Calcutta High Court (Appellete Side)
W.P.T.T. No. 6 Of 2011:- Tata Motors ... vs Asst. Commissioner Of Sales Tax on 8 October, 2013
Author: Girish Chandra Gupta
Bench: Girish Chandra Gupta
FORM NO.(J1)
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
Present:
Hon'ble Justice Girish Chandra Gupta
And
Hon'ble Justice Tarun Kumar Das
W.P.T.T. No. 6 OF 2011:- Tata Motors Finance Ltd.
-Vs.-
Asst. Commissioner of Sales Tax, Central Section, Investigation Wing,
Kolkata.
With
W.P.T.T. No. 24 OF 2010:- M/s. ICICI Bank Ltd.
-Vs.-
Joint Commissioner of Sales Tax, Central Section Wing & Ors.
With
W.P.T.T. No. 4 OF 2011:- M/s. Family Credit Ltd. & Anr.
-Vs.
Asst. Commissioner of Sales Tax, Salt Lake Charge & Ors.
Mr. J. P. Khaitan, Adv.,
Mrs. Nilanjana Banerjee (Pal), Adv.,
Ms. Soumitra Dutta, Adv.
Mr. Avra Majumder, Adv.,
............For the appellant.
Mr. Jaydip Kar, Adv.,
Mrs. Seba Roy, Adv.
............. For the Respondent.
Hearing concluded on: 31st January, 2013 Judgment delivered on: 8/10/2013.
GIRISH CHANDRA GUPTA J. All the three writ petitions were filed challenging a common judgment and order dated 16th April, 2010 passed by the learned West Bengal Taxation Tribunal. The learned Tribunal held as follows:-
"In view of the discussions contained hereinabove we hold that ICICI Bank is a dealer and covered by main part of the definition of the 'dealer' in the VAT Act, as the disputed sales are in course of its banking business and such sales were/are effected in exercise of its statutory right under the Banking Companies Regulations Act. Judgment of the Supreme Court in Federal Bank (supra) has practically settled the issue.
We also hold that other Non-Banking Financing Companies were/are dealers within the ambit of Clause
(d) of Section - 2(11) as according to them, those were arranging sales of hypothecated vehicles on the strength and authority derived from the hypothecation agreements and the irrevocable power of attorneys executed by the borrowers. If these Non-banking Finance Companies were exercising hypothecatees' contractual right to sell pledged goods for realization of unpaid loan these Companies came within the scope of the main part of the definition of 'dealer'."
Mr. Khaitan, learned Senior Advocate appearing in support of all the writ petitions, made extensive arguments assailing the judgment of the learned Tribunal. He also submitted a written notes of argument. We deem it proper to set out the written arguments, in our judgement, in its entirety, which is as follows:-
"BRIEF FACTS
1. The petitioner in WPTT No.24 of 2010 is a banking company and the petitioner in WPTT NO.6 of 2011 is non-banking finance company ("NBFC"). The petitioners grant loans to persons intending to purchase vehicles against hypothecation of the vehicles by way of security under loan-cum-hypothecation agreements. Irrevocable power of attorney is also obtained from the borrower nominating the lender to have the vehicle disposed of on behalf of the borrower in case of default in repayment of the loan.
2. It is not in dispute that the borrower is the owner of the vehicle at all times. Hypothecation of the vehicle in favour of the lender is specifically excluded from the definition of sale in section 2(39) of the West Bengal Value Added Tax Act, 2003 ("the Act"). The lender does not become the owner of the vehicle at any time. In case of sale of the vehicle for recovery of the loan, the transfer of ownership is from the borrower to the new owner and the statutory motor vehicle transfer forms 29 and 30 executed by the borrower are made over to the new owner.
ISSUE
3. The question which arises for determination is as to whether in respect of disposal of the vehicle for recovery of the loan the petitioners are liable for tax as dealers as per the definition in Section 2(11) of the Act.
PRINCIPLES OF INTERPRETATION
4. The section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all (Please see Commissioner of Wealth Tax -v- Ellis Bridge Gymkhana, (1998) 1 SCC 384 - Para 5 page 84 at 87 of compilation).
