause (f) pertains to contracts which had been held not to amount to sale in State of Punjab v, Associated Hotels of India Ltd (1972) 1 SCC 472. That decision has by this clause been effectively invalidated.

All the clauses of article 366(29A) serve to bring O.P.3234/2000 & W.A.2073/07.

transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchases and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerly limited. The amendment especially allows specific composite contracts, viz., works contracts [clause (b)], hire-purchase contracts [clause (c)], catering contracts [clause (f)] by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax.

Gannon Dunkerley survived the 46th Constitutional Amendment in two respects. First with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of entry 54 of List II in particular except to the extent that the clauses in article 366(29A) operate. By introducing separate categories of "deemed sales", the meaning of the word "goods" was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery etc., would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. Courts must move with the times. But the 46th Amendment does not give a licence for example to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the 46th Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley has O.P.3234/2000 & W.A.2073/07.

survived is with reference to the dominant nature test to be applied to a composite transaction not covered by article 366(29A). Transactions which are mutant sales are limited to the clauses of article 366(29A). All other transactions would have to qualify as sales within the meaning of the Sales of Goods Act, 1930 for the purpose of levy of sales tax."

The sale of pledged articles is not a composite transaction. 'Sale' is defined in Section 2(xxi) of the KGST Act. Thus in fact after the 46th Amendment to the Constitution and after the insertion of the definition of the word 'sale' as contained in the KGST Act even an involuntary sale, that is a sale which is not in pursuance of a contract would also qualify as a sale.

19. In State of West Bengal v. Purvi Communication P. Ltd. ((2005) 140 SCC 154), the Apex Court reversed the declaration by the High Court of Calcutta that Section 4A of the West Bengal Entertainment-cum-Amusement Tax Act, 1982 as amended by the West Bengal Finance Act, 1998 was ultra vires the constitution. Cable Television Networks (Regulation) Act, 1995 is a central legislation enacted to regulate the operation of cable television networks in the country. The Apex Court proceeded to hold that the said enactment did not fetter the legislative power or competence of the State to levy tax on luxuries, including taxes on entertainments, O.P.3234/2000 & W.A.2073/07.

amusements, betting and gambling under Entry 62 of List II of the Seventh Schedule to the Constitution. The court held as follows:

"We also see no substance in the submission that the impugned legislation impinges on the field occupied by the Central legislation. The aforesaid central legislation has been enacted to regulate the operation of cable television network in the country and matters connected therewith or incidental thereto whereas the State Legislation is for levy of entertainment tax on entertain within the legislative field exclusively assigned to the State Legislature under entry 62 of List II of the Seventh Schedule to the Constitution. Thus the objects sought to be achieved by two different Acts enacted under two different legislative fields exclusively assigned to the respective Legislatures are entirely distinct and separate. The Cable Television Networks (Regulation) Act, 1995 of the Union Legislature does not denude the State Legislature for levying entertainment tax on entertainment."

Thus it is clear that the State legislature was indeed possessed of legislative power to enact the impugned amendment.

20. Gold ornaments are undoubtedly goods. Bullion are also goods. We have also found that when a Bank, as pledgee sells gold ornaments or bullion, there is a sale. Thus there is a sale of goods. In our view, the fact that the sale of goods is by a Bank would not rob the State legislature of the legitimate power it possesses O.P.3234/2000 & W.A.2073/07.

under the Constitution to levy tax on sale of goods. Merely by posing the question as to who effected sale of goods, when such a question is unwarranted by the specific terms of the entries in Lists I to III in the Seventh Schedule, the invocation of Entry 97 is totally misplaced as Entry 97 would be applicable only if no other specific entry is found to premise the legislation upon. When there is a specific entry empowering the State to enact law relating to sale of goods, we would think that Entry 97 of List I is totally inapplicable.

21. We are also not impressed by the argument of learned counsel for the appellant Sri. Easwaran that bullion is excluded from goods by virtue of the explanation to Section 8 of the Banking Regulation Act and therefore sale of bullion by a bank cannot be subjected to sales tax. We note that Section 6 of the Banking Regulation Act provides that in addition to the business of Banking, a Banking company may engage in any one or more of the businesses which are elaborated in clauses (a) to (o). By virtue of Clause (a) buying, selling and dealing in bullion and specie are specifically encompassed within the forms of business that a Banking Company may engage in. Having thus provided that the Banking Company may deal in buying, selling and dealing in bullion, it is only logical that when there is a prohibition against trading of goods declared in O.P.3234/2000 & W.A.2073/07.

Section 8 that an exception be engrafted upon the word 'goods' for the purpose of Section 8 in favour of bullion and specie. It is only for that purpose that bullion and specie are excluded from the purview of the word 'goods' in Section 8. Thus the result is that in fact there is absolutely no prohibition against a banking company to buy, sell or barter in bullion. Thus when the Bank buys, sells or trades in bullion, the result is inevitable that it is only engaging in a form of business, which is perfectly permissible under Section 6 of the Act. There is no merit, therefore, in the said contention of the appellant and we reject it.

We find no merit in the contentions of the petitioner/appellant. Therefore, the Original Petition and the Writ Appeal are dismissed.

Consequently C.M.P. No. 5234 of 2000 is also dismissed.

H.L. DATTU, CHIEF JUSTICE K.M. JOSEPH, JUDGE sb.

O.P.3234/2000 & W.A.2073/07.

H.L.DATTU, C.J. & K.M.JOSEPH, J.

--------------------------------------------------- O.P. 3234/2000 & WA.2073/2007.

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JUDGMENT 08.01.2008.

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Kerala High Court

S.B.T vs The Commercial Tax Officer on 8 January, 2008

Bench: H.L.Dattu, K.M.Joseph