Karnataka High Court
Syndicate Bank vs Commercial Tax Officer And Others on 18 January, 1995
Equivalent citations: ILR1995KAR1753
Author: Tirath S. Thakur
Bench: Tirath S. Thakur
JUDGMENT Tirath S. Thakur, J.
1. The petitioner is a nationalised bank who appears to have extended certain facility to a company by name M/s. Gladstone Lyall & Co. Ltd. Certain agreements are said to have been executed between the petitioner and the said company, whereunder certain goods like movables, plant and machinery have been hypothecated in favour of the petitioner-bank. The hypothecated plant and machinery were liable to be sold by the petitioner-bank in the event of a default in payment by the borrowing company. The borrower appears to have committed such a default, with the result that in exercise of the powers available to it under the hypothecation agreement in question, the petitioner-bank sold by auction the goods hypothecated with it. While these goods were yet to be moved outside the State of Karnataka by the purchaser, the Commercial Tax Officer (Intelligence), Check-Post, Mangalore and the Deputy Commissioner of Commercial Taxes, Mangalore Division, Mangalore, issued notices annexures B, C and D to the writ petition dated April 11, 1989 and July 21, 1989, calling upon the petitioner not to deliver the goods sold by it to the purchasers till such time the sales tax liability on the same was determined and cleared under the Act. Aggrieved by this notice, the petitioner has come up to this Court in the present writ petition for a writ of certiorari quashing the same.
2. The petitioner's case is that the respondents are in error in treating the petitioner to be a "dealer" within the meaning of the Karnataka Sales Tax Act, 1957.
3. I have heard Sri Ramabadran, learned counsel appearing for petitioner and the Government Advocate for the respondents.
4. The question urged in this petition is in my opinion squarely covered by two judgments of this Court in United India Insurance Co. Ltd. v. Commissioner of Commercial Taxes and Karnataka Pawn Brokers' Association (Regd.) v. State of Karnataka . In the first of these cases, the question that arose for consideration was whether by reason of an insurance company selling salvaged goods, it could be treated to be a "dealer" within the meaning of the Karnataka Sales Tax Act. The insurance company had argued that since the company was not actually engaged in the activity of purchase or sale of any goods and was concerned only with carrying on insurance business, therefore the question of it being treated as carrying on any business of sale and purchase of the goods did not arise. This Court however repelled the argument relying upon a judgment of the apex Court in Member, Board of Revenue, West Bengal v. Controller of Stores, Eastern Railway, Calcutta . This Court held that selling of goods by the appellant-insurance company was incidental or ancillary to the main business of insurance carried on by it and therefore the appellant-company was a 'dealer' for the purpose of the Act, which expression included even a casual trader carrying on a business activity. While holding so this Court dissented from the decisions of the Allahabad and Madras High Courts cited before it and observed that the said decisions in so far as the same ran counter to the view taken by the apex Court, were not binding. Relying upon the definition of the term "business" as given by section 2(1)(f-2) of the Karnataka Sales Tax Act, this Court held that any transaction in connection with, or ancillary to such trade, commerce, manufacture, adventure or concern of the petitioner was bound to be treated to be a business.
5. In the second case, a similar question was raised by the Pawn Brokers' Association. The question was whether pawn brokers could be considered to be dealers under section 2(1)(k) of the Act. Relying upon the Division Bench judgment in United India Insurance Co. Ltd. v. Commissioner of Commercial Taxes and the apex Court judgment in District Controller of Stores, Northern Railway v. Assistant Commercial Taxation Officer [1976] 37 STC 423, this Court held thus :
"....... At this stage, we may also even point out that it is the established position of law that a pawnbroker has an implied authority to sell as pointed out in (Lallan Prasad v. Rahmat Ali). Therefore, it is clear that the business of a pawnbroker carries with it regular activity of sale of pledged or pawned articles for a sum exceeding Rs. 10 for recovery of the amount due under the pawn ticket in case the pawner does not pay the amount within the time. We are aware that it is possible to argue that the activity of sale involved is only incidental to the main business of taking goods and chattels in pawn for loan. However, as pointed out in Member, Board of revenue, West Bengal v. Controller of Stores, Eastern Railway , every activity which may be regarded as necessarily incidental or ancillary to the business also constitutes business. This is also clear from the definition of the term 'business' contained in section 2(1)(f-2) of the Act which reads thus :
'business' includes -
(i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and
(ii) any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern.
Therefore, it is clear that the sale of pledged or pawned articles, value of which is more than Rs. 10 becomes incidental or ancillary to the business of a pawnbroker and as such the sale and purchase also becomes his business, because, the Pawn Brokers Act and the Rules framed thereunder permit a 'pawnee' to purchase the pawned article. Similar proposition has been laid down in the aforesaid case reported in [1989] 74 STC 5 (Member, Board of Revenue v. Controller of Stores, Eastern Railway). To the same effect are the decisions in United India Insurance Co. Ltd. v. Commissioner of Commercial Taxes , District Controller of Stores, Northern Railway v. Assistant Commercial Taxation Officer , Bagal Kot Cement Co. v. State of Mysore and in Braemore Estates Ltd. v. State of Kerala ."
Mr. Ramabadran, learned counsel appearing for the petitioner however argued that section 8 of the Banking Companies Regulation Act, 1949, contained a specific prohibition against the petitioner-bank carrying on any trading activity. He urged that in the face of the said statutory bar, the petitioner cannot be deemed to be engaged in any trading activity so as to make it a dealer within the meaning of the said term under the Karnataka Sales Tax Act. Section 8 of the said Act reads thus :
"Section 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 aforesaid which was in the course of being transacted on the commencement of this Act. So, however, that the said business shall be completed before the expiry of one year from such commencement."
A plain reading of the above provision makes it clear that while there is a general prohibition against the petitioner-company carrying on any activity by way of buying or selling or bartering of goods, there is an exception in so far as any such activity is connected with the realisation of any security given to a banking company or otherwise held by it. In other words, while there may be a general prohibition against any trading activity being undertaken by a banking company, such a prohibition does not forbid the banking company, from undertaking such an activity if it relates to or is in connection with the realisation of the securities given to it. In the instant case, it is not in dispute that the sale effected by the petitioner was for realisation of the securities provided to it and therefore such an activity is clearly outside the prohibition contained in section 8 (supra). In that view of the matter, therefore there is no distinction between the petitioner's case and the case of the Insurance Company or the Pawn Brokers, both of which activities were held to be trading activities, bringing them within the definition of the term "dealer", under the Sales Tax Act.
In the result, I do not find any error of law or jurisdiction in the notices impugned so as to warrant interference with the same. The writ petition fails and is accordingly dismissed but in the circumstances of the case without any orders as to costs.
6. Writ petition dismissed.