5.The definition commences with the expression "
'dealer' means ........" and thereafter proceeds to expand its coverage by using the expression "and includes......." By certain inclusions vide sub-clauses
(a), (b), (c) and (d), which would not have otherwise fallen within the opening part of the definition. The use of the expressions "means" "and includes" in the definition makes it exhaustive (Please see Bharat Co. op Bank (Mumbai) Ltd., -v- Coop. Bank Employees Union, (2007) 4 SCC 685) - Para 23- page 72 at 82 compilation. And for the same view - (1989) 1 SCC 164 - para 11; 1995 SUPP (2) SCC 348 - para 19; (2007) 5 SCC 281 - para 33; (2007) 5 SCC 730 - para 8. The contra view in 1993 Supp (3) SCC 361 - para 12 was rendered without noticing the prior decision in (1989) 1 SCC 164). OPENING PART OF DEFINITION APPLIES ONLY TO OWNERS
6. The opening part of the definition only covers persons who deal with the goods as owners i.e. persons who purchase goods in their own right and sell them as owners. Non-owners have been brought in by way of expansion under the sub-clauses appearing after the expression "and includes". If non-owners were covered by the opening part, there was no reason to expand the definition.
7. The Tribunal fell into error in holding that the petitioners were covered by the opening part of the definition if the vehicle was caused to be sold by the petitioner NBFC in exercise of the hypothecatee's contractual right to sell pledged goods for realization of unpaid loan and by the petitioner bank in exercise of statutory right in course of banking business. The petitioners not being the owners of the vehicles, the opening part of the definition cannot cover them.
EXPANDED DEFINITION IN SUB-CLAUSE (b) HAS NO APPLICATION
8. Sub-clause (b) ropes in specified bodies/organizations which sell, supply or distribute goods but not in the course of business. Sale of goods by such bodies/organizations in the course of business would be covered by the opening part of the definition.
9. The general phrase "other body corporate" in sub-clause (b) occurs after the words "Government", "local authority", "statutory body" and "trust". On the principle of ejusdem generis, the said general phrase includes only an entity of the same type as those specified earlier. The entities specified earlier do not normally carry on business or commercial activity.
"Other body corporate" must be of the same type. The petitioners carry on business (of advancing loans) and are not "other body corporate" within the meaning of Section 2(11).
10. It is also a requirement of sub-clause (b) that the sale, supply or distribution must be for cash or for deferred payment or for commission, remuneration or other valuable consideration. Thus, a body corporate must sell its own goods for valuable consideration. If the goods sold do not belong to the body corporate, it must receive valuable consideration for making the sale such as commission or remuneration. The petitioners are not the owners of the vehicles. The petitioners by causing sale of the vehicles belonging to their constituents do not render any service for commission, remuneration or other valuable consideration. The petitioners are not covered by sub-clause (b) as "other body corporate".
NBFC IS NOT FACTOR OR MERCANTILE AGENT UNDER SUB-CLAUSE (d)
11. The Tribunal fell into error in holding that the petitioner NBFC fell within the ambit of sub-clause (d) as factor or mercantile agent since the sales of the vehicles were arranged on the strength and authority derived from the hypothecation agreement and the irrevocable power of attorney executed by the borrower.
12. A factor only buys or sells for a commission (Please see Black's Law Dictionary, 9th Edition - page 30 at 31 of compilation and Words and Phrases Legally Defined, 4th Edition - page 32 at 33 of compilation). The petitioner NBFC does not receive any commission and is not a factor.
13. A mercantile agent to fall within the ambit of sub-clause (d) must be one-
(i) who carries on the business of selling
goods and
(ii) who has in the customary course of
business, authority to sell goods belonging to
principals.
14. For the purposes of sub-clause (d), the business of the mercantile agent, evidenced by volume, frequency, continuity and regularity of transactions, must be that of selling goods belonging to principals, such that it must be customary in the course of such business that the mercantile agent has authority to sell goods belonging to principals.
15. The main activity of the petitioner NBFC, evidenced by volume, frequency, continuity and regularity of transactions is that of granting loans. The borrowers are not principals of the petitioner. It is not the business of the petitioner to sell goods belonging to the borrowers. The incident of sale of the vehicle arises only in the event of default by the borrower. Sale in case of default is caused by the petitioner NBFC not for any commission or remuneration but for recovery of the amount due to it. In the petitioner NBFC's first year of business there was no sale of any vehicle on account of borrower's default. In the next year the disposal proceeds constituted only 0.21% of the total loan disbursements. Such incidental activity is not evidenced by any volume, frequency, continuity or regularity so as to constitute business of selling of goods within the meaning of sub-clause (d). The context of sub-clause (d) does not permit the application of the definition of "business" in section 2(5) (Please see Whirlpool Corporation -v- Registrar of Trade Marks, (1998) 8 SCC 1 - paras 28 and 30 - page 34 at 45 of compiltion and Printers (Mysore) Ltd. -v- Assistant Commercial Tax Officer, (19940 2 SCC 434 - para 18 - page 60 at 70 of compilation).
16. The customary authority adverted to in sub- clause (d) must be an implied authority in accordance with the usages and customs of the business of selling gods (Please see P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd Edition - page 26 at 29 of the compilation). If such implied authority exists, it will not make any difference if the same is also expressly granted by a written document.
17. The petitioner NBFC does not have any implied authority to have the vehicle purchased by the borrower with the loan funds sold. The petitioner NBFC has a limited authority under the power of attorney specifically authorizing it to have the vehicle sold in case of default in repayment of the loan. The implied authority to sell as an agent referred to in Sub-clause (d) is altogether distinct and different from a pawnee's right to sell the thing pledged on giving the pawnor reasonable notice of sale under Section 176 of the Indian Contract Act, 1872.
18. The judgment of the Supreme Court in State of West Bengal -v- O. P. Lodha, (1997) 105 STC 561 (SC), is not an authority for the proposition that any and every agent is liable to be treated as a dealer irrespective of the requirements of sub-clause (d) of Section 2(11).
19. The judgment of the Supreme Court in Federal Bank Ltd. -v- State of Kerala, (2007) 6 VST 736 (SC), dealt with the amended definition of dealer in Section 2(viii) of the Kerala Act which included a bank or a financing institution. The only controversy before the Supreme Court in that case was as to whether the sale of pledged assets by the bank was in the course of banking business.
20. The Supreme Court in Government of Andhra Pradesh -v- Corporation Bank, (2007) 6 VST 755 (SC), held that a bank selling gold pledged as security for the loan was not a dealer prior to the amendment of the definition in Section 2(1)(e) of the Andhra Act with effect from August 1, 1996 whereby banks were included."
Mr. Kar, learned advocate appearing for the department disputed the submissions of Mr. Khaitan. He also relied upon the judgment in the case of Federal Bank Ltd. -v- State of Kerala reported in 2007 (6) VST 736 (SC) for the proposition that the sale of the vehicles by the bank is in course of its business under the Banking Regulation Act, 1949.
The question which falls for determination has been indicated in the written notes in paragraph 3 noticed above. Therefore, the question really is, as regards the true meaning and scope of the definition of the term 'dealer' provided in Sub-section 11 of Section 2 of the West Bengal Value Added Tax Act, 2003 (hereinafter referred to as the said Act) which reads as follows:-
" 'dealer' means any person who carries on the business of selling or purchasing goods in West Bengal or any person making sales under section 14, and includes -
(a) an occupier of a jute-mill or shipper of jute,
(b) Government, a local authority, a statutory body, a trust or other body corporate which, or a liquidator or receiver appointed by a court in respect of a person, being a dealer as defined in this clause, who, whether or not in the course of business, sells, supplies or distributes directly or otherwise goods for cash or for deferred payment or for commission, remuneration or other valuable consideration,
(c) A society including a co-operative society, club or any association which sells goods to its members or others for cash, or for deferred payment, or for commission, or for remuneration, or for other valuable consideration,
(d) A factor, a broker, a commission agent, a del credere agent, an auctioneer, an agent for handling or transporting of goods or handling of document of title to goods, or any other mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who carries on the business of selling goods and who has, in the customary course of business, authority to sell goods belonging to principals;"
The submissions appearing from paragraphs 4 and 5 of the written notes of argument are deemed to be correct for the purpose of disposal of these petitions. The submission in paragraph 6 of the written notes does not, however, appear to us to be a correct approach. We are of the opinion that the section has to be construed as a whole and not piecemeal. We are unable to agree with Mr. Khaitan that the definition of the word 'dealer' intended to cover only the owners of the goods. No such intention can be attributed to the legislature on a plain reading of the section quoted above. The finding of the Tribunal has been quoted above by us. Whether the finding is correct in the light of the submissions of Mr. Khaitan has to be examined herein.
The submission in paragraph 8 of the written notes is not correct according to us. The bodies and organizations indicated in Clause - (b) were sought to be roped in irrespective of whether they sell or supply or distribute goods directly or otherwise whether in the course of business or not. Neither a liquidator nor a receiver can be expected to sell any goods as the owner thereof. The distinction sought to be made by the learned Counsel as regards the owner and non-owner of the goods was, according to us, not contemplated by the legislature.
The submission contained in paragraph 9 of the written notes of argument is fallacious according to us. Our attention was not drawn to any authority binding or otherwise to show that the natural meaning of the word used by the legislature can be ignored for the purpose of applying the theory of 'ejusdem generis' in construing an act.
The word used in Clause - (b) particularly the word "a trust" does not appear nor was shown to have anything in common with the preceding word "a statutory body." Similarly the word "body corporate"
was not shown to have any common characteristic with the preceding word "trust". The theory of 'ejusdem generis' cannot be applied in construing Clause - (b) of Sub-section 11 of Section 2 of the aforesaid Act.
We are also unable to accept the submission contained in paragraph 9 of the notes that the government or a local authority or a statutory body or a trust do not normally carry on business. Article 289 of the Constitution of India contemplates both trading and business activities by the government. The local authority or a statutory body or a trust cannot as such be under any disability from carrying on business. We are unable to agree with Mr. Khaitan that the banking or non- banking financial companies were not sought to be roped in by Clause -
(b) of Sub-section 11 of the aforesaid Act.
The submissions contained in paragraph 10 of the written notes of argument are equally fallacious, according to us. We already have indicated above that, in our opinion, the act does not make any distinction between a seller of its own goods or a seller of goods belonging to someone else.
Mr. Khaitan cannot be expected to seriously argue that the vehicles are sold either by the bank or by the non-banking financing company otherwise than for valuable consideration. It may be true that the banking or non-banking financial corporations do not charge any commission or remuneration for sale of the hypothecated goods though we have no evidence in that regard. But the activity is not undertaken by them gratuitously. They undertake the activity of selling the hypothecated vehicles for the purpose of realizing the consideration which had already passed from them to the borrower. By selling the vehicles both the banking and non-banking financial companies realize their dues which naturally includes profits. We are, as such unable to agree with the submissions contained in paragraph 10 of the written notes set out above.
The submissions contained in paragraphs 11,12,13, 14, 15 16 & 17 of the notes, for the purpose of demonstrating that the hypothecatee or the non-banking financial company is not an agent of the borrower is misconceived according to us. Clause - (d) of Sub-section 11 of Section 2 of the aforesaid act cannot be construed on the basis of any particular meaning attributed to any particular word by any statute. The words on the contrary have to be construed in the ordinary sense since the act itself has not defined the meaning of those words. Therefore, the ordinary dictionary meaning has to be applied. Admittedly, both the bank and the non-banking financial corporations have obtained irrevocable Power of Attorney from the borrowers. It would appear from paragraph 11 of the written notes that such Power of Attorney has been obtained for the purpose of selling the vehicles. The meaning of the expression 'Power of Attorney' as per Oxford Dictionary is as follows:-
"the authority to act for another person in legal or financial matters".
There is, thus no scope to entertain any doubt as regards the fact that the petitioners have themselves reduced their position to that of an agent. When they are acting on the basis of Power of Attorney it cannot lie in their mouth to say that they are not the agents of the borrowers. We are, however, conscious of the fact that the lenders in exercise of their right as the hypothecatees sell the vehicles for the purpose of realization of their dues. But an element of agency is certainly involved in the facts of the case. An element of trust is also involved therein. An agent is a constructive trustee. Any amount received in excess of the dues of the agent has to be held by him for the benefit of the borrower. In the exercise of his right he has to take care to sell the vehicle at a fair price. Therefore, he stands, it may be argued, in a fiduciary relationship with the borrower when he exercises his right to sell the vehicle.
The word 'mercantile agent' has been used in Clause - (d) in an ordinary sense of the term. The word 'mercantile' according to Oxford Dictionary means 'relating to trade or commerce'. Therefore, the word 'mercantile agent' cannot but be construed to mean an agent relating to trade or commerce. We do not think, it can seriously be contended that the lenders in this case obtained the Power of Attorney for the purpose of an agency not related to trade or commerce. The word 'mercantile agent' has been succeeded in Clause - (d) by the expression 'by whatever name called'.
The hypothecatees indisputably have a greater right to sell the vehicle than the right of a mere agent. But the fact that the lender in this case is also an agent cannot be denied considering the facts and circumstances of the case and the submission contained in paragraph 11 that "the sales of the vehicles were arranged on the strength and authority derived from the hypothecation agreement and the irrevocable Power of Attorney executed by the borrower".
We are, as such of the opinion that the laborious submissions to contend that the petitioners are not the agents, cannot be accepted. In the case of State of West Bengal -v- O. P. Lodha reported in 105 Sales Tax Cases 561, the Apex Court considered the definition of the word 'dealer' appearing from the Bengal Finance Sales Tax Act, 1941 which was as follows:-
" 'dealer' means any person who carries on the business of selling goods in West Bengal or of purchasing goods in West Bengal or of purchasing goods in West Bengal in specified circumstances or any person making a sale under Section 6D and includes the Central or a State Government, a local authority, a statutory body, a trust or other body corporate which, or a liquidtor or receiver appointed by a court in respect of a person defined as a dealer under this clause who, whether or not in the course of business sells, supplies or distributes directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable consideration.
Explanation 1. - A co-operative society or a club or any association which sells goods to its members is a dealer.
Explanation 2. - A factor, a broker, a commission agent, a del credere agent, an auctioneer, an agent for handling or transporting of goods or handling of document of title to goods or any other mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who carries on the business of selling goods and who has, in the customary course of business, authority to sell goods belonging to principals is a dealer."
From a comparison of the definition of the word 'dealer' from the aforesaid act and the Bengal Finance Sales Tax Act 1941 it would appear that the definition appearing in the aforesaid act is substantially the same. Their Lordships in paragraph 8 of the judgment opined as follows:-
"In my judgment, the scheme of the Act leaves no room for doubt that an agent who sells goods on behalf of somebody else cannot escape the liability to pay sales tax on the sales made by him for and on behalf of others merely because, he was selling goods on behalf of others. The charge under section 6B has been imposed directly upon him by the broad definition of "dealer".
We agree with Mr. Khaitan that the judgement in the case of Federal Bank Limited -v- State of Kerala reported in (2007) 6 VST 736 (SC) and the judgement in the case of Government of Andhra Pradesh -v- Corporation Bank reported in (2007) 6 VST 755 (SC) may be distinguishible but that does not make any difference. In the case of Federal bank Ltd., Their Lordships opined that "The sale of pledged ornaments falls within the course of Banking business under the 1949 Act." This finding was used by the Tribunal in the impugned judgment. We have indicated our reasons why the submissions advanced by Mr. Khaitan cannot be upheld. The conclusion arrived at by the learned Tribunal is, according to us, unexceptionable and is therefore affirmed by us.
In the result the petitions are dismissed.
Parties shall however, bear their own costs.
[ (GIRISH CHANDRA GUPTA, J.) (TARUN KUMAR DAS, J.) LATER:
W. P. T. T. 24 of 2010 Mrs. Nilanjana Banerjee Pal, Adv.
.............For the Petitioner.
Prayer for stay made by the learned Counsel for the petitioner is considered and rejected.
(GIRISH CHANDRA GUPTA, J.) (TARUN KUMAR DAS, J.